Assignment Sample on FINM008 Corporate Reporting

Introduction

Corporate Reporting is the process of presentation and disclosure of various aspects of business such as Corporate Governance, reporting or integrated, and Financial Reporting (Unerman et. al. 2018). The report has been prepared to understand the firm’s financial performance and financial health – Berry Global International Holdings Limited, which is a UK-based firm. There are instances of the financial reporting of various business aspects and the understanding levels of the compliances with the IFRS.

IFRS are the principles of accounting practices that establish a joint accounting base for similar kinds of firms in an industry. IFRS compliance is necessary for the purpose of establishing a recognised structure internationally (De George et. al. 2016). The users of the financial information and the potential investors in the firm can get a cohesive view of the firm’s finances. The report also undertakes the ratio analysis and the cash flow analysis, which reveal the firm’s financial health.

Organisational Overview

Berry Global International Holdings Limited is a manufacturer and marketer of the plastic products at the international level. The firm was earlier known as Berry Plastics but has changed its name to Berry Global International Holdings Limited in 2017. The firm follows a divisional structure that has been efficient in three sectors that are listed:

• Consumer Packaging
• Health, Hygiene, and Specialty goods
• Engineered Materials

The firm’s consumer base is enormous, and the clients are giant, including the organisations like  Nestle, Coca-Cola, Wal-Mart, McDonald’s, Burger King,  Procter & Gamble, and many more. The organisation has a great history (Berry Group, 2021). The current acquisition in the market was reported in the year July 2019 where the firm acquired RPC Group for a value of $6.5 billion. Berry is considered a global leader in packaging and protection solutions. The firm has employed around employees and has been conducting operations in more than 295 locations. Several brands are covered under its portfolio like Agribon, Chicopee, Covertan, colour scents and many more.

Financial Statements Analysis

Financial statements are the records of the financial position of the assets and liabilities, income and expenditures that may occur in a specified period. These include the balance sheet, income statement and cash flow statement (Lessambo, 2018). The financial highlights for the firm have been extracted from the annual report, and the details have been given as:

• The operating income in the firm experienced a rise of around 21 per cent, valued at 1197 Million dollars in 2020 from 974 Million dollars in the year 2019.
• TheEarnings before interest and taxhave also seen a hike from1530 Million dollars to 2157Million dollars.
• The revenue generated from the sales was merely 8878 Million Dollars in the year 2019, while the pandemic year did not adversely impact the revenue generation capability of the firm.

Another kind of firm seems to be drastically losing revenue and profitability during the pandemic. Still, Berry Global has maintained its status and has not fallen from the previous records. The rise in the profitability and sales depict effective management.

The firm has been indulged in the Research and development which has cost off $79 million and $50 million in the year 2019 and 2020. Such efforts by the Berry Group promote innovation in the firm and make it the global leader in numerous sectors.

Compliance with IFRS

International Financial Reporting Standards are the accounting standards that describe an effective way of presenting the financial performance of any firm. IFRS is adopted in more than countries in the world. The IFRS requirements for financial statements consist of the following reports:

• Statement of financial position(balance sheet)
• Statement of comprehensive income.
• Notice of changes in equity
• Statement of cash flows
• Notes to accounts

Berry Group Annual Reports have complied with all the reporting requirements and effectively presented all such reports. IFRS require the faithful presentation of the transactions within a frequency of a year. The three examples of the compliance can be expressed as:

IFRS 16 in Berry Group

IFRS 16 deals in the Lease Accounting. The aim of the IFRS 16 is to be revealing the information regarding:

• Representation of lease transactions.
• Ascertainment of the cash flow arising from the lease transactions (Amount, timing and transactions of cash rising from the leases).

The IFRS governing the leases has been clarifying the conditions that the firm has been leasing certain facilities such as the office space, manufacturing and office equipment, automobiles and even warehouses (Sacarin, 2017). There has been a bifurcation of the finance lease, and the operating lease has been made in the report with the following figures:

An operating lease is a kind of rental agreement for the lessee while the finance lease transfers the risk of ownership, but the legal right is not shared. The commonality in the both kind of leasing agreements is the authority to use the equipment (Giner and Pardo, 2018). The detailed analysis of the lease accounting reveals the cost of the lease for Berry Group in 2020. The cost of the operating lease has amounted to 120 Million Dollars, while the amortisation cost of the finance lease has been estimated as 24 Million Dollars. Interest is to be paid by the lessee in the lease duration, which has amounted to a value of 3 Million Dollars. The total Lease cost for the current year is 174 Million Dollars from an overall value of 570 Million Dollars estimated for the five years duration.

There is no disclosure of the short term leases, which have original lease terms of less than one year. The leases on the manufacturing facilities have the option for renewal, and there are chances of the initial lease term increasing. The new standards have provided the ascertainment of only long time leases in the balance sheet.

International Harmonisation

Harmonisation is the process of coordinating the levels of accounting standards in different countries. International Harmonisation on the reporting requirements allow the countries to be mutually coordinating on the global issues and bring convenience to invest in the multinational firms (Legenzova, 2016). Globalisation which is a process of integrating the economies require a standardised calculation of the accounting practices which does not create chaos for the investors as well the users of the financial information. It aims to bring more uniformity in the practices and policies accounted by the firm. IFRS 16 that accounts for leases would foster the assembly of the resources and the lesser and lessee relationship across the geographical boundaries.

International Harmonisation would allow the users to make the comparison and ease the challenges of the consolidation of the financial records.

Financial performance of the firm

The firm’s financial performance can be ascertained by applying tools and techniques that reflect the organisation’s financial health. The two tools used for the Berry Global are Ratio analysis and cash flow analysis in the current year.

The Ratio is the quantitative method of establishing a relationship between the different elements of the financial reports. Ratio analysis is the reflection of the four aspects of the business liquidity, solvency, profitability and capital gearing (Ramlall, 2018).

Cash Flow analysis is the study of the movement of cash and bank balances in and out of a firm in a given time. The three kinds of flows in this statement are:

• Cash Flow from operating activities
• Cash Flow from investing activities
• Cash Flow from financing activities

The negative balance of financing activities reveals that the long term liabilities have been disposed of off in the current year. In contrast, the negative balance of the investing activities has come into existence by the increased capital expenditures. There are long term borrowings that have been acquired to undertake finance of RPC acquisition.

Different kinds of profitability ratios and liquidity ratios depicting the actual situations of Berry group have been given as:

Profitability Ratios

Gross Profit Margin: It is the Ratio of gross profit earned in a year to the sales of the year. The gross profit margin for the year is 19.25 percent.

Net Profit Margin: It is the proportion of sales retained as net profit in a given period. The net profit margin for the current period has been estimated as 5.31 per cent.

Liquidity Ratio 

Current Ratio: It is the ratio of the total existing assets to the current liabilities held by the firm. The Ratio reflects the capability of the firm to cover its liabilities from the available assets. The current balance for the firm is 1.59, which is higher than 1, and is positively inclined.

Quick Ratio: Quick Ratio is also called the acid test ratio and utilises only highly liquid assets like cash and bank, debtors and others (Wijaya and Sedana, 2020). It does not include inventory and prepaid expenses for covering the current liabilities. The quick ratio for the firm is 0.99 in the current year.

Efficiency Ratio

The Ratio, which reflects the earning capability of the firm by effective utilisation of the resources and the assets, is called the efficiency ratio.

Earnings per Share: This is the earnings before the tax and interest provided to the overall shareholders in the firm. The basic EPS for the shareholders on each share held by them is estimated as 4.22 Dollars.

Return on Assets: It is the return expected by the management on the total assets employed in a firm. The revenue-generating capability of the assets is tested by this kind of Ratio. This Ratio has been valued at 4.08 for the current year.

Shareholder Reporting

The financial statements of Berry Global are sufficient enough for the existing shareholders to satisfy their understanding regarding the financial position of the firm. The reporting in the financial statements is also satisfactory with a point of view of the potential investors.  The firm has disclosed the share repurchase data for the year 2019 which has valued around d $74 million. The consolidated balance sheet and the income statement have been represented in an effective way with full disclosure on the earnings and dividends.

The company has incurred some extra charges in terms of recognised cumulative goodwill impairment charges which has been amounted to $165 million and has been disclosed to the shareholders. The stock valuation in the firm is based on the Black-Scholes option valuation model which gives the fair value of the shares. The amortisation on the fair value is to be done on the straight-line method in the given service period.

Conclusion

The report has effectively presented the current status of the Berry Group in the market. Berry Group has emerged out to be a leading firm in the industry with rule over massive customer base of around 2500 clients. The information on the IFRS compliance and details on the financial statements has revealed that Covid pandemic has not deeply affected the profitability of the firm, but there have been signals of growth prospective of the firm.

The report has effectively enhanced the advantages of the international harmonisation that would bring ease in the consolidation and comparison. There is analysis of the financial position by the ratio analysis and the cash flow analysis which would reveal the appropriate conditions existing in the financial market. The forecasting requirements by the financial evaluation would be helpful for the management to make some informed decision for the firm. There may be obstacles in the economic situations being extremely dynamic in nature. Thus, there is need for critical analysis of the financial statement.

References

Berry Group Annual Report, (2020) [Online]. Accessed Through < https://ir.berryglobal.com/static-files/5f13477f-41ce-4b6f-b3ee-ea7c52aaaad4 > Accessed on 3rd December, 2021.

Berry Group, (2021). [Online]. Accessed Through < https://www.berryglobal.com > Accessed on 3rd December, 2021.

De George, E.T., Li, X. and Shivakumar, L., (2016). A review of the IFRS adoption literature. Review of accounting studies, 21(3), pp.898-1004.

Giner, B. and Pardo, F., (2018). The value relevance of operating lease liabilities: Economic effects of IFRS 16. Australian Accounting Review, 28(4), pp.496-511.

Gluzová, T., (2015). The adoption of IFRS 10 and its impact on the scope of consolidation. Acta Academica Karviniensia, 4, pp.18-27.

Legenzova, R., (2016). A concept of accounting quality from accounting harmonisation perspective. Economics and business, 28, pp.33-37.

Lessambo, F.I., (2018). Financial Statements. Analysis and Reporting.

Ramlall, I., (2018). Tools and Techniques for Financial Stability Analysis. Emerald Group Publishing.

Sacarin, M., (2017). IFRS 16 “Leases”–consequences on the financial statements and financial indicators. The Audit Financiar journal, 15(145), pp.114-114.

Unerman, J., Bebbington, J. and O’dwyer, B., (2018). Corporate reporting and accounting for externalities. Accounting and Business Research, 48(5), pp.497-522.

Whittington, G., (2015). Fair value and IFRS. In The Routledge companion to financial accounting theory (pp. 237-255). Routledge.

Wijaya, D.P. and Sedana, I.B.P., (2020). Effects of quick ratio, return on assets and exchange rates on stock returns. Am. J. Humanities Soc. Sci. Res, 4, pp.323-329.

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