BHP vs Rio: Financial Analysis and Investment Comparison

FINANCE

BHP vs Rio
Executive Summary
Investment in a company or a rival company is a difficult task however with the aid of
financial analysis it can be done with ease. Ratio analysis and other parameters help in
providing a strong answer to the fact that whether the company is feasible to be invested in.
In this report, two giants in the field of minerals and mining that is Rio and BHP is selected.
The report initiates with the introduction and the operating model. It is then followed by the
ratios comparison of both the companies. The beta values of both the companies are
computed and the dividend policy has been highlighted so as to make the appropriate
decision.
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BHP vs Rio
Contents
Introduction...........................................................................................................................................2
1. Comparative advantage and operation model..............................................................................3
2. Computation of performance ratios..............................................................................................5
• Liquidity ratios...............................................................................................................................5
 Profitability ratios..........................................................................................................................7
 Solvency ratio................................................................................................................................8
3. Share price movements.................................................................................................................9
4. Factors that influenced the share price.......................................................................................11
5. Calculation of beta and value......................................................................................................12
6. Dividend policy of the companies................................................................................................12
Recommendation................................................................................................................................13
Conclusion...........................................................................................................................................13
References...........................................................................................................................................14
Appendix.............................................................................................................................................16
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BHP vs Rio
Introduction
Rio Tinto is the largest mining organizations in the world and it has been established in the
year 1962. Furthermore, the company intends to provide its users with effective returns
through an appropriate portfolio. Moreover, it is made of several segments such as aluminum,
iron ore, diamond, minerals, and copper that assists it to exert its affairs globally across
various countries. This has been possible with the prevalence of sixty thousand people
operating in the organization. Nevertheless, accounting for the initial stages, Rio Tinto firstly
entered the industry as a single entity but thereafter, it changed its perspectives and theories
to become a company dually listed in nature (Rio Tinto, 2017). Moreover, the significant
areas of company’s functioning are primarily concentrated upon Canada and Australia.
Lastly, the entire business affairs of the company are operated through partly or wholly-
owned subsidiaries. Nonetheless, Rio has also been listed on the ASX and London Stock
Exchange that assists it in the fulfillment of prime objectives.
On the other hand, BHP Billiton is a pioneer in the field of metal, mining, and petroleum. The
company is dually listed with two parent companies that run on its own. The major advantage
that the business carries is the management and the Board function. Further, BHP strives to
enhance the value of the shareholder through the process of marketing, discovery and
increasing the natural resources (BHP Billiton, 2017). The formidable strategies help the
business to flourish and ensure the protection of the environment.
1. Comparative advantage and operation model
It is beneficial for the Australian government to keep charging taxes to the operations which
are of a global standard because this will increase the stakes for the same. BHP Billiton has
been seen to work on the same standards which are like exploring, mining, drilling,
extracting, processing, shipping as also marketing. It is seen that the company has been
paying the taxes from the profits division which have been generated due to the trade in
Australia. The company has also been making amounts from Singapore due to a 400-strong
marketing team which is gathered there for an operation like customer sales, freight, credit
risk and forecasting which are related to iron ore (BHP Billiton, 2017). Cleverly the team has
been set up in Asia which makes its closer to the main marketing customers like China,
Japan, and South Korea. Application of the taxes is a very important topic and has been seen
to always fall in Australia’s favor. BHP Billiton has been seen to play it fair and honest for
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