Financial Analysis of Rio Tinto Mining Company

Running head: BUSINESS FINANCE
Business Finance
Name of the Student:
Name of the University:
Author’s Note:

1BUSINESS FINANCE
Executive Summary
The aim of the assignment is to conduct a financial analysis on the Rio Tinto Mining
Company whereby several aspects of the operations and financing activities undertaken
by the company were analysed. Key financial ratios including the profitability and the
operating profitability of the company were taken into consideration. The cost of capital
was also identified for the company after identifying the various finance sources used by
the company in the books and the after implications of the same. The cost of equity for the
company was calculated with the help of the Gordon growth model by backward induction
process. Further the share price of the company was analysed for a sum of two year and
the same was compared with the All-Ordinary Index which was taken as the benchmark
index for the company. After taking various factors and conditions the financial
performance of Rio-Tinto Company was found to be improving in terms of increasing
profitability and better management of the resources by the management of the company.

2BUSINESS FINANCE
Table of Contents
Introduction............................................................................................................................3
Discussion..............................................................................................................................3
Financial Ratio....................................................................................................................3
Profitability Ratios...........................................................................................................4
Operating Efficiency Ratios............................................................................................5
Share Price Comparison....................................................................................................7
Cost of Equity.....................................................................................................................8
Capital Structure of Company............................................................................................9
Conclusion...........................................................................................................................10
Recommendations...............................................................................................................11
References...........................................................................................................................12

3BUSINESS FINANCE
Introduction
Rio Tinto an Anglo Australian Mining company which stands out to be one of the
largest metal and mining producing corporation in the world. Mining and processing
mineral resources has been the primary activity for the business. The operations of the
company is spread on a global basis whereby the variety of mining activities undertaken
by the company has made the company the third largest company in terms of revenue
generation. The stock is traded on the London Stock Exchange and as well as on the
Australian Stock Exchange. The financial analysis for the company would be conducted
with the help of the various financial analysis tools like ratio analysis and Gordon growth
model where several financial results will be analysed for the purpose of analysis. Several
business and macro-economic factors are the key factors that influences the operations of
the company. The cost of capital for the company will be determined taking up the weights
and the cost associated with each of the financing source. On the other hand the cost of
equity for the company would be determined with key inputs like the dividend paid by the
company, applicable growth rate for the company and the current share price of the
company (Dividend.com 2019). Comparing share price of the company along with the
benchmark index help us know the volatility associated with the stock and the movement
of the stock and the corresponding risk and return feature of the stock.
Discussion
Financial Ratio
The financial ratio for the company will be analysed for the company for the sum of
two year where relevant financial data for the company for the year 2017 and 2018 would
be taken into consideration for the purpose of analysis. The financial ratios that will be
evaluated for the company would be the profitability ratios and the operating profitability