Contemporary Financial & Integrated Reporting

Contemporary Financial & Integrated Reporting
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Core Business of the Company
Rio Tinto is recognized to be a leading global mining and metal company that is actively
involved in exploration and processing of the mineral resources of the earth. The company is
mainly of Australian origin and is recognized to be one of the largest metal and mining
companies across the world. The company has dual listing on the New York Stock Exchange as
well as ASX and the two companies carry out their operations a s a single economic entity. The
company is mainly involved in processing of mineral resources such as aluminum, copper,
diamond, gold and other industrial minerals. The company conducts its operations by its
following business segments, that are, iron ore, aluminum, copper and diamonds, energy and
minerals and other operations (Rio Tinto: Our Business, 2018).
On the other hand, BHP Billiton, that is recognized to be the major competitor of Rio
Tinto that is also an Anglo-Australian mining company operating at a global scale. The company
also possesses a dual-listed structure and is also involved n exploration and processing of various
commodities such as iron ore, coal, copper and uranium. The major business segments of the
company include petroleum, copper, iron ore and coal (BHP Billiton: Our Business, 2018).
Industry of Selected Company
Rio Tinto operates within the mineral industry similarly to that of BHP Billiton. The
mining sector contributes largely to promoting the GDP growth of Australia and is estimated that
account for about 69% of the nation’s exports. The growth of the industry has been declined in
the past but is expected to depict growth in the future context. It has been predicted by the
forecasters for mining that the production of mining is expected to growth in the coming years
with strong investment and increase in the production efficiency (The changing face of mining
jobs in Australia, 2019). As such, both Rio Tinto and its competitor BHP Billiton are expected
to depict improved financial growth and productivity in the coming period and delivering higher
performance (Fridson, 2011).
Type of Funding of Rio Tinto & Analysis of its Financial Structure
It can be stated from analyzing the annual report of the company that Rio Tinto is funded
both by external and internal sources of finance. The internal sources of finance include reserves
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and retained earnings while external sources include share capital, borrowings and other
financial liabilities (Rio Tinto: Annual Report, 2018). The financial structure includes
examination of the debt to equity resources possessed by the company that can be analyzed by
the calculation of debt to equity ratio:
Debt-Equity Ratio: Debt/Equity
Debt-Equity Ratio=41,126/49,823
Debt-Equity Ratio=0.83
On the other hand, BHP Billiton has also adopted the use of internal as well as external
sources of finance in its capital structure. The internal sources include reserves and retained
earnings while external source include debt, share capital, treasury shares (BHP Billiton: Annual
Report, 2018). The debt-equity ratio of the company is calculated as follows:
Debt-Equity Ratio=51323/60670
Debt-Equity Ratio=0.84
Thus, it can be said from the analysis of debt-equity ratio calculated for both the
companies that the ratio of debt possessed in relation to equity is similar and they are
incorporating less debt in their capital structure as compared with equity resources (Gibson,
2008).
Key elements of financial performance reported in the Director’s report
As analyzed from the director’s report of Rio Tinto, the company has realized enhanced
earnings during the financial year 2018 of $8.8 billion as compared with that of the financial year
2017 of $8.6 billion. The company has provided the highest returns to the shareholders in its
history of $13.5 billion. This is supported by improved sales revenue and EBITDA of the
company due to growth realized in its key commodity segments. The company’s balance sheet
has also remained strong with depiction of reduction in the net debt by $14.1 billion and also
delivered an increment of $0.6 billion in free cash flow in the year 2019 (Rio Tinto: Annual
Report, 2018).
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