Finance for Masters: Analysis of BHP Billiton and Rio Tinto

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Finance

FINANCE FOR MASTERS 1
Table of Contents
Introduction................................................................................................................................2
Operation and comparative advantages.....................................................................................2
BHP Billiton...........................................................................................................................2
Rio Tinto.................................................................................................................................2
Calculation of the performance ratios........................................................................................2
Profitability ratios...................................................................................................................3
Return on Assets.....................................................................................................................4
Return on Equity.....................................................................................................................5
Capital structure (leverage) ratios..........................................................................................5
Debt to Equity Ratio...............................................................................................................5
Interest Coverage Ratio..........................................................................................................6
Liquidity ratios.......................................................................................................................6
Current Ratio..........................................................................................................................7
Quick ratio..............................................................................................................................7
Share prices movements.............................................................................................................7
BHP Billiton...........................................................................................................................7
Rio Tinto.................................................................................................................................8
Factors affecting the share price................................................................................................9
BHP Billiton...........................................................................................................................9
Rio Tinto Limited...................................................................................................................9

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Beta values.................................................................................................................................9
Dividend policies.....................................................................................................................10
Recommendation letter............................................................................................................11
Conclusion................................................................................................................................11
References................................................................................................................................12

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Introduction
The users of the financial statements are the management and the investors and in order to
fulfil the needs of the both the users the financial the statements shall be core accuracy. The
analysis of the financial statements is the most useful information which is beneficial if
comparison is made either against the years or against the company in the same industry. In
order to make the investment and the proposals in this report the proper analysis of the price
movements of the company have been disclosed the policy of the dividend as well. The
companies chosen for the purpose of the comparison is BHP Billiton and Rio Tinto (Gitman,
Juchau and Flanagan, 2015).
Operation and comparative advantages
BHP Billiton
BHP billiton known for the acquisition of the natural resources is the renowned company
registered under the Corporation Act 2001. The company is the Anglo-Australian
multinational corporation whose headquarters are presently in Melbourne. The company is
also involved in the business of the mining and petroleum. The company was founded in on
29th September 1860 and the primary role of the company is to acquire the natural resources.
On the basis of the market share and the market capitalisation the company came on the first
position as the largest mining company. BHP is listed on the London Stock Exchange and the
Australian Stock Exchange as well. There are almost 650 corporations and in the present
scenario the company is performing in more than 100 countries. The dividends listed by the
company for the shareholders are 118 US Cents and at the same time the earnings per share
of the company is more than 69.9 US cents.

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Rio Tinto
Rio Tinto on the contrary is the Anglo Australian Multinational and belongs to the largest
mining and the metal corporation. The company came into existence a bit later than the BHP
Billiton and came into the year 1873. The progress of the company was seen when the
multinational company consortium of the investors purchased a mine complex, in Huelva
Spain. Moreover the company has evolved through lot of the acquisitions and the mergers to
bring the company into the respectable position in front of the competitors. The company
deals in the production of many commodities such as aluminium, iron ore, uranium, copper
and the diamonds. Thought the company has wide range operations yet the central idea
remains within the Australia and Canada. The current revenue of the Rio Tinto is US$40.30
billion with the team of the 50000 employees. The key people associated with the company
are Simon Thompson at the position of Simon Thompson and Jean-Sebastien Jacques at the
position of CEO.
Calculation of the performance ratios
Financial ratios are the key measures that are relative with the magnitude of comparing the
two figures either on the basis of the years or either on the basis of the industry benchmarks.
There are many ratios that are used to analyse the position or the health of the business.
Further the ratios that are calculated are liquidity ratios, profitability ratios, turnover ratios.
Such tool helps in getting the comparison data and if there are any loopholes the same can be
found out using the analysis of the ratios (Faello, 2015).
Profitability ratios
The profitability ratios of the company are the ratios which are calculated by the company in
order to cater the needs of the financial statements. Profitability ratios are the class of the
financial metrics which assess the position of the business to generate the relative amount of

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the earnings against the associated expenses. A higher ratio or the value commonly suggests
that the company is generating the enough revenue to pay back the expenses and also to
provide the share to the shareholders from the earnings. Therefore the shareholders are
mostly interested in the financial statements of the company (DeFusco, et al 2015).
Calculation of
ratios
BHP
Billito
n
2016 2017 2018
Profitability
Ratios
Return on total assets
EBIT 6.48% -6.13% 8.84%
Total Assets
Rate of return on ordinary equity
Net income - preferred
dividends 1.47% -5.88% 5.14%
Average ordinary shareholders equity
Net profit margin
Net profit 4.28% -20.66% 15.38%
Sales
The net profit margin of the company aims at determining how well the companies are
operating at after the payment of the expenses and what all necessary funds are required to
pay back the contractual obligations of the company (Qian, 2017).