Financial Evaluation of Rio Tinto for Arden Fund Investors

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Corporate Performance Report of Rio Tinto

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Executive Summary
The present report is developed for carrying out financial evaluation of Rio Tinto to
determine its prospects of future growth and development. This is mainly carried out for guiding
the decision of Arden Fund investors who want to invest in the company. As such, the report has
incorporated the use of ratio analysis for determining the profitability, liquidity, leverage and
earning potential of the company to identify the potential risk and issues in advance. It has been
identified through the use of financial analysis that there is significant risk of generating good
profits for the shareholders within the company. Thus, it has been recommended to the investors
for analyzing the future performance of the company for the coming period of time before
investing within the company.

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Contents
Executive Summary.........................................................................................................................2
1.0: Answer 1: Financial Report of Rio Tinto.................................................................................4
2.0: Introduction.............................................................................................................................4
3.0: Understanding the meaning of the financial statement analysis...............................................4
4.0: Factors that influences the making of investment decision......................................................4
5.0: Analysis of financial statements of Rio Tinto..........................................................................5
5.1: Ratio Analysis...........................................................................................................................5
Financial Data of Rio Tinto.............................................................................................................5
Profitability Analysis.......................................................................................................................6
Liquidity Analysis...........................................................................................................................8
Financial Leverage Analysis............................................................................................................9
Efficiency Analysis........................................................................................................................11
5.2: Earnings Analysis...................................................................................................................12
6.0: Potential Risks or Potential Issues..........................................................................................12
7.0: Conclusion..............................................................................................................................13
8.0: Solution 2: Analysis of financial report produced in question 1 through using corporate
accounting principles.....................................................................................................................14
9.0: Solution 3: Reflective Statement Commenting on the Effectiveness of the Process from
Questions 1 and 2...........................................................................................................................16
10.0: References............................................................................................................................18

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1.0: Answer 1: Financial Report of Rio Tinto
2.0: Introduction
The analysis of internal and external performance of a firm is very important for
assessing its present and future potential of growth. This forms the basis for decision-making
process of investors for their investment decisions. In this context, the present report is
developed for assessing the internal as well as external performance of Rio Tinto, an Australian
multinational metals and mining company established in the year 1873 and headquartered within
the UK. This is mainly done for guiding the decision-making process of Arden Fund, a collection
of ethical investors interested in buying a significant volume of shares in Rio Tinto Plc. The
external performance of the firm is evaluated in the report through the use of financial analysis
that is through the technique of ratio analysis. The internal performance is evaluated by assessing
the effectiveness of its internal processes as analyzed on the basis of the results of its financial
analysis.
3.0: Understanding the meaning of the financial statement analysis
The financial statements can be defined as the summary of the operating, financing and
investment activities of a business. The financial statement analysis can be described as the
process of reviewing and analyzing the financial performance of a company through evaluation
of its financial reports. It intends to examine the past and current financial data for assessing its
present and future growth potential. The most important benefit of financial statement analysis is
to provide idea to the investors for guiding their investment decisions by prediction of a
company future financial performance. The main type of financial statements that are developed
by a business entity for disclosing the financial performances to the external stakeholders are
equity statement, income statement, balance sheet and statement of cash flow. Equity statement
reflects the part of the value of a firm that is owned by the creditors whereas income statement
reflects a summary of the revenue and expenses. Balance sheet depicts the summary of assets,
liabilities and equity while cash flow statement depicts the summary of cash flows over a period
of time. The analysis of all these financial statement determines a firm internal strength and
weakness and established its future strategic direction by developing of possible measures to
overcome its weakness.
4.0: Factors that influences the making of investment decision
Financial ratio analysis can be regarded as the most important tool for financial analysis
that guides the decision-making process of investors. Ratio analysis proves to be most
appropriate for evaluation of the various aspects of a company’s performance that are, efficiency,
liquidly, profitability and solvency. The Arden Fund Investors through the use of technique of