Ratio Analysis for Rio Tinto and BHP Billiton

Running head: RATIO ANALYSIS
Ratio Analysis
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1RATIO ANALYSIS
Table of Contents
Introduction:...............................................................................................................................2
Liquidity ratios:..........................................................................................................................2
Current Ratio:.........................................................................................................................2
Quick Ratio:...........................................................................................................................3
Solvency ratio:...........................................................................................................................4
Debt Ratio:.............................................................................................................................4
Debt to Equity Ratio:.............................................................................................................5
Efficiency Ratio:........................................................................................................................6
Inventory Turnover Ratio:......................................................................................................6
Total Asset Turnover:............................................................................................................7
Profitability ratio:.......................................................................................................................8
Net Profit Margin:..................................................................................................................9
Return on Assets:...................................................................................................................9
Conclusion:..............................................................................................................................10
Reference List:.........................................................................................................................12
Appendix:.................................................................................................................................13

2RATIO ANALYSIS
Introduction:
The current report is based on the analysis of the ratio for RIO Tinto and BHP
Billiton. The ratios will be based on the areas of profitability, solvency, liquidity and
efficiency ratio. Figures extracted are from the annual published statements of the respective
companies.
Liquidity ratios:
Liquidity ratio can be defined as the ratio that is used to determine the ability of the
company in meeting its ability to pay debt (Gitman et al., 2015).
Current Ratio:
The current ratio is generally used to determine the ability of the company in paying
back its liabilities with the assets (Henderson et al., 2015).
As evident the current ratio for Rio Tinto has represented a rising trend as the
company in the year 2012 reported current ratio of 1.42 whereas in the year 2017 the current
increased to 1.71 representing that Rio Tinto has been utilizing its assets to meet its debt
obligations. Rio Tinto on the other hand reported a strong set of results with higher operating
cash flow of US $13.9 billion and reflected a robust operational performance.
BHP Billiton in 2012 reported a current ratio of 0.93 however over the span of six
years the current ratio stood strongly to 1.85. This provides an overview that BHP Billiton
has been able to pay its liabilities. The company posted a strong financial results with positive
operating cash flow of US $12.6 billion.

3RATIO ANALYSIS
2012 2013 2014 2015 2016 2017
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
1.42 1.45
1.68
1.55 1.61 1.71
0.93 0.97
1.23 1.27
1.44
1.85
Current Ratio
Rio Tinto BHP
Figure 1: Figure representing Current Ratio
(Source: As Created by Author)
Quick Ratio:
Quick ratio determines how well the company measures the short term financial
liabilities (Narayanaswamy, 2017).
Accordingly, the quick ratio for Rio Tinto in 2012 stood 0.96 which subsequently
increased to 1.32 in 2014. Though the quick ratio declined in 2016 to 1.27 however in 2017
the quick ratio increased to 1.37. This reflects that the company has sufficient assets to meet
its short term obligations. The reason for increase in quick ratio is primarily because of strong
underlying EBITDA of US $18.6 billion and with a ten year record margin of 44% in 2017.
BHP reported a quick ratio of 0.91 in 2012 which increased over the span of five
years to 1.76. BHP reported a higher quick ratio than Rio Tinto as the company has better
managed to assets to pay short term obligations. The reason for rise in quick ratio is primarily
because of $12.6 billion cash demonstrating a continued progress in both the productivity and
efficiency.