Capital Structure and Investment Appraisal of Rio Tinto

July 2nd, 2018

REPORT 1
Executive Summary
The company selected for the report is Rio Tinto. The company operates in the metal
mining sector with its dual head offices at UK and Australia, the shares being also dually
listed on the London Stock Exchange and the Australian Stock Exchange. The report is a
critical assessment of the capital structure of the company, the various sources of finance, and
a discussion on the various methods of capital appraisal utilized by the entities in order to
make the capital expenditure successful. The assessment is based on the figures provided in
the latest consolidated balance sheet of the year ended on 31st December 2017. The balance
sheet of the company shows strong position with an improvement in the capital-gearing ratio
of the company as compared to the previous year; the same has been depicted by computing
the related calculations.

REPORT 2
Table of contents
Introduction................................................................................................................................3
Analysis of capital structure.......................................................................................................3
Assessment of sources of finance..............................................................................................4
Methods of capital investment appraisal....................................................................................5
Net Present Value (NPV).......................................................................................................5
Profitability Index (PI)...........................................................................................................6
Internal Rate of Return (IRR).................................................................................................6
Accounting Rate of Return (ARR).........................................................................................7
Pay Back Period.....................................................................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9
Appendix..................................................................................................................................11

REPORT 3
Introduction
Rio Tinto is one among the companies engaged in mineral and metal mining industry
and is regarded as one of the world’s largest conglomerate, the chief mined commodities
being copper, aluminium, iron ore, uranium, coal and diamonds. The company has dual head
offices in UK and Australia (Rio Tinto, 2018a). The company operates in the UK as Rio
Tinto plc, the shares of which are listed at the London Stock exchange where it is a part of the
FTSE 100 Index, and as Rio Tinto Limited in Australia, the shares of which are traded at the
Australian Securities Exchange. The capital structure analysis of the company Rio Tinto is as
follows.
Analysis of capital structure
The number of the ordinary total issued and the paid-up shares on the 31st December
2017, the company Rio Tinto plc were 1351.609 million (Rio Tinto, 2018b). The amount of
share capital as on that date was US $ 220 million. Out of which the shares held by the public
are 1342.058 million and the shares held in the treasury are 9.551 million (Rio Tinto, 2018b).
There are three other classes of the shares i.e. firstly the Special Voting Right Share, DLC
Dividend Share, and Equalisation Share. A brief analysis of the various types of the
consolidated reserves and the retained earnings of the company is as follows. There are five
categories of the reserves namely the capital redemption reserve, foreign currency translation
reserve, hedging reserves, sale revaluation reserves, and the cumulative other reserves. The
balance in the Capital redemption reserve as on 31st December 2017 was US $ 38 million.
The balance in the Hedging reserves as at the end of the financial year 2017 was US $ 32
million and the balance of the sale revaluation reserves after all the adjustments was US $ 20
million. The balances of the Foreign currency translation reserve and the cumulative other