Financial Analysis of Rio Tinto PLC: TSR, EVA, Valuation Ratios

Financial Analysis-Rio Tinto PLC

Executive Summary:
The assignment contains the different methods that can be used for assessing the efficiency of
the business in generating returns on the equity invested by the share holders in a business
organization. Assessing the capacity of a business in adding value to the investment of the share
holders is an important aspect of corporate finance as such assessments help the potential
investors to choose a company that posses the possible potential of generating good return over
share holders investment, In the current assignment the methods of “Total Shareholder Return”
and EVA analysis has been used for assessing the capability of the chosen organization Rio
Tinto Plc[Anglo-Australian multinational and one of the world's largest metals and mining
corporations and listed in most of the major stock exchanges of the world including LSE, NYSE]
to add value to the investment of the share holders. The methods of Net asset valuation and the
valuation ratios are being used for assessing the valuation of the chosen organization. The
discounted cash flow method with a terminal value has been used for assessing the liqui9dy
aspect of the business. All the above analysis has been done so that a guide line can be offered to
the investors regarding their investment decisions with respect to the chosen organization.

Table of Contents
Total Shareholder Return (TSR)-(2014-2018)................................................................................4
EVA analysis-5 years......................................................................................................................6
Valuation of Companies:.................................................................................................................8
Net Asset Value, NAV................................................................................................................8
Ratio comparison P/E, P/B, EV/EBITDA...................................................................................9
Discounted free cash flow consideration along with terminal value: 5years............................13
Conclusion & Recommendation:...................................................................................................15
References......................................................................................................................................16
Appendix-1:...................................................................................................................................17
Appendix-2:...................................................................................................................................19
Appendix-3....................................................................................................................................20
Appendix-4....................................................................................................................................21

Total Shareholder Return (TSR)-(2014-2018)
The “Total shareholder return (TSR) or simply total return is being used by the companies for
measuring the performance or return generated by the stocks over time. The process of
calculating the TSR includes the appreciation in share prices and dividend payment made by the
business for the period under consideration. The method expresses the total return earned by the
share holders in an annual percentage format.
The basic assumption of this model is that the payment of dividend and purchasing of shares
causes appreciation in the share prices and which ultimately leads to the increase in shareholder’s
return (Miller et al., 2011)
Year 2014 2015 2016 2017 2018
GBP GBP GBP GBP GBP
52 weeks high (Rio
tinto, 2018) 3200 3280 3340.5 3942 4541
52 weeks low
(Riotinto, 2018) 2600 1843 1557 2882.5 3460.5
Final annual
dividend paid per
share (Rio tinto,
2018) 0.6582 0.7798 0.7421
0.1005
6 1.2943
Annual
TSR[TSR=[Share-
Price-end - Share-
Price-begin+
dividend paid per
share]/ Share-
Price-begin] 23% 78% 115% 37% 31%

Average TSR for a
5 years period 57%
23%
78%
115%
37% 31%
0%
20%
40%
60%
80%
100%
120%
140%
2014 2015 2016 2017 2018
Annual Total Shareholder Return
Annual Total
Shareholder Return
Assumptions:
Here it has been assumed that
Share price at the beginning (Share-Price-begin) = 52 weeks high price
Share price at the end (Share-Price-end) = 52 weeks low price
For the purpose of calculation share prices of the chosen business for 2014-2018 has been
used
From the above calculation it can be seen that during the past 5 years period of 2014-2018 the
business has managed to offer a growing return from 2014-2016. But from 2016 onwards a steep
decline in the total share holder’s return can be observed.

On an average during the 5 years period the shareholders of the business has earned a Total share
holder return of 57%
EVA analysis-5 years
Economic Value Added (EVA) or Economic Profit is a measure that is used for assessing the
performance of the business in delivering the value to the share holders of the company.
The measure is based on the Residual Income technique. The main idea of applying this measure
is that positive value or profitability can be generated by the business for their shareholders only
if the business is capable to generate additional wealth as the additional wealth created will be
able to generate return for the shareholders over and above the cost of the capital being
invested(Bahri et al.,2011).
EVA Analysis
Fiscal year ends
in December.
USD in millions
except per share
data. 2013-12 2014-12 2015-12 2016-12 2017-12
Net income or
NOPAT 3665 6527 -866 4617 8762
Total assets 111025 107827 91564 89263 95726
Total current
liabilities 15190 12220 10046 9362 11225
WACC 7% 7% 7% 7% 7%
capital
invested=Total
Asset-current
liabilities 95835 95607 81518 79901 84501
Finance charge
=capital
invested*WACC 6373.028 6357.866 5420.947 5313.417 5619.317
EVA[NOPAT-
finance charge]
-
2708.028 169.1345
-
6286.947 -696.417 3142.684