Financial Performance Analysis of Rio Tinto Limited

Table of Contents
Introduction..............................................................................................................................................2
The Company.......................................................................................................................................2
The Report...........................................................................................................................................2
The Analysis............................................................................................................................................2
Maximization of Stakeholders’ Value:............................................................................................3
Stability of securities of the company in market.............................................................................5
Return on Investment:......................................................................................................................6
Theoretical Value of Equity of the company:..................................................................................7
Dividend Policy:..............................................................................................................................7
Capital Structure:.............................................................................................................................8
Conclusion:..............................................................................................................................................9
Bibliography..........................................................................................................................................10

Introduction
The Company
Rio Tinto Limited is an Anglo-Australian multi-national company which has emerged as one
of the world’s largest metals and mining corporations after being operational for 146 years.
Rio Tinto is a dual-listed company traded on both London Stock Exchange (LSE), where its
securities are traded in FTSE 100 Index and Australian Stock Exchange (ASX), where it is
listed in index of ASX200. The company has reported a revenue of $40.030 billion in 2017
while its operating income, net income, total assets and total equity in the same year stood
$14.474 billion, 8.851 billion, 95.726 billion and 44.711 billion respectively. The company is
also a huge employment generator having 50000 personnel on roll by 2017.
The Report
The report is aimed to analyse the company’s financial performance in the context of an
investment decision and makes a genuine attempt to analyse and recommend as to whether
the company is an attractive investment opportunity (more relevantly to an equity share
holder). In order to achieve all the objectives of the report, the report relies on the inputs from
following sources:
 Annual reports of the company;
 Public domains such as Yahoo Finance and Bloomberg; and
 Other relevant journals which can help with the direction of the report.
The Analysis
The following areas are analysed in order to ascertain whether or not the company is a good
investment option:
 Value addition to the stakeholders
 Trend in share prices
 Return on Investment
 Theoretical Value of the equity of the company;
 Dividend policy of the company; and
 Capital structure of the company

Maximization of Stakeholders’ Value:
Stakeholder of a company –
Stakeholders are either individuals or groups or both that have an interest in the progression
and prosperity of a company.
Stakeholder of a company –
Stakeholders are either individuals or groups or both that have an interest in the progression
and prosperity of a company. A stakeholder may be internal or external. Internal stakeholder
is one who has invested in the company (say an equity shareholder) or engaged in
employment by the company (say employees) while the external stakeholders include
business .
Maximisation of Stakeholder Value –
The concept emerges from a management philosophy called ‘stakeholder approach’ that
regards maximisation or furtherance of the interest of the stakeholder (either internal or
external) as its most important object
Metrics that measure the value of stakeholders:
The following metrics are used to measure the value of stakeholders. ("5 must-have metrics for value
investors", n.d.)
2013 2014 2015 2016 2017
a Price of share 68.18 58.00 44.71 59.90 75.81
b Earnings per share 1.98 3.53 0.48 2.57 4.90
c Total Assets (in millions) 111025.0
0
107827.0
0
91564.0
0
89263.0
0
95726.0
0
d Total Liabilities (in millions) 57523.00 53233.00 47436.0
0
43533.0
0
44611.0
0
e Book Value (in millions) = c - d 53502.00 54594.00 44128.0
0
45730.0
0
51115.0
0
f Debt (in millions) 57523.00 53233.00 47436.0
0
43533.0
0
44611.0
0
g Equity (in millions) 53502.00 54594.00 44128.0
0
45730.0
0
51115.0
0
h No. of Shares O/s 1861.14 1861.14 1808.19 1772.69 1763.41
i Earnings Growth 78% -113% 641% 91%
j Net Profit (in millions) 1,079 6499 -1719 4776 8851
k P/E Ratio = a/b 34.36 16.43 94.13 23.32 15.46
l Book Value per share = e/h 28.75 29.33 24.40 25.80 28.99
m PEG Ratio = a/i 21.07 82.97 3.64 17.01
n Return on Assets = j/c 0.97% 6.03% -1.88% 5.35% 9.25%
o Return on Equity = j/g 2.02% 11.90% -3.90% 10.44% 17.32%
p P / BV per share = a/l 2.37 1.98 1.83 2.32 2.62
q Debt to Equity Ratio = f/g 1.08 0.98 1.07 0.95 0.87

The inputs were obtained from Annual Reports of Rio Tinto (2017 Annual Report, 2018); (2016 Annual Report,
2017); (2015 Annual Report, 2016); (2014 Annual Report, 2015); (2013 Annual Report, 2014); ("Price Earnings
Ratio - Formula, Examples and Guide to P/E Ratio", n.d.)