Brief Analysis Report of Rio Tinto

The brief analysis report of Rio Tinto

Rio Tinto is a British multinational metals and mining corporation with headquarters in London and a management office in Melbourne, Australia. The corporation was founded in 1873 and it ranked at the number 263 in Global 500 of largest worldwide companies in 2008.  Rio Tinto’s net earning has decreased in the year 2011 mainly because of the financial crisis and global economic uncertainty. Meanwhile, the leadership claimed that they believe the long-term outlook is strong.  The profit rate for the net worth of this company in the year is 5. %. (profit rate to net worth is net profit after tax divided by average total assets). Investors should use comprehensive income figures rather than net profit because comprehensive income includes all changes in equity during a period. (comprehensive income is equal to net profit plus other comprehensive income) The operating cash flow increased by $US3,858 million from $US23,530 million in the year 2010 to $US27,388 million in the year 2011 meanwhile, the sales raised by $US5,366 million from $US55,171 million in the year 2010 to 60,537 million US$ in the year 2011.

This matter of fact indicates Rio Tinto expended $US1,580 million on operating the company. The current assets increased smoothly from $US21,459 million in the year 2010 to $US21,898 million in the year 2011. In the same period, the current liabilities raised up dramatically from $US12,876 million in the year 2010 to $US14,966 million in the year 2011. This data shows the company did not work well in this period. Rio Tinto will cut office jobs in Melbourne and Sydney in Australia and the board of the company will cut support and service costs by 10 percent around the world. Because they said they need to build resilience and controlling costs during a difficult time, which includes product price decreases and Europe’s debt crisis. Greg’s report (2012) also showed that Rio Tinto’s first-half net profit dropped dramatically to $US4. 9 billion ($A4. 69 billion) from $US7. 78 billion ($A7. 44 billion) last year. Not only Rio Tinto’s earnings have dropped but BHP Billiton’s earnings are forecast to drop at the same time the world’s biggest iron ore miner Vale also posted lower than expected second-quarter earnings at two-year lows.

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In the group statement of financial position, the goodwill of Rio Tinto has dropped almost half of that in the year 2010 which is from $US15,316 million to $US8,187 million. This matter of fact indicates that the company Rio Tinto appears to be done not well. The inventories of this company increase by $US551 million from $US4,756 million in the year 2010 to $US5,307 million in the year 2011. The inventories rise up means the product of Rio Tinto cannot be sold mainly because the economy is uncertain and the demand for the ore is weak. The current and non-current liabilities all raise heavily and the net assets decrease from $US64,512 million in the year 2010 to $US59,208 million in the year 2011.  The liabilities rise up means the Rio Tinto tried to borrow money to pass the difficult time which lasting time is still uncertain. The net profit of Rio Tinto and other mining companies decrease mainly because the commodity prices drop seriously. Commodity prices are formed by the interaction of global economic growth and the costs of expanding the supply of commodities. According to Gurnaut’s article ‘the contemporary China resources boom’ China has been the main reason for high energy and metals prices since the year 2003. The article also claimed that Chinese growth has been the consequence of high investment rates and rapid increases in the fringe population and the export share of production. The author believed that developing countries like China and India will still keep the commodity prices of ore at a high level. In brief, although the financial and operating situation of the Rio Tinto is not well, the future of Rio Tinto will still be great because the demand of developing will be strong. Hence, it will be a good choice to invest in Rio Tinto.

Reference

1. Garnaut, R 2012, ‘The contemporary China resources boom’, The Australian Journal of Agricultural and Resource Economics, vol. 56, no. 2, pp. 222–243 Rio Tinto Ltd, 2011, Annual Report viewed 5 August 2012.
2. http://www.riotinto.com/annualreport2011/pdf/rio_tinto_2011_annual_report. pdf Wikipedia2012, Rio Tinto Group, viewed 26 October 2012.
3. http://de.wikipedia.org/wiki/Rio_Tinto_Group>.

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