Assignment Task
Description
This section should include a brief description of the company. It should detail the company’s products and markets, and should also provide a clear understanding of the company’s operations and its key drivers of revenues and expenses.
This section should include a competitive analysis of the industry. Key economic drivers, external factors and competitive forces should be addressed when relevant.
This section should also provide a group of peers operating in the same industry for the purpose of competitive analysis. Some insights regarding company’s competitive positioning should be included in this section.
This section should outline projected earnings estimates, provide a valuation summary and the rationale for the recommended investment action.
There should be a clear and succinct explanation as to why the security should be bought, sold or held.
Purpose
The purpose of this task is to have you work as part of a team to apply the financial analyst skills you have learned to a real-life analysis scenario.
Task details
Working within a group, you will prepare and submit a written research report on an Australian company. You will then be required to record and submit a 10-minute oral presentation on the report and its findings and recommendations.
Company Description
Rio Tinto (RIO) is an Australian multinational corporation focused on mining and metals, with a strong financial position and a high liquidity profile. It was founded in 1873. It produces copper, aluminum, and iron ore, among other commodities. It invests in data centers, R&D facilities, and artificial intelligence and is present in 36 countries worldwide. According to Rio Tinto (n.d.), RIO is traded on the Australian Securities Exchange (ASX), London Stock Exchange (LSE), and New York Stock Exchange (NYSE). Credit grade A2 is assigned to it (Moody, n.d.).
Purpose of Financial Statement
A wide range of intended users, including suppliers, creditors, investors, and shareholders, can utilize financial statements to gain a better knowledge of their financial situation and make more informed business decisions. An organization’s assets, liabilities, and shareholder equity are disclosed on its balance sheet, while its revenues and expenses are shown on its income statement. Operating, finance, and investment cash flow details are provided by cash flow statements (Chris B. Murphy 2020).
Financial Analysis
Mining Industry
Right now, Rio Tinto, Vale, and BHP Group are the top three mining corporations in the world. Australia’s abundance and diversity of valuable natural resources have made mining a major primary industry. The entire mining process, which includes facility building, appraisal, exploration, and mining output, can take several decades (Chang 2023).
Commodity prices have a significant impact on mining businesses’ financial success. RIO was impacted by the 2018 commodities price collapse, which was brought on by an abundance of supply and a dearth of demand. There was an overabundance of natural resources due to the slowdown in growth in China and other growing countries like Brazil (Hutt 2018). Certain commodity prices, such as iron ore, have rebounded since the price drop, but supply and demand continue cause some to fluctuate. Subsequently, RIO took decisive action to boost output, cut operational expenses, examine portfolios, sell off low-value assets, and make prudent investments in value-added ventures.
Financial Performance
Operating Revenue EBIT Reported NPAT After Abnormals
The analysis’s financial data were obtained from Morningstar (MorningStar, n.d.). Figure 1 below shows that RIO’s finances reached their lowest point in 2018. The decline in commodity prices resulted in RIO’s 2018 Net Profit After Tax (NPAT) being reported negatively. RIO had a significant uptick in recovery after 2018. Operating revenue was AUD61.6 billion in 2023, EBIT was AUD22.5 billion, and reported NPAT was AUD11.4 billion. Strong demand increase from worldwide steel output, particularly from Chinese crude steel, has contributed to this (Rio Tinto Annual Results 2018). RIO appears to have sound financial standing.
In order to attain low-cost manufacturing, RIO has concentrated on increasing the productivity of its current assets. Figure 2 shows a notable growth in net operational cash flow, which increased by 80?tween 2016 and 2023. This suggests that the company’s cash flow is in good shape.
