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Financial Management Analysis of Rio Tinto Plc - Case Study Example

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This paper "Financial Management Analysis of Rio Tinto Plc." discusses Rio Tinto Plc. on the basis of its published financial statements and other data available in Annual Reports of the company. The assessment is required to make a performance analysis of the company…
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Financial Management Analysis of Rio Tinto Plc
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Download file to see previous pages Taking into consideration that Harmony is the sixth-largest in the world in the gold mining industry, the choice of Harmony God Mining Co. as a benchmark company is the most suitable and justifiable. Moreover, Harmony has also some investment stake in Rio Tinto, and this situation makes the company more suitable for the choice. At places, the benchmark company’s performances have been better than Rio Tinto, and thus Harmony has a competitive edge as well over Rio Tinto.

Profitability ratios like Operating Margin Ratio, Net Margin Ratio, Return on Assets (ROA), and Return on Equity (ROE) are the performance analyzer of any company. Profit Margin ratios show the relationship between profit and sales. Since profit can be measured at different stages, there are several measures of profit margin. The most popular are Gross Profit, Operating Profit Margin and Net Profit Margin. As in the case of Rio Tinto, information about gross profits are not available, performance analysis has been made on the basis of Operating Margin Ratio and Net Margin Ratios. Then there are Rate of Return ratios that reflect the relationship between profit and investment. Here we have used the Return on Assets ratio and Return on Equity ratio in the endeavor of performance analysis of Rio Tinto. These three ratios as calculated in the annexure attached to this write up are as under:
Performance 2007 appears to be a different year than earlier years. Both Operating margin as well as Net Profit Margin has been lowered by a huge difference. In 2007 the Operating Margin is 9.76% lower than in 2006. The net profit margin also for 2007 is lower by 10.46% as compared to 2006. Such a huge decrease in profit margins can either be assigned to changes in turnover or changes in operating expenses. Rio Tinto has shown a remarkable increase in turnover from 25440m in 2006 to $33518m in the year 2007. So turnover can not contribute to the lowering of operating margins.  ...Download file to see next pagesRead More
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