1. Introduction
Rio Tinto is a locally owned public company, deriving revenue from mineral exploration, production and processing. The company’s main areas of production are in Europe, Africa, Australia, Asia, and North and South America. In 2016 Rio Tinto Plc had 46807 employees in Australia including employees from all subsidiaries under the company’s control (IBISWorld Company Report, Rio Tinto Plc December 2017). Rio Tinto’s operating segments are divided into five operating divisions; these are Iron ore, Aluminium, Copper and diamonds, Energy and Minerals and other operations. Rio Tinto Plc ranked number 3 of the top 2000 companies listed on the Australian Stock Exchange (ASX). This assignment will identify the strength and weaknesses of Rio Tinto’s financial policies and the challenges Rio Tinto pursuit of the company’s goals and values and with the use of principles of finance
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Liquidity is very important for estimation of the potential of the companies to generate enough cash for borrowing needs. The current ratio, that matches current assets against current liabilities, for Rio Tinto is 1.71 for the last year, with an industry average of 1.46. Alcoa of Australia has current ratio of 1.12. Capital Structure and Solvency Ratios Using calculated that the Return on Assets is 9.2% for Rio Tinto in 2017 and Alcoa of Australia has a ROA of 4.7%. Rio Tinto’s reliance on the Chinese market, China generated 42.6% of Rio Tinto’s revenue (Rio Tinto, Market Line 5th May 2017). Fluctuations in the exchange rate of currencies may also have an impact to Rio Tinto’s financials results. Rio Tinto also is at risk to environmental regions where their installations are vulnerable to natural disasters; furthermore a high dependency on technology also places Rio Tinto at risk of cyber-security attacks thus causing information and material loss. See figures 1 &
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
Troy, PhD., Leo. Almanac of Business and Industrial Financial Ratios. 31st edt. (2000) (page 159) Paramus, NJ: Prentice Hall.
In assessing Du Pont’s capital structure after the Conoco merger that significantly increased the company’s debt to equity ratio, an analyst must look at all benefits and drawbacks of a high debt ratio. The main reason why Du Pont ended up with a high debt to equity ratio after acquiring Conoco was due to the timing and price at which they bought Conoco. Du Pont ended up buying the firm at its peak, just before coal and oil prices started to fall and at a time when economic recession hurt the chemical industry of Du Pont. The additional response from analysts and Du Pont stockholders also forced Du Pont to think twice about their new expansion. The thought of bringing the debt ratio back to 25% was brought on by the fact that the company saw that high levels of capital spending were vital to the success of the firm and that high debt levels may put them at higher risk for defaulting.
Overall, Horizontal analysis and financial ratios are essential factors that businesses use to monitor its liquidity. Therefore, in order to improve Apple’s ratios and profitability, the company needs to implement a strategy to increase the company’s liquidity. Business owners or managers should monitor current ratio and acid test ratio as these ratios help us to ensure the company has the proper liquid assets to pay current liabilities, to stay in operations and to expand the company. As we noted in our acid test ratio and current ratio for the company, we show a lower ratio for acid test ratio than the current ratio, which means that the company’s current assets rely on inventory. Therefore, the company needs to convert old inventory into
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
Rondo's Current Ratio is a steady at 2.0 compared to the industry average of 1.4. This indicates the company will not have a problem covering its current liabilities. Rondo's quick ratio is also steady at 1.4. The company can cover its short-term debt 1.4 times over without selling off its inventory. Rondo's performance is good in this area.
The horizontal analysis shows that Woqod’s total current assets increased by 69% and its total current liabilities increased by 102% during 2005. This is largely explained by the increase in receivables, the increase in inventory, the increase in loans, and the increase in payables. The higher increase in total current liabilities than in total current assets explains why the current and acid-test ratios decreased from 1.82 to 1.53 and from 1.74 to 1.48, respectively. The values of the mentioned ratios indicate that Woqod is not highly liquid and that its liquidity is dropping.
It outlines the interconnection of a company’s financial and non-financial elements and aims to combine them and show value creation and maintenance. It identifies resources and their effective and responsible usage. It intends to create a dialogue between the shareholders and other stakeholders and provides them with detailed information.
D’Amato, E. (2010). Australian Shareholders’ Association: Standing Up for shareholders – The top 15 financial ratios. Australia: Lincoln Indicators Pty Ltd.
The Quick Ratio shows that the company’s cash and cash equivalents are the highest t...
Russel Y., Topper S., Akerman L., Oliveira J., Strydom Z.; 2013; Studying Business NSC Business Studies Grade 12; 2013 Edition; Paardekraal; Excom Publishers; 26/05/2014
Barra Airways has an interest coverage ratio (ICR) of 18; this means that Barra Airways is not burdened with a large amount of interest payments on existing debts. Therefore, using debt does appear to be an attractive source of finance. This is because Barra Airways existing interest burden is low, meaning that to increase it would have a reduced effect on the company’s net profit. However, EasyJet has an ICR of 30.88, considerably larger than that of Barra Airways [5]. Lenders may look at this data and conclude that Barra Airways is a riskier company to lend too than others in the same industry; this will result in a higher interest rate on any debt taken out.
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
Most critical to this discussion is a clear understanding of what a financial manager is and does and how his or her role aids in helping to establish the valuation of a corporate entity in today's global financial market. Quite simply, a financial manager helps to measure a company's market value and its risk, while also helping to systematically reduce its costs and the time necessary to make informed decisions regarding objective driven operations. This is quite a demanding game plan for an individual and most often financial managers, in the corporate world, working in cooperation with a team of financial experts. Each member of that team perhaps having expertise in differing areas of activity, but each however, being no less expert in his or her respective area of endeavors on behalf of the corporation. The team is assembled under the direction of the officer known in the corporation as the Chief Financial Officer who today is becoming increasingly indispensable to the CEO who directs a modern model of action driven, bottom-line oriented corporate activity (Couto, Neilson, 2004).
The rapid development of media and technology in the world market today has helped companies to sell their products and get in touch with their customers more easily (Rayburn, 2012). However the success of a company depends on many factors, not that only whether it has brilliant advertisement or marketing campaigns. The main aim of a company is to create shareholder’s value which according to Bender and Ward (2008), companies have to manage both well in a trading environment and financial environment in order to do that. Hence, the financial strategy can be seen as one of the most important factors in contributing to the business’s success especially to a large company such as Unilever as it is all about strategic decisions related to raising and manage the funds in the most appropriate manner.