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. (Wikipedia, 2012) Rio Tinto’s net earning has decreased in the year 2011 mainly because of the financial crisis and global economic uncertainty (Annual report of Rio Tinto, 2011). Meanwhile, the leadership claimed that they believe the long-term outlook is strong.
Figure 1: Key Financial Data of Rio Tinto (from 2010 and 2011) Year
| 2010 / US$ million| 2011 / US$ million|
Net profit before tax| 20,491| 13,214|
Net profit after tax| 15,098| 6,765|
Total comprehensive income| 16,492| 4,365|
Sales| 55,171| 60,537|
Total assets| 112,773| 119,545|
Current assets| 21,459| 21,898|
Current liabilities| 12,876| 14,966|
Cash flow from operating activities| 23,530| 27,388|
(Annual report of Rio Tinto, 2011)
According to figure 1 the net profit margin of Rio Tinto in the year 2010 fell from27.4% to 11.2% in the year 2011. (net profit margin is equal to net profit after tax divided by sales revenue) The profit rate to net worth of this company in the year is 5.8 %.(profit rate to net worth is net profit after tax divided by average total assets) The investors should use comprehensive income figure 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 $US55,171 millionin the year 2010 to 60,537 million US$ in the year 2011. This matter of fact indicates Rio Tinto expended $US1,580 million on operating the company. The...