The assessment considers the financial statements of Rio Tinto ltd which is engaged in the business mining and exploration for the most current year. The areas which is covered in the assessment is related to the major activities and operations of the business during the year. The assessment will be making a comparative study of the financial performance of the business for past years with current year and also consider changes in significant accounting policies of the business.
Rio Tinto is one of the leading mining businesses which is Anglo-Australian Company which has its major operations in Australia where the headquarters of the company is also situated (Riotinto.com, 2018). The company is regarded as one of the largest mining-based business and the only close competitors of the business are Vale and BHP Billiton.
The annual reports of the company clearly specify the nature of business which is undertaken by the management of Rio Tinto Ltd which is Mining and Metal Business. A list of products which are produced by the business are Diamonds, uranium, iron ore copper, coal and similar other metals. The business primarily engages in mining and extraction business but also has secondary activity which is refinery the metals which are extracted by the business.
The business of Rio Tinto is considered to be one of the giants which operates in Mining and Metal business and the company is very much reputable among the customers and therefore also dominates the market conditions of the business. The Australian mining industry had sharply declined in the mid of 2016 but some improvements have been noticed ever since and as per 2017 market analysis, it can be said that the businesses engaged in mining business might experience boom phase. Therefore, the overall market condition is also favorable for bring about a growth in the business of Rio Tinto.
As per analysis of the market the dominant players in the market of mining industry are Vale, BHP Billiton, Glencore. The closest competitor and the biggest rival of the company is Vale which has a greater production capacity and revenue generating ability. In the same way, the revenue generating capacity of BHP Billiton is similar to that of Rio Tinto.
The financial structure which is used by the business is important for identifying the performance of the business and the benefits which are associated with using the capital structure in business. The management of Rio Tinto ltd as shown in the annual reports of the business for the year 2017 relies more on internal capital sources such as equity capital of the business, retained earning reinvested in the business (Case, 2014). The retained earnings of the business is shown to be US$ 23,761 million for the year 2017 which shows that the business mainly relies on internal capital for meeting the financing requirements of the business (Barth, 2013). The business also uses debt capital in the capital structure mix of the business and the debts of the business which is shown in the financial statements for the year 2017 is shown to be US$ 15,148 million. Thus, it is clear that the business of Rio Tinto has a capital structure which has more proportion of equity-based capital in comparison to debt capital of the business (Brochet, Jagolinzer & Riedl, 2013).
The application of more equity sources of capital signifies that the management of the company wants to reduce the overall risks which are associated with the business. The business also has a certain portion of debt capital in the capital structure mix which is due to the leverage affect which debt capital has on a business and therefore it can be said that the business has appropriate capital structure mix.
As per the annual report which is prepared by the management of the business for the year 2017 shows that the presentation of the report is appropriate and follows all regulations which are related to general reporting framework of a business. The annual report shows that the sales of the business has increased significantly in comparison to previous year and the sale revenue for the business for the year 2017 is shown to be US$ 40,030 million and the same was US$ 33,781 million in 2016. The operating profits of the business has improved during the year which shows that the operational structure of the business has significantly improved (Weygandt, Kimmel & Kieso, 2015). The operating profit estimate which is shown in the annual report of the business for the year 2017 is shown to be US$ 14,135 million which is more than the estimate which is shown for 2016. The net profit of the business which is shown in the profit and loss statement has improved tremendously which shows that the business has an effective policy when it comes too profitability of a business (Sridharan, 2015).
The cash from operations of the business is shown to be positive which shows operational efficiency in the business and the net cash balance which is shown at the end of the year is also shown to be positive which signifies that the management of the company has appropriate amount of funds in their hand for meeting any current obligations of the business (Bhandari & Iyer, 2013). The assets of the business has improved as well as shown in the annual reports of the company during the year. Moreover, the retained earnings of the business have also risen which shows that the business has a strong backing in terms of financial resources (Christensen, Hail & Leuz, 2013). The EPS of the business is also shown to be favorable which suggest that the management of the company is meeting with the needs of the shareholders of the company. In a nutshell it can be said that the company is performing well in terms of previous year analysis.
There are certain events which are mentioned in the annual report of the business which occur after the balance sheet date of the business. Shaft 2 of Oyu Tolgoi’s underground mine is already completed after the annual report date and the underground mines are anticipated to start from the first quarter of 2018. Another event which took place after the annual report date is the declaration of dividend which is 180% per share in February 2018. The management of the company has also completed an Autohaul train which is also introduced after balance sheet date.
In addition to this, the notes to account section of the annual reports shows that the management of the company has received a binding offer from liberty house to acquire the Group’s Aluminium Dunkerque which is northern France for an amount of US$ 500 million (Ball, 2013). The company has also undertaken an online buyback program which is shown to be US$ 1.0 billion. Similarly, Hydro has also sent a binding contract for the acquisition of aluminium assets of the business which is shown to be of value of US$ 345 million.
The notes to account of the annual report shows various areas where changes have been made and also changes which are related to change in accounting standards of the business. The lease asset accounting process has changed significantly as shown in the annual report of the business (Warren, Reeve & Duchac, 2013). The accounting policies which have been changed by the management of the company is also in relation of IFRS 9 which is on financial instruments and the endorsements for the same.
The assets of the business are shown in the balance sheet of the company and the breakup for the same is shown in the notes to account section of the balance sheet. The different assets which are shown under the head assets of the business are Mining properties and leases which is shown to be US$ 11,488 million, Land and Buildings which is shown to be US$ 7,376 million, Plant and Equipment which is shown to be US$ 36,285 million, Capital which is in work-in-progress is shown to be US$ 6,944 million
As stated in the notes to account section of the annual report of the business for the year 2017 is shown to be shown at cost as per the International Accounting Standard (IAS) 16. The balance sheet of the company also shows accumulated depreciation which is to bee deducted from the balance of assets to arrive at the net valuation of assets (Weil, Schipper & Francis, 2013). Moreover, it is the policy of the management to include costs which are related to restoration and close down in the valuation of the assets of the business.
The intangible assets of the business comprise of assets which are fictitious in nature and the annual report of the company shows considerate amount of intangible assets. The intangible assets of the business show Exploration and Evaluation assets which has a value of US$ 393, trademarks, patented and non-patented technologies which is shown to be of US$ 75 million, Contract based intangible assets which is shown to be US$ 2,188 million and other intangible assets which is shown to be US$ 463 million as per the notes to account section of the annual report of business for the year 2017. The measurement of the intangible assets of the businesss are made on the basis of classification of the assets which have a definite life which do not have a definite life.
The impairment losses which is recorded are US$ 435 million, US$ 357 million and US$ 4 million are related to property plants and equipment, intangible asset and other assets of the business respectively.
Conclusion
The analysis which is conducted above shows the market condition of a mining industry and also the performance of Rio Tinto ltd for the year 2017 based on the annual report which is available for the business. The discussion which is shown above also contains an analysis of the fixed assets and intangible assets of the business in the operations of the business. The business of Rio Tinto ltd has made changes in accounting policy which is reflected in the assessment. Thus, in overall estimate the financial statements are prepared following all relevant standards of accounting and widely accepted principles.
Reference
Ball, R. (2013). Accounting informs investors and earnings management is rife: Two questionable beliefs. Accounting Horizons, 27(4), 847-853.
Barth, M. E. (2013). Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), 331-352.
Bhandari, S. B., & Iyer, R. (2013). Predicting business failure using cash flow statement based measures. Managerial Finance, 39(7), 667-676.
Brochet, F., Jagolinzer, A. D., & Riedl, E. J. (2013). Mandatory IFRS adoption and financial statement comparability. Contempo
Case, I. (2014). Financial Statement Analysis.
Christensen, H. B., Hail, L., & Leuz, C. (2013). Mandatory IFRS reporting and changes in enforcement. Journal of Accounting and Economics, 56(2-3), 147-177.
Riotinto.com (2018). Retrieved 12 September 2018, from https://www.riotinto.com/documents/RT_2017_Annual_Report.pdf
Sridharan, S. A. (2015). Volatility forecasting using financial statement information. The Accounting Review, 90(5), 2079-2106.
Warren, C., Reeve, J. M., & Duchac, J. (2013). Financial & managerial accounting. Cengage Learning.
Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. John Wiley & Sons.
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