Summary Of Rio Tinto Ratio Analysis

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Register to read the introduction… For the sake of convenience, the analysis is divided into four segments namely short term solvency, long term solvency, asset …show more content…
d. Profitability Ratio
It is the measure of the company’s profitability, the greater these ratio are, the better it is for the company (Mathur 2000). It includes ratio like ROA and Operating profit Margin
Return on assets (ROA)
It is calculated by dividing net income by average total assets. It identifies the earning productivity of total assets employed by the company (Rao 2000). Rio Tinto Ltd ROA for the FY 2008 is 3.8% which declined from 10.78%. Although the decline is not beneficial for the company but it can be explained by the variations that were observed in items like cost of revenue, R&D expense, in turn operating expense and operating income affecting net income which resulted in such a downfall in ROA. The company had 50% decline in net income in the FY 2008 which can be attributed to 1.08 times increase in operating expense which is result of 66% in general and administrative expense and 124% rise in R&D by the company. Moreover, the decrease in ROA is observed due to decrease in assets figure by 11.3% as has been already
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The company should take steps to control its cost and expenses particularly its accrued expense, R&D, selling and administrative expenses which in turn will help controlling the operating expense of the company. 2. Moreover the profitability position of the company is tormented with the entire ratio showing a decline due to lower net income and resulting in reduced returns. I recommend the following measures for the company’s management which can help the company improve its profitability position. a. Rio Tinto Ltd has experienced 108% rise in operating expense mainly due to 124% increase in research and development expense by the company. In this regard, the company must employ cost effective R&D measures by communicating their concerns with government so that the company can have subsidies which can help reduce their expense. b. Rio Tinto Ltd has experienced 66% increase in general, selling and administrative expenses. This can be controlled by Human resource department’s cost control policies like i. reducing human intervention in routine tasks which will result in lesser administrative

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