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. 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 …show more content…
This disciplined approach to capital allocation is to ensure that every dollar that is generated is applied to the highest-returning opportunity, wether that is for maintaining the balance sheet strength, investing for growth opportunities or delivering superior shareholder returns. Capital allocation is disciplined, to ensure Rio Tinto sustains capital, secondly Rio Tinto funds dividends to its shareholders, whilst assessing the best use of the remaining capital between growth, debt management and further cash returns to shareholders. In a cyclical and capital intensive industry, Rio Tinto maintains a strong balance sheet as at 31st December 2017 was in a strong position with a net debt of US $3.8 Billion with a net gearing ratio of 7 %. This gives Rio Tinto a competitive advantage, providing Rio Tinto resilience against market and macroeconomic volatility and the ability to fund shareholder returns. The definition of Total Shareholder returns (TSR) is that it combines share price appreciation, dividends paid and reinvested, to show the total return to the shareholder. TSR for the last 5 years from 2013 to 2017, has been identified by principally impacts by movements in commodity prices and changes in global macro environment, Rio Tinto’s TSR return performance has had a significant recovery in the share …show more content…
The reference of this underperformance is due to the closure of the Gove Alumina refinery. The closure of the Gove Alumina refinery conceded a large portion of share to Alcoa and South 32, as Rio Tinto was unable to maintain demand to match its domestic competitors (IBISWorld Company Report, Rio Tinto Plc December 2017 & IBISWorld Company Report, Alcoa of Australia December