Sustainable Growth Essay
Analysis 1: Growth prospects of the company
The growth rate is computed as product of the dividend pay-out against the return on equity. This is referred to as the sustainable growth rate. The methodology presumes that no further additional financing either in the form of debts or equity is undertaken by the firms. In addition, the firm also will seek to grow in terms of growing the sales volume and revenue growth respectively. Other additional sources growth will equivalently be non-external. The set methodology is a relatively stronger methodology to assess the level of financial leverage that is vested for the firm. This is due to non-additional funding options that is often inputted to determine other additional funding for the firm. Furthermore, it may also accelerate the level of sales volume that could be effected by the respective firms. This will ensure that a higher level of outcome in terms of sales volume is attainable thus further leading to growth without input of additional equity or debt capital. This is essential and could offer the directional concerns in the event that either debt or other funding options may be absent or relatively costly to effect or adopt incidentally (Arya).
However, the set methodology is limited in various ways. To begin with sustainability of a higher level of SGR in the long-term may proof to offer limitations in the performance index of the respective firm. Other external variable factors such as consumer trends alongside competition may equally deter the level of growth of the respective firm. As such, the methodology may proof to be ineffective in the long term. Capital intensive projects that demand continuous capital input may also fail to the initiated if the SGR methodology is adopted by Rio Pinto respectively (Diem).
Analysis 2: Financial ratio analysis
The financial ratios are being contrasted with the industrial ratios respectively alongside other company trends. The ratio analysis has been adopted to offer guidance to the internal performance and trending patterns of the firm .These includes the effective measure to outline the level of financial leverage for the firm with regards to debt financing. This points to the higher volumes of the firm activities which are funded by debts (Market line). In addition, other profitability measures such as margins are equally being reviewed to offer or determine whether the Rio Pinto income revenue is incrementing. However, other measures such as efficiency of management are also measured by the ratios respectively. However, due to higher level of competition that in the metallic industry Rio Tinto’s performance is relative to the market that will often be a pivotal financial measurement tool. This points that though the firm may hold significant volumes of trade, other firms could be performing exceptionally better.
Moreover, there is need to offer an industrial measure that will outline the internal performance of the firm in correlation to the external performance index (Suhas).
Ratio analysis will act as guidelines to offer direction in controlling the firm’s level of capital expenditure respectively. For Rio, the capital intensive nature of the business demand for exceptional measures to monitor the performance. This points to the significant level of adopting ratio analysis as a measurement tool. Also, adopting other financial data methodologies may equally be more effective such as sales volume through ratio analysis. As such, a review of revenue generated by the firm’s assets, equity or debt could easily be valued. These offers exceptional control effects for the firm. However, the ratio analysis will often fail to offer actual solutions to the underlying fiscal performance and position. A lower liquidity index may indicate that the level of cash flow is lower but may not offer pathway of sourcing for additional cash flow to mitigate the existing crisis (Rio Tinto Inc).
Analysis 3: Risk and reward
The methodology adopted for measuring risk and return is the value at risk and the beta respectively. The value at risk has been adopted to indicate the level of internal risk with beta being adopted to federal Rios maestro performance risk. The VaR offers insurmountable insight based on the capital intensive nature of Rio’s business line (Lecesne, and Roncoroni). Based on the versatility of the accredited capital outlay, it is imperative that the return index extensively weighed to restrict incidences of irreversible capital losses. Furthermore, other additional internal risks may equivalently be rendered in effective due to poor risk mitigation measures. Being a mining venture, the level of stock performance index may exceptionally decline as price shifts are effected globally. In order to offer a more comprehensive outcome, the beta could be adopted to characterize the output anticipated within the markets. In the event that Rio beta is lower, then firm may need to readjust it financials to ensure conformity to the respective market indices (Zastoswanie).
The set valuation methodologies are significant in lowering and assessment of risk. The set measures will also offer control measures that could be adopted when increasing the level of risk within the firm’s activities. However, the respective performance evaluation of risks will not also be in correlation with the actual performance index. Moreover, though the respective indices could offer the anticipated guidelines, the true level of underlying measure may not be known. As result, this could lead to erroneous assumptions that could hold negative cost implications for the firm respectively (Xinsheng).
Conclusion
Rio Pinto growth, financial position and performance alongside risk stature may easily be evaluated by the respective methodologies. These are essential in acting as guideline to ensure both performance and position of the firm’s activities are true underlying measures. Based on the respective analysis, other corrective measures could easily be adopted to offset the respective imbalances. Moreover, the final level of outcome and yield therefore may easily be controlled to ensure that it’s in conformity to the outcome as initially projected (Minh).
Given that Rio, is vested within the mining sector, other financial measures may be necessary to analyse whether the level of capital, assets along other determinants are being effectively utilized. This may equivalently be weighed against the profitability index. As such, a relatively higher more accurate assessment could be conducted for the firm’s activities. This points that though input within the firm may be exceptionally higher, the actual outcome will often be determine the level of activities attainable by the set capital. Hence, it is impertinent to review the level of growth and present performance index of the firm. In addition this could offer additional options to multiply the firm’s respective revenue and profitability level (Morningstar).
Based on the fore stated levels of growth and lower risk of Rio, we may indicate that firm holds significant potential that still remains unexploited. This implies that the level of outcome could be further be escalated if other additional measures are adopted (Market line).
Works cited
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Diem, Richard. Sustainability, Growth, and Globalization : A Social Science Perspective. New York: Information Age Publishing, 2013.
Lecesne, Lionel, and Andrea Roncoroni. “Monetary Measurement Of Risk: A Critical Overview – Part I: General Definitions And Value-At-Risk”. SSRN Electronic Journal, 2013. Elsevier BV, doi:10.2139/ssrn.2689131.
Market line. “DATAMONITOR: Rio Tinto.” Progressive digital media (2010): 1-10.
—. “Rio Tinto SWOT Analysis.” Progressive digital index (2018): 1-7.
Minh, Cao. “Risk Measurement-Value at Risk (VaR) Versus Conditional Value at Risk (CVaR): A Teaching Note.” Journal of accounting and finance (2018): 86-93.
Morningstar. RIO Rio Tinto PLC ADR Stock Analysis, Price & History | . 13 May 2019. https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.morningstar.com/stocks/xnys/rio/quote.html&ved=2ahUKEwiCoJeUsZniAhWrxIUKHRxVAqwQFjAAegQIBhAB&usg=AOvVaw3cqkW6YRoX3xTHyPzZkY6M. 13 May 2019.
Rio Tinto Inc. Rio Tinto Annual report. 24 September 2018. https://www.google.com/url?sa=t&source=web&rct=j&url=http://www.riotinto.com/documents/RT_2018_annual_report.pdf&ved=2ahUKEwjgn9n8sJniAhVRUhoKHR_BDTEQFjABegQIARAB&usg=AOvVaw2I-HpcP6b7X3ltKsK8RXFc. 13 May 2019.
Suhas, Apte. The Sustainability Edge : How to Drive Top-line Growth with Triple-bottom-line Thinking. Toronto: University of Toronto press, 2016.
Xinsheng, Xu. “On the newsvendor model with conditional Value-at-Risk of opportunity loss.” International journal of productive research (2016): 2449-2458.
Zastoswanie, Kilova. “APPLICATION OF K-RECORDS IN THE INTERVAL ESTIMATION OF THE VALUE AT RISK MEASURE (VaR).” Buisness applications (2018): 1-50.
