Discuss how successful RioTinto (Australia) (Rio.ax) has been at delivering value to its shareholders over the past 5 years.
Complete an EVA analysis of your company for the last 5 years. Clearly show your work rather than using final EVA numbers from another source.
Analyse the Total Shareholder Return (TSR) of the company for the past 5 years, including any key events and compare with a similar company or appropriate benchmark.
Undertake a current valuation of the equity in this company, using the following methods:
Net Asset Value.
Comparable Ratios (e.g. P/E, P/B, EV/EBITDA). You will need to look at both past results and comparable firms to analyse and justify an appropriate valuation. Note that simply multiplying the current ratio by the recent earnings (or book value or EBITDA) is not sufficient. An audio recording discussing comparable ratios can be found in Blackboard under the appropriate Unit.
Discounted Free Cash Flow. You will need to forecast each component of free cash flow (e.g. Sales, costs, capex, etc.) for at least 5 years of forecast cash flows and estimate a terminal value, and then discount them back at the appropriate cost of capital which you estimate yourself. Make sure to justify all of your assumptions. You can find information to support your forecasts from sources including the MD&A section of the company?s annual report (or its competitors), news stories, industry trade publications and government or think tank studies on the industry.
Attempt to reconcile any differences in value that you obtain by using these different methods and state (with reasons) what value you think is correct for the company.
You must clearly explain all of your assumptions used in the valuations.
The report should include:
a key point summary of your conclusions
graphical illustration, where appropriate
a bibliography of sources of information used and references to texts or other material drawn upon. You should follow Harvard referencing guidelines
detailed tables, extracts or copies of financial information should be placed in the appendices if they are necessary to understand your report. You should only include appendices if you refer to them in the body of the report. You do not need to include the entire financial statements.
You should only copy those tables which are important for the reader to understand your work.
The assignment is designed to test the understanding of corporate finance. There is no perfect answer and therefore you should state assumptions clearly and make good use of appendices. This is not a strategy or marketing assignment, so focus on the finance!