RIO share price in focus
Rio Tinto is engaged in minerals and metals exploration, development, production and processing. It was founded in 1873 and is currently the world’s second largest metal and mining company behind BHP.
Rio Tinto’s portfolio of assets is condensed into four product groups: Aluminium, Copper & Diamonds, Energy & Minerals and Iron Ore.
Rio Tinto’s biggest export is iron ore which is the primary component of steel. As such, performance of the company can be strongly driven by the price of iron ore and other key commodities.
Since we consider Rio Tinto Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY24, Rio Tinto Ltd had an ROIC of 20.30% and revenue has compounded at 6.6% in recent years. Anything over 10% ROIC is pretty good for a mature-style business, since its cost of capital is likely below that level, so Rio Tinto Ltd crosses this hurdle.
XRO shares
Xero was founded in 2006 in Wellington, New Zealand, by Rod Drury, who led the company until 2018. Employing more than 3,000 people, Xero helps millions of subscribers manage their accounting and tax obligations across the globe.
The cloud-based “beautiful accounting software” developed by Xero is primarily for accountants and bookkeepers to better service their small business customers.
Through Xero, small business owners and their advisors/accountants have access to real-time financial data and on any device. Xero provides its core cloud accounting software to customers in New Zealand, Australia, the UK and, to a lesser extent, the USA.
RIO share price valuation
We would consider RIO to be a ‘mature’ or ‘blue-chip’ business, so some of the metrics that might be important to us include the debt/equity ratio, average yield, and return on equity, or ROE. For FY24, Rio Tinto Ltd reported a debt/equity ratio of 25.0%, meaning the company has more equity than debt.
Over the last 5 years, RIO has delivered an average dividend yield of 6.4% per year. This is important to note if you’re looking for income from your investments.
Finally, in FY24, RIO reported an ROE of 18.2%. For a mature business you generally want to see an ROE of more than 10%, so RIO clears this hurdle.
As a growth company, some of the trends we would be looking for from XRO shares include revenue growth, profit growth, and return on equity (ROE). Over the last 3 years, XRO has increased revenue at a rate of 26.4% per year to hit $1,714m in FY24. Meanwhile, net profit has risen from -$9m to $175m. XRO’s last reported ROE was 14.3%.
Please keep in mind that context is important – these metrics give us some indication of company performance, but we need a lot more info to work out the value of RIO or XRO shares. To learn more about valuation, I’d recommend signing up for one of our free online investing courses.
