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GuruFocus has detected 8 Warning Signs with Rio Tinto PLC \$RIO.
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Rio Tinto PLC (NYSE:RIO)
Gross Profit
\$6,910 Mil (TTM As of Jun. 2016)

Rio Tinto PLC's gross profit for the six months ended in Jun. 2016 was \$2,022 Mil. Rio Tinto PLC's gross profit for the trailing twelve months (TTM) ended in Jun. 2016 was \$6,910 Mil.

Gross Margin is calculated as gross profit divided by its revenue. Rio Tinto PLC's gross profit for the six months ended in Jun. 2016 was \$2,022 Mil. Rio Tinto PLC's revenue for the six months ended in Jun. 2016 was \$15,500 Mil. Therefore, Rio Tinto PLC's Gross Margin for the quarter that ended in Jun. 2016 was 13.05%.

Rio Tinto PLC had a gross margin of 13.05% for the quarter that ended in Jun. 2016 => No sustainable competitive advantage

During the past 13 years, the highest Gross Margin of Rio Tinto PLC was 78.02%. The lowest was 15.27%. And the median was 29.15%.

Warning Sign:

Rio Tinto PLC gross margin has been in long term decline. The average rate of decline per year is -10.1%.

Definition

Gross Profit is the different between the sale prices and the cost of buying or producing the goods.

Rio Tinto PLC's Gross Profit for the fiscal year that ended in Dec. 2015 is calculated as

 Gross Profit (A: Dec. 2015 ) = Revenue - Cost of Goods Sold = 34829 - 27919 = 6,910

Rio Tinto PLC's Gross Profit for the quarter that ended in Jun. 2016 is calculated as

 Gross Profit (Q: Jun. 2016 ) = Revenue - Cost of Goods Sold = 15500 - 13478 = 2,022

For company reported semi-annually, GuruFocus uses latest annual data as the TTM data. Rio Tinto PLC Gross Profit for the trailing twelve months (TTM) ended in Jun. 2016 was \$6,910 Mil.

Gross Profit is the numerator in the calculation of Gross Margin:

Rio Tinto PLC's Gross Margin for the quarter that ended in Jun. 2016 is calculated as

 Gross Margin (Q: Jun. 2016 ) = Gross Profit (Q: Jun. 2016 ) / Revenue (Q: Jun. 2016 ) = (Revenue - Cost of Goods Sold) / Revenue = 2,022 / 15500 = 13.05 %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

A positive Gross Profit is only the first step for a company to make a net profit. The gross profit needs to be big enough to also cover related labor, equipment, rental, marketing/advertising, research and development and a lot of other costs in selling the products.

Explanation

Warren Buffett believes that firms with excellent long term economics tend to have consistently higher margins.

Durable competitive advantage creates a high Gross Margin because of the freedom to price in excess of cost. Companies can be categorized by their Gross Margin

1. Greater than 40% = Durable competitive advantage
2. Less than 40% = Competition eroding margins
3. Less than 20% = no sustainable competitive advantage
Consistency of Gross Margin is key

Rio Tinto PLC had a gross margin of 13.05% for the quarter that ended in Jun. 2016 => No sustainable competitive advantage

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Rio Tinto PLC Annual Data

 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Gross_Profit 15,417 23,173 15,489 7,493 19,909 24,374 11,437 15,067 13,754 6,910

Rio Tinto PLC Semi-Annual Data

 Dec11 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14 Jun15 Dec15 Jun16 Gross_Profit 12,768 7,430 4,007 6,419 8,648 7,444 6,310 3,973 2,937 2,022
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