exxonmobil analysis (2011-2014)
TRANSCRIPT
UNIVERSITY OF THE WEST INDIES
CAVE HILL CAMPUS
DEPARTMENT OF MANAGEMENT STUDIESFACULTY OF SOCIAL SCIENCES
Financial Analysis of ExxonMobil Corporation
Lecturer: Mrs. Stacey Estwick
Prepared By:
Quinn Weekes
Dwayne Parris - Editor
Date: March 22nd, 2015
MGMT 2023 FINANCIAL MANAGEMENT
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Big Rock Corp.Financial
Solutions Finance + Research
Big Rock Corp.Financial
Solutions Finance + Research
Produced by: Department of Financial Research, Big Rock Corp.Produced by: Department of Financial Research, Big Rock Corp.
ExxonMobil Corporation2011- 2014 Financial Analysis Report
Presented to Client:
Mr. Federick Lovell,
Investor
Table of Contents
Title Page
Introduction………………………………………………………….............4
Background…………………………………………………………………...4
Economic Environment……………………………………………....4
Socio-political Environment…………………………………………4
Legal Environment …………………………………………………..5
Financial Analysis…………………………………………………………....6
Sources and Uses of Funds…………………………………………..6
Short-Term Solvency………………………………………………....7
Long- Term Solvency………………………………………………....8
Asset Management…………………………………………………....9
Profitability………………………………………………………….10
Market Value………………………………………………………...10
Conclusion…………………………………………………………………...11
Recommendations………………………………………………………......12
Bibliography………………………………………………………………....13
Appendices…………………………………………………………………..14
I. Figure 1, Table 1………………………………………………...14
II. Table 2, Table 3………………………………………………….15
III. Table 4, Figure 2………………………………………………...16
IV. Figure 3, Figure 4……………………………………………….17
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Produced by: Department of Financial Research, Big Rock Corp.Produced by: Department of Financial Research, Big Rock Corp.
V. Table 5, Figure 5………………………………………………...18
Introduction The company being analyzed is ExxonMobil Corporation (XOM). This report is aimed at analyzing the
environment and the overall financial status of ExxonMobil Corporation with the use of its financial
statements information from the period 2011 to 2014. Financial ratios will be used to compare and to
investigate the relationships between different pieces of financial information. Such ratios will allow for
examination of the company’s strengths and weaknesses resulting from its activities. The company will
be also compared to a benchmark formulated by our analysts using data from Exxon’s top competitors.
Background The first successful oil well was drilled in Titusville, Pennsylvania in 1859 by Colonel Edwin Drake and
Uncle Billy Smith. This monumental discovery sparked an oil boom that paralleled the gold rush of the
1840’s. That single well began what 125 years later would be the United States’ (U.S.) largest entity
publicly trading in petroleum and petrochemical, known as ExxonMobil. Taking an evolutionary leap
from supplying the U.S. market with its kerosene, its most profitable product in that era, ExxonMobil in
the late 1930s brought to the world the first commercial production of alkylate – a key component in
cleaner burning gasoline. Today, Exxon operates in almost every country, and is known by its brands
Esso and Mobil, and is also a manufacturer for products which drive modern transportation, powers
cities, and provides petrochemical building blocks that lead to thousands of goods for consumers.
ECONOMIC ENVIRONMENT ExxonMobil is considered a global commodity-based company simply because its levels of operations
and earnings are significantly affected by changes in prices of oil, gas and petrochemicals, as they are
dependent on factors which affect supply and demand. Economic activity like recessions or periods of
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low or negative economic growth would undoubtedly have a direct impact on the company’s bottom
line. On the other hand, economic booms, both medium and long term, would result in increased
business activity leading to great product sales. The General Electric (G.E.) sponsored blog The
Economist Explains highlights in a December 2014 post how companies such as ExxonMobil are
impacted by such economic activity. It explains how supply and demand are positively correlated to
market expectations and its overall activity. If these factors show promise, they would yield favourable
prices for the energy company. In a thriving economy, persons are more willing to spend on air
conditioning during the summer, and heating during the winter season (Why the Oil Price is Falling,
2014). This increases the level of demand and hopefully the price of these commodities as well. Other
factors such as dramatic changes in population growth rates, financial crisis or currency exchange rate
fluctuations, periods of civil unrest and government austerity programs impact the demand for energy
and petrochemicals. These factors could alter the risk for returns on the company’s assets and the ability
of ExxonMobil to satisfy its shareholder commitments.
SOCIO-POLITICAL ENVIRONMENT Multinational companies such as ExxonMobil can reap rewards or be forced to exit a particular region
due to political or regulatory developments affecting its operations. Decisions made by any one
government or body regulating an industry have the potential to limit access, or even restrict companies
from conducting operations within its jurisdiction. According to a 2015 article in the Oil and Gas
Financial Journal ExxonMobil Papua New Guinea (PNG) received a licence to develop and supply up to
20 million cubic feet a day (MMcf/d) of domestic natural gas for 20 years to support government plans
to improve the capacity and reliability of the country’s power supply (Pennwell Corporation, 2015). The
report quoted ExxonMobil’s PNG managing director Peter Graham as saying that the agreement enables
a reliable long-term supply of natural gas to support Port Moresby’s urgent power generation needs.
Any government initiatives to promote alternative energy usage change the landscape of the normal
course of business. Exxon itself cites that some countries “limit access to their oil and gas resources, or
may place resources off-limits from development altogether.” (ExxonMobil). More attractive returns
could be realized by the policies the company adopts. As part of its strategic community investments,
ExxonMobil seeks to train and educate the local workforce, develop existing vendors to provide needed
goods and services, as well as improve surrounding communities. These and similar efforts can create
greater brand loyalty. 5
LEGAL ENVIRONMENTThere are a number of factors in the legal environment which ExxonMobil pays close attention to that
could bring about significant change in their profits. As a registered U.S. company, ExxonMobil is
prohibited from conducting business in particular territories, while in other territories their level of
investment and business activity is restricted. These and other legal barriers provide fair competition for
local or other companies with an alliance with the host country.
ExxonMobil always faces the risk of a host country altering the legislation that governs the industry it
operates; thus, there can be a tremendous impact from changes in laws that result in:
1. Increases in taxes or government royalty rates (including retroactive claims);
2. Changes in environmental regulations or other laws that increase cost of compliance or
reduce or delay available business opportunities. The New York Times reports that
ExxonMobil quietly settled a lawsuit for an approximate $250 million with the State
Department of Environmental Protection for its contamination and degradation which caused
the loss of use of more than 1,500 acres of wetlands, marshes, meadows and waters in
northern New Jersey (Weiser, 2015);
3. Adoption of regulations mandating the use of alternative fuels or uncompetitive fuel
components;
4. Adoption of government payment transparency regulations that could require ExxonMobil to
disclose competitively sensitive commercial information, or that could cause violation of
non-disclosure laws of other countries;
Financial Analysis
All Amounts expressed in United States Dollars (USD $) except otherwise noted.
Benchmark: Top 4 companies in the industry with available records for the period 2011-2014.
(ExxonMobil Corporation, Chevron Corporation, Suncor Energy Inc and BP p.l.c (ADR)
This is a financial analysis of ExxonMobil over a four-year period, 2011-2014.
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SOURCES AND USES OF FUNDS
ExxonMobil Corporation was formed in 1998 by a merger of two oil companies – Exxon and Mobil –
under a US$37.7 billion agreement. Recently, the company entered into a $41 billion merger agreement
with XTO Energy, inclusive of debt. Under the terms of the agreement, ExxonMobil issued 0.7098 of
common shares to common shareholders of XTO Energy. At the end of 2014, ExxonMobil had a cash
balance of $4.7 billion which was generated from its operations and also had a recorded asset sales
balance of $7.7 billion. Moreover, the company’s capital structure indicated that total debt was $29.1
billion and equity totalled $174.4 billion. Exxon closed on an $8 billion bond deal, the largest tranche of
which was a 10-year issue priced at 2.71% or 58 basis points above the comparable Treasury note in
early March, 2014 to support its dividend pay-out and spending on growth. In most recent years, 2013
and 2014, the company had a positive net issuance of debt, totalling 11,504 and 6,994 Million USD
respectively. This implies that the company issued more debt than it repaid. ExxonMobil’s purchases of
property, plant and equipment generally increased over the period, spending in 2011 was 30,975 Million
USD compared to 32,952 Million USD in 2014. The company in general can obtain funds very easily
especially compared to its competitors, according to Forbes (Forbes, 2015).
SHORT-TERM SOLVENCY
Short-term solvency ratios (see Appendix I, Table 1 and Figure 1) are used to measure a company’s
ability to meet its short-term debt and other obligations.
The Current ratio matches current assets with current liabilities and indicates whether the current assets
are enough to settle current liabilities over a short-term period. ExxonMobil current ratio for 2012 was
the highest over the four year period 2011 to 2014 where the company received a ratio of 1.01 times.
This implies that ExxonMobil had $1.01 in assets for every dollar in current liabilities or its current
liabilities were covered 1.01 times over. However, in 2014 the company was covered 0.82 in current
liabilities which was the lowest amongst the four years. This illustrates inefficient use of cash and other
short-term assets. The management team of ExxonMobil seems to be borrowing over the long term to
raise money. The benchmarks were 1.39 and 1.30 in 2012 and 2014 respectively in which case
ExxonMobil fails to come close.
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The Quick Ratio measures the ability of the company to pay its current liabilities when they come due
with only quick assets. ExxonMobil received its highest quick ratio of 0.66 times in the years 2011 and
2012. However, in both years its quick ratio is below the benchmarks of 0.89 times in 2011, and 0.94
times in 2012. The company’s quick ratio decreased continuously over the years down to 0.50 times in
2014 compared to the benchmark ratio of 0.92 times. In 2014, the company had its biggest deviation
from the benchmark which was a difference of .42 times. This implies that ExxonMobil cannot cover its
current liabilities with only its most liquid assets.
The Cash Ratio measures the ability of ExxonMobil to repay its current liabilities by only using its cash
and cash equivalents. The company’s cash ratio, in 2011 was 0.17 times but decreased throughout the
four year period, amounting to 0.07 times in 2014. Based on these figures ExxonMobil is not in a
position to repay its short-term debts with its cash since all the results are below 1. ExxonMobil falls
below the benchmarks for the period 2011 to 2014 with its four year average being approximately three
times lower than the benchmark.
ExxonMobil’s Defensive Interval Ratio began with an average of 0.62 days and increased to 0.69 in
2012, before decreasing in the subsequent years to 0.60 days. This indicates that ExxonMobil cannot
cover a single day of daily operating expenses without the use of long-term assets. However, that is the
usual case in the industry as the benchmark four-year period average is merely 1.23 days. This is
because these types of companies have higher long-term assets to current assets ratio than other
industries.
LONG-TERM SOLVENCY
Long-term solvency ratios (see Appendix II, Table 2) are used to measure a company’s ability to meet
its long-term debt and other long-term obligations.. When a company's solvency ratio is low there
is a greater chance that it will default on its debt obligations.
ExxonMobil had a Debt-Equity Ratio of 0.06 times in 2011 which steadily decreased to 0.04 times in
2013. However, in 2014 the debt-equity ratio increased to its highest over the observed period to 0.07
times. This indicates that in 2014, for every dollar owned by the shareholders of ExxonMobil
Corporation, the company owed $0.07 to its creditors. A debt-equity ratio over 2 times is unfavourable
and ExxonMobil Corporation had one of 0.07 times which, even though it increased, is still very
desirable compared to the four-year period average benchmark of 0.20 times. ExxonMobil’s debt-equity
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ratio average for the period is almost 4 times smaller. This result means that the company is depending
less on external lenders. However, as debt-equity ratio has increased, percentages of ExxonMobil’s
assets which are financed by debt have increased as well.
The Long-Term Debt Ratio of ExxonMobil decreased over the period of 2011 to 2013 from 2.82% to
1.99%. However, there was a slight increase in 2014 to 3.33%, but compared to the benchmark of
11.05% ExxonMobil is within good standing. Long-term debt can be profitable if the money earned is
more than the interest rate on the long-term debt. This long-term debt ratio indicates that the company’s
assets are not generally financed by long-term debt.
ExxonMobil’s Times Interest Earned Ratio was 247.59 times in 2011 and drastically increased to its
highest in 2013, 6413.33 times, which is almost three times the benchmark of that year. This could be
attributed to the decrease in debt payments and the increase in revenue in 2013. The ratio however
drastically decreased to 181.52 the following year. This low ratio is a result of ExxonMobil’s fall in
revenue due to the drastic decline in oil prices and also the company’s increase in interest payments.
ASSET MANAGEMENT
These ratios are intended to describe how efficiently ExxonMobil Corporation is using its assets to
generate sales (see Appendix II, Table 3 and Appendix III, Figure 2).
The Inventory Turnover ratio measures ExxonMobil’s efficiency in turning its inventory into sales. It
measures the liquidity of the inventory. Over the observed four-year period, the company achieved its
highest inventory turnover ratio of 21.91 times in 2011 in comparison to the industry’s ratio of 16.58
times. A high inventory turnover ratio implies either strong sales or ineffective buying. A high inventory
turnover ratio may also indicate a shortage or inadequate inventory levels, which may lead to a loss in
business. In the case of ExxonMobil it implies strong sales and excellent liquidity. However, over the
period, the company’s ratio continuously decreased until it was 16.26 times in 2014. Although its
turnover has decreased, it is just slightly less than the benchmark high of 16.58 times.
The Receivables Turnover ratio measures ExxonMobil’s efficiency in collecting its credit sales and its
collection policies. The company achieved its highest receivables turnover ratio in 2014 of 18.50 times,
increasing from 13.72 times in 2011. This is compared to the benchmark of 12.04 times. The fact that
the receivables turnover is higher than the benchmark implies either that ExxonMobil operates on a cash
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basis or that its extension of credit and collection of accounts receivable are moreefficient compared to
the benchmark.
The Fixed Asset Ratio measures if ExxonMobil is able to generate net sales from fixed assets
investments. The fixed asset turnover of the company decreased continuously over the period 2011 to
2014 from 2.35 times to 1.66 times. This means that there was a decline of $0.69 in sales for every
dollar in fixed assets over the four-year span. Although there was a decline, ExxonMobil still beats the
benchmark in 2014 by $0.24 in sales for every dollar in fixed assets.
PROFITABILITY RATIOS
Profitability ratios indicate the profit earning capacity and the overall efficiency of the business (see
Appendix III, Table 4 and Appendix IV, Figure 3).
The Profit Margin Ratio measures how much net income ExxonMobil earns out of every dollar in
sales. In 2012, the company obtained its highest profit margin ratio of 9.31% and then decreased to its
lowest in 2013 to 7.43%. Compared to the benchmark, at the beginning of the four-year period the
company was below by 0.69% in 2011, but surpassed it at the end of the period by 1.72%. This indicates
that even though the company’s profit margin has been decreasing it is still more profitable than its
competitors (see Appendix IV, Figure 4).
The Return on Assets Ratio (ROA) indicates how efficient ExxonMobil’s management is in utilizing
its assets to generate earnings. From 2011-2012, the ratio increased from 12.96% to 13.50%. This could
be attributed to the increase in total sales revenue during those years. However, from 2012 to 2014, the
ratio decreased from 13.50% to 9.34% but ExxonMobil remained above the benchmark for the entire
four-year period. This was the result of a combination of an increase in operational expenses, and a
decrease in oil prices in the respective years.
The Return On Equity (ROE) Ratio indicates how much net income is returned to the company’s
shareholders. Similar to its ROA ratio performance, ExxonMobil’s ROE increased from 27.26% in 2011
to 28.03% in 2012. This was the result of the increase in total sales revenue. However, from 2012 to
2014 the ratio decreased from 19.17% to 18.67% but remained above the benchmark for the entire
period. This was a result of another combination of an increase in operational expenses as well as a
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decrease in oil prices. This decline is usually undesirable by shareholders as it means they are losing
value. However, the figure still exceeded the benchmark by more than 8% in 2014.
MARKET VALUE RATIOS Market Value ratios evaluate the economic status of the company in the secondary market (see
Appendix V, Table 5).
The Earnings Per Share (EPS) is the amount of money each share of stock would receive if all of the
profits were distributed to the outstanding shareholders at the end of the year. Over the period, the
company surpassed its benchmark. However, from 2011 to 2012 the company’s EPS increased from
$8.42 to $9.70 but then decreased to $7.37 in 2013. From 2013 to 2014 ExxonMobil’s EPS increased by
$0.23 to $7.60 while the benchmark EPS decreased by $1.91 to $5.20 which was favourable to investors
and their shareholders as ExxonMobil EPS was higher by over $2.00.
The Price Earnings (PE) Ratio shows what the market is willing to pay for a stock based on its current
earnings. In Dec 2012, the PE ratio dropped from 10.07 times in Dec 2011 to 8.93 times but increased to
13.72 times in Dec 2013 and then decreased to 12.18 times in Dec 2014. However, it seems
ExxonMobil’s PE ratio is on a general up trend as estimates for 2015 show an approximate value of
20.59 times. Given that this ratio changes very frequently, a four-year average was used to compare to
the benchmark. ExxonMobil’s average PE ratio for this period is 11.37 times compared to the
benchmark’s 10.28 times. This indicates that investors are willing to pay more than 11 times the
company’s earning for shares in the company. This shows that this company is highly valued by
investors and even more valuable than its competitors, which is beneficial to the shareholders.
The Market-to-Book Ratio measures the valuation of the stock relative to the underlying asset of the
company. Given that this ratio also changes frequently, a four-year average was again used to compare
the company with its benchmark. A value more than 1 means the firm has been successful in creating
value for its stockholders. ExxonMobil’s four-year average market to book ratio is 2.44 times compared
to the 1.67 times of the benchmark. This ratio shows that the company is still creating value to its
shareholders and at a better rate than its competitors.
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Conclusion
ExxonMobil is generally in good financial standing despite the drop in oil prices over the 2011-2014
period. Its short-term solvency ratios are generally below 1, which indicates that the company tends
towards short-term insolvency. However, it is common for companies in this industry to have low short-
term solvency ratios due to their assets being mostly long-term assets and having little current assets.
The company’s long-term solvency is remarkable even though there has been a slight increase in debt
financing. The company is very capable of covering all of its long-term obligations. From the analysis, it
should also be pointed out that the company’s main source of financing is through equity of which they
have in 2014 a negative net issuance of stock meaning that they bought back more stocks than issued.
However, oil prices are downward-trending and since profits of the company and oil prices are
positively correlated, it should be expected that ExxonMobil will see decreases in revenue from its
operating activities until oil prices become stable or increase. According to an oil and gas analyst, Mr
David Alton Clark, there is an upcoming oil boom in the near future in which ExxonMobil is in the best
position compared to its competitors to benefit from the boom (SeekingAlpha 2015).
However, although an oil boom may be in the near future overall demand for oil may decrease due to
governments moving towards alternative energy sources. The United States of America which
represents over 37% of ExxonMobil’s total revenue is moving towards renewable energy as they try to
cut back on oil and gas expenses. Although they are moving towards renewable energy, natural gas
energy capacity will still exceed renewable energy sources even in 2040, according to estimates by the
U.S Energy Information Association (see Appendix V, Figure 5). Thus ExxonMobil will still likely have
sustainable profits and demand in the future and, continue to maintain its dominant position in the
industry.
RecommendationAs Mr.Lovell prefers dividend income stocks, ExxonMobil Corporation is recommended. Over the four
year period, the company’s dividend per share increased from $0.47 in 2011 to $0.69 in 2014 even with
a decrease in earnings. According to Forbes, ExxonMobil is ranked in the top 25 safest dividend paying
stocks with over a decade of annual increases in dividend per share payments (Forbes 2015).
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ExxonMobil’s CEO, Rex Tillerson, noted that in 2015 they will be a decrease in stock buybacks to $1
Billion USD in quarter 1 compared to 2014 full year of $13.2 Billion USD. This allows for the investor
to possibly buy more stocks. Also according to Forbes, it is expected for the company to increase its
dividend per share in 2015 as, the board of directors care very deeply about rewarding shareholders via
dividends (Forbes 2015). In conclusion as ExxonMobil is ranked as a very low risk stock and prioritizes
dividend payments, Big Rock Corp. highly recommends this stock to Mr Lovell.
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Bibliography
ExxonMobil. (n.d.). Managing Climate Change - Risk Factors. Retrieved March 19, 2015, from
Corporate.ExxonMobil.com: http://corporate.exxonmobil.com/en/environment/climate-
change/managing-climate-change-risks/risk-factors?parentId=fbec4340-be1d-41ff-b55b-
988cc9e44881
KRAUSS, C. (2015, February 2). ENERGY & ENVIRONMENT: Exxon Mobil Revenue and Profit Off 21% on
Oil Decline. Retrieved February 14, 2015, from THE NEW YORK TIMES:
http://www.nytimes.com/2015/02/03/business/energy-environment/exxon-mobil-q4-
earnings-decline.html?ref=topics&_r=0
Pennwell Corporation. (2015, January 19). Retrieved February 15, 2015, from Oil and Gas Financial
Journal: http://www.ogfj.com/articles/2015/01/exxonmobil-png-receives-license-to-develop-p-
nyang-field.html
Weiser, B. (2015). Exxon Settles $9 Billion Pollution Case in New Jersey for Far Less. The New York
Times .
Why the Oil Price is Falling. (2014, December 8). Retrieved March 19, 2015, from The Economist
explains: http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-4
CLARK, D. ( 2015, March 20). Exxon Mobil: Seeds Of The Next Oil Boom Are Being Sown As We Speak.
Retrieved March, 20, 2015, from Seeking Alpha : http://seekingalpha.com/article/3015806-exxon-
mobil-seeds-of-the-next-oil-boom-are-being-sown-as-we-speak
Fundamentals of Corporate Finance Alternate Edition Hardcover – February 24, 2009
by Stephen Ross (Author), Randolph Westerfield (Author), Bradford D. Jordan (Author)
Sources for Benchmarks and Financial information: Forbes, energy.gov, csimarket.com, .apec.org,
financials.morningstar.com.
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Appendices
Appendix I
Figure 1: ExxonMobil’s Short-term Solvency Ratios
Table 1: ExxonMobil’s Short-term Solvency Ratios compared to their benchmarks
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Appendix II
Table 2: ExxonMobil’s Long-term Solvency Ratios compared to their benchmarks.
Table 3: ExxonMobil’s Asset Management Ratios compared to their benchmarks.
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Appendix III
Figure 2: ExxonMobil’s Asset Management Ratios over the period 2011 to 2014.
Table 4: ExxonMobil’s Profitability Ratios compared to their benchmarks.
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Appendix IV.
Figure 3: ExxonMobil’s Profitability Ratios over the period 2011 to 2014.
Figure 4: ExxonMobil’s Profit Margin compared to its benchmark over the period 2011 to 2014.
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Appendix V
Table 5: ExxonMobil’s Market Value Ratios compared to their benchmarks.
Figure 5: Estimates of Electricity generation capacity by fuel type over a period of years.
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