Liquidity helps to ascertain an Exxon’s ability to pay operating expenses and other short-term, or current liabilities. In 2010 and 2011 it has a low liquidity measure and it indicate that the company might be having financial problems, or that the company is poorly managed. Hence, a fairly high liquidity ratio is good, however, it shouldn’t be too high, because excess funds incurred an opportunity cost and can probably be invested for a higher return.
By looking at the graph, the current ratio of Exxon is less than 1, and their net working capital which used to run the business and to pays its current liabilities was not sufficient for the last two years. A negative working capital means that a company is unable to meet its short-term liabilities with its current assets. In other words, the net working capital of Exxon Mobil Corporation had an average of 18 percent.
Financial liquidity shows the ability of the company to pay its short-term debt obligations. As we can see in the table above, the current ratio is the result of dividing current assets by current liabilities. It showed a downward trend from 2007 to 2011. The quick ratio is the result of dividing quick asset (current asset minus inventory) over current liabilities. The net working capital ratio is the result of working capital over current liabilities.
- The receivable turnover ratio is the number of times it was collected throughout the year.
- The inventory turnover ratio shows how many times a company’s inventory is sold and replaced over a period. This showed a growth ratio from 2007 to 2011 of 22 percent.
- The payable turnover ratio shows investors how many times per period the company pays its average payable amount.
- And fixed asset turnover ratio measures a company’s ability to generate net sales from fixed-asset investments – specifically property, plant, and equipment – net of depreciation.
Exxon Mobil Corporation showed a favorable average of 13 times a year wherein receivables are being collected. This indicates that they are efficient in their collections. And inventory takes an average of 20 times sold and replaced which was enough to replenish additional finished products. And their payable has an average of 10 times a year While fixed asset turnover showed that it falls down in 2009. So, they are not generating more revenues from their investments in fixed assets but in 2011, it slightly recovered to 2.27 which means a progressive improvement.
Cash conversion cycle
- The receivable conversion period measures the number of days it takes a company to collect its credit accounts from its customers.
- The days’ sales in inventory or inventory conversion period tell the business owner how many days, on average, it takes to sell inventory.
- The payable conversion period measures how the company pays its suppliers in relation to the sales volume being transacted.
- The cash conversion cycle validates the effectiveness of the company’s resources in generating cash.
The average cash conversion cycle takes 19.4 days to convert their goods to cash. With their receivables conversion period of 29 days, inventory takes 18 days to sell and payable to suppliers takes 28 days to pay. So, this indicates that cash from receivables was converted fast, so cash can be used or financed again in their operations.
Exxon Mobil Corporation has a debt ratio that depicts that they have more assets than debts. And if the ratio is greater than 0.5, most of the company’s assets are financed through debt. Thus, companies with high debt/asset ratios are said to be “highly leveraged,” not highly liquid, and could be in danger if creditors start to demand repayment of debt. But with Exxon, they are within the limits of 50 percent. While they have a low debt-to-equity ratio indicating that the company was not taking advantage of the increased profits that financial leverage may bring.
The debt ratio indicates what proportion of debt a company has relative to its assets. Wherein it has been stable at 50 percent from 2007 to 2008, increase to 53 percent in 2009 and 2011 with a slight decrease in 2010 to 52 percent.
- The debt-to-equity ratio is a measure of the relationship between the capital contributed by creditors and the capital contributed by shareholders. It also shows the extent to which shareholders’ equity can fulfill a company’s obligations to creditors in the event of a liquidation.
- The solvency ratio determines how well Exxon is able to meet its debts as well as obligations, both long-term and short-term. It started as a very high solvent company with 553 and 611 percent, but it went down in 2009 and 2010 by 325 and 301 percent with a slight increase of 15.6 percent in 2011. Thus, a solvency ratio of greater than 20 percent is considered financially healthy.
Major control of the company based on total asset
- Current liabilities to total assets identify how much will be claimed by the creditor against total assets.
- While, long-term debt to total assets, on the other hand, is to make out how much claim has the banks or the bondholder against its total assets.
- Then, stockholders’ equity to total assets is to know how much the owner can claim in its total assets.
Based on their total five years of operation the majority in control of their total asset is their stockholders at 48 percent followed by their creditors of 22 and last to their bank/bondholder at 3 percent average.
Plant, property, and equipment
Presented below is the summary of Exxon Mobil Corporation PPE results:
- Gross plant, property, and equipment are the gross total of fixed assets cost. This showed an upward trend yearly for the last five years. It had a growth ratio of -3.4 percent, 13, 22, and 5.4 with an average of 325,005 million dollars for five years.
- Accumulated depreciation is to reduce the carrying value of assets to reflect the loss of value due to wear, tear, and usage. Wherein it shows a yearly growth trend with an average of 165,896 million dollars which is 51 percent of the average cost of plant, property, and equipment.
- The net plant, property, and equipment are the result after deducting the accumulated depreciation from gross PPE, this shows an increase in 2008 then a decrease in 2009 but it increases back in 2010 and 2011. It has an average of 159,109 million dollars which is 49 percent of the average cost.
Looking into its fixed assets, it has still useful life in its business operations. Therefore, based on the above data, the remaining book value of the PPE was 49 percent, using the percentage method of depreciation; this means it has 2.45 useful years remaining.
By looking at the profitability, we can measure the success of a business in maintaining a satisfactory earning power and steadily increasing ownership equity.
- Their return on assets depicted unsatisfactory earnings for every dollar of total assets in 2009 due to their decrease in net income and succeeding years has a declining growth from 36 down to 14 in 2011.
- While their return on equity showed a favorable first two years but due to the financial crisis in the US, in 2009 returns decline down. But recovered in 2010 and 2011 with a declining growth ratio of 37.2 and 15.2 percent.
- And financial leverage the portion of the equity which was the return on debts showed slight increases and a dip down in 2010. This means that the company was not taking advantage of the increased profits that financial leverage may bring.
- Likewise, the return on invested capital because of the crises, cash flow earned from invested capital dip down in 2009.
Exxon Mobil Corporation revenues depicted the same trend wherein it all dipped down in 2009 meaning the US financial crisis had greatly affected the company’s sales. But the good thing about it was they had recovered based on the succeeding year’s growth ratios on earnings.
- Their revenue means how much money a company has generated in terms of “sales”, representing the amount of money a company brings in for selling its goods and services. This showed an up and downtrend with a growth ratio of 18 percent.
- Gross profit shows how much of their markup a company receives on the goods and services it sells after deducting its cost of revenue wherein it also depicts a decreasing trend. Likewise, the same trend with revenue with a growth ratio of 10 percent.
- Operating profit is the best indicator of a company’s true performance in their operations. For this is the result after deducting all the expenses incurred in their operations. This has a growth ratio of 16 percent.
- Net income is what’s leftover for a company, after all, expenses have been accounted for. Exxon Mobil Corporation depicted good earnings with a growth ratio of 11 percent.
- The cost of revenue was the amount the company paid for the goods that were sold during the year. This showed an up and down trend and growth ratio of 24 percent, -26.7, 23.8, and 16.9 with trailing twelve months of $312,813 million.
- Operating expense was the expenses incurred in conducting their regular operations of the business. This depicted an up and downtrend with a growth ratio of 5.5 percent, -40, 6.1, and 56.5.
- The other income was the non-operating income or expenses from their business. This reflected an increasing other income only in 2009 to 2011 with trailing twelve months of $2,758 million.
- Provision for income tax was the amount allocated for their payment of income taxes. This shows a growth ratio of 22.3 percent, -58.6, 42.6, and 44.
Modified Income Statement
What is a modified income statement? It’s a graph that shows the relationship or the flow of revenue, expenses, and net income.
For Exxon Mobil Corporation, they depicted an abrupt dip down due to the US financial crisis in 2009. But revenue and total expenses in 2010 and 2011 had recovered and increased subsequently during the period.
Exxon Mobil Corporation’s margin tells us the total performance of their business operations.
- Their gross margin indicates the percentage of revenue dollars available for expenses and profit after the cost of merchandise is deducted from revenues. And this averages 36.4 percent.
- And their operating margin is the operating income expressed as a percentage of sales or revenue after deducting the operating expenses from gross profit. The result showed an average of 14.8 percent.
- While the net margin is the net income expressed as a percentage of sales or revenue after deducting provision for income tax from income before tax. And it had an 8.2 percent average only.
Exxon Mobil Corporation showed a profit margin of less than 50 percent, an unfavorable declining operating margin with a ratio below 17 percent, and lastly, a net margin of less than 10 percent. This means that manufacturing operations, as she told me, have margins below our scaling standards. On the other hand, but net income reflected sufficient and impressive earnings. For they had recovered from their declined income in 2009 which was due to financial crises in the US.
CASH FLOW STATEMENT
The cash flow statement helps us determine if Exxon Mobil Corporation has available cash for the operation or if they have a good free cash flow and excess of funds to refinance operations for business expansion.
Cash flow from operating activities
Cash flow from operating activities comes from their net income adding back depreciation and amortization, investment/asset impairment charges in 2009, deferred income taxes, inventory, prepaid expenses, other working capital, and other non-cash items to get the net cash provided by operations. This showed a growth ratio of 14.9 percent, -52.4, 70.2, and 14.3. They had a good cash flow from operations except for a decline in 2009 net income due to the decrease in revenue.
Cash flow from investing activities
Cash flow from investing activities comes from their investments in plants, properties, and equipment, acquisitions, purchases of investments, sales/maturities of investments, and other investing activities to get the net cash used in investing activities. The company showed a growth ratio of 59.3 percent, 44.6, 7.9, and -8.4 with trailing twelve months of -15,415 million dollars. They were doing well in their investments for the first four years but in 2011, it slightly declined.
Cash flow from financing activities
Cash flow from financing activities comes from debt issued, debt repayment, common stock issued, repurchases of treasury stocks, cash dividend paid, and other financing activities to get net cash provided by or used for financing activities. Wherein this depicted a growth ratio of 14.8 percent, -38, -1.3, and 4.9 with trailing twelve months of -29,725 million dollars. This means they had used cash flow in financing activities to the extent that it was declining down with a slight improvement in 2011.
- The cash flow of Exxon Mobile Corporation showed that it was affected by the exchange rate differences were favorable in 2007 and 2009 but in 2008, 2010, and 2011 it decreases down. This means that the company cash flow from operations from 2008 to 2010 was not enough after deducting the investing and financing activities. This may be due to the US financial crisis. The cash at the end of each period after deducting the net change in cash from cash showed a decreasing trend as well.
Free cash flow
Reviewing their free cash flow, we deduct from operating cash flow amount their capital expenditures resulting to free cash flow to be used in operations and expansions. This shows that Exxon Mobil Corporation had sufficient free cash flow but indicating an up and downtrend yearly with the growth ratio of 10.4 percent, -85.2, 262.2, and 13.1 with trailing twelve months of $22,804 million.
Cash flow efficiency ratios
- The operating cash flow to sales ratio measures how much cash generated from its revenue for the period. This showed a growth ratio of -6.9 percent, -26.4, 36.9, and -9.5. This means that not much earnings come from operations.
- The operating cash flow ratio measures how much cash left after considering short debt by using the result of operating cash flow from operating over current liabilities. This showed a growth ratio of 36.3 percent, -55.1, 41.6, and -7.6. Herein operating cash flow was sufficient only in 2009, the rest of the years it was not enough to pay for their current liabilities.
- The free cash ratio helps us conclude if the company will grow in the future. Through the result of operating cash flow, less dividend paid less capital expenditure over operating cash flow. This showed that free cash flow was sufficient to pay dividends and capital expenditures except in 2009, which reflected a -8.3 percent.
- Capital expenditure ratio measures company sustainability in maintaining their assets. By using the result of operating cash flow over capital expenditure for the period.
- Total debt ratio measures company efficiency, from the result of operating cash flow over total liabilities. The first five results showed an up and downtrend with the growth ratio of 20.1 percent, -55.3, 34.1, and 0.64. The more capital a company has (the assets) compared to debt (the liabilities), the less leveraged or stronger equity position it is said to have. The more debt compared to assets a company has, the more highly it is leveraged. Herein the company reflected that it has a total of liabilities than their operating cash flow, so they are highly leveraged.
- The current coverage ratio measures how much cash available after paying all its current debt. It can determine through cash flow from operating less dividend over current liabilities. This showed a growth ratio of 38.2 percent, -63.2, 63.6, and -6.2, with trending a dip down twice in 2009 and 2011. However, only in 2008, it has a favorable coverage ratio that is more than 1:1 or 100 percent greater showing that the company can repay all debt within one year. With regards to the current coverage, in broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders. This means the company’s current liabilities were more than the operating cash flow after paying off dividends. Therefore, cash flow from the operation was not sufficient for their current obligations.
Written by Nelly
Edited by Maydee