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Chevron Corp (CVX) Extended Graph Analysis

February 20th, 2020 Posted by Extended Analysis No Comment yet

Company Profile

CVX logo

Chevron Corporation is a public multinational energy corporation traded as NYSE:CVX, headquartered in San Ramon, California USA. Chevron and was founded on September 10, 1879. CVX is one of the largest oil companies as of 2019. The company produced fuel products, base oils and process oils, lubricants, chemicals, aviation fuels and marine fuels. The company is engaged in hydrocarbon exploration and production and refining. 

 

Chevron Corp (CVX) Extended Graph Analysis

1. CVX CASH FLOW

CVX CASH FLOW

2014 2015 2016 2017 2018 2019
Net cash flow provided by operating activities 31,475,000,000 19,456,000,000 12,846,000,000 20,515,000,000 30,618,000,000 30,808,000,000
Net cash provided by (used for) financing activities -4,999,000,000 2,815,000,000 25,000,000 -14,554,000,000 -13,699,000,000 -15,243,000,000
Net cash used for investing activities -29,893,000,000 -23,808,000,000 -16,852,000,000 -8,201,000,000 -12,290,000,000 -13,468,000,000
Capital expenditure -35,407,000,000 -29,504,000,000 -18,109,000,000 -13,404,000,000 -13,792,000,000 -13,897,000,000
Free cash flow -3,932,000,000 -10,048,000,000 5,263,000,000 7,111,000,000 16,826,000,000 16,911,000,000

Facts:

  • Net cash flow provided by operating activities were $30.8 billion in the trailing twelve months.
  • Net cash used for investing activities was -$13.5 billion in the trailing twelve months.
  • Cash provided by (used for) financing activities was -$15 billion in the trailing twelve months.
  • Capital expenditure was -$13.9 billion in the trailing twelve months.
  • Free cash flow was $16.9 billion in the trailing twelve months.

Explanation

  • Net income and depreciation have a significant amount in cash provided by operating activities.
  • Cash used for investing activities were investment in property, plant and equipment, and purchases of investment.
  • Cash provided by (used for) financing activities were debt issued and repayment, and dividend payments.
  • Capital expenditure is investment in property, plant and equipment.
  • Free cash flow had less one percent increase from 2018 to the trailing twelve months.

Interpretation

CVX was able to provide cash from operations in the last five years. Moreover, the company was able to generate a free cash flow from 2017 to the trailing twelve months.

 

2. CVX BALANCE SHEET

CVX BALANCE SHEET

2014 2015 2016 2017 2018 2019
Total cash 13,215,000,000 11,332,000,000 7,001,000,000 4,822,000,000 10,345,000,000 11,755,000,000
Current Assets 42,232,000,000 35,347,000,000 29,619,000,000 28,560,000,000 34,021,000,000 33,988,000,000
Net property, plant and equipment 183,173,000,000 188,396,000,000 182,186,000,000 177,712,000,000 169,207,000,000 164,363,000,000
Total non-current assets 223,794,000,000 230,756,000,000 230,459,000,000 225,246,000,000 219,842,000,000 222,549,000,000
Total assets 266,026,000,000 266,103,000,000 260,078,000,000 253,806,000,000 253,863,000,000 256,537,000,000
Current liabilities 31,926,000,000 26,464,000,000 31,785,000,000 27,737,000,000 27,171,000,000 30,233,000,000
Non-current liabilities 79,072,000,000 86,923,000,000 82,737,000,000 77,945,000,000 72,138,000,000 70,463,000,000
Total liabilities 110,998,000,000 113,387,000,000 114,522,000,000 105,682,000,000 99,309,000,000 100,696,000,000
Retained earnings 184,987,000,000 181,578,000,000 173,046,000,000 174,106,000,000 180,987,000,000 183,783,000,000
Stockholders equity 155,028,000,000 152,716,000,000 145,556,000,000 148,124,000,000 154,554,000,000 155,841,000,000

Facts:

  • Total cash was $11.8 billion in Q3 2019.
  • Current assets were $34 billion in Q3 2019.
  • Net property, plant and equipment was $164 billion in Q3 2019.
  • Total non-current assets were $223 billion in Q3 2019.
  • Total assets were $257 billion in Q3 2019.
  • Current liabilities were $30 billion in Q3 2019.
  • Non-current liabilities were $70 billion in Q3 2019.
  • Total liabilities were $107 billion in Q3 2019.
  • Retained earnings were $184 billion in Q3 2019.
  • Stockholders equity was $156 billion in Q3 2019.

Explanation

  • Total cash was erratic in movement in the last five years. It grows 14 percent from 2018. It represents 35 percent of current assets.
  • Current assets were erratic in movement in the last five years. It represents 13 percent of total assets.
  • Net property, plant and equipment represents 74 percent of total non-current assets.
  • Total non-current assets represents 87 percent of total assets.
  • Total assets grew 1 percent from 2018.
  • Current liabilities represent 30 percent of total liabilities.
  • Non-current liabilities represent 70 percent of total liabilities.
  • Total liabilities was 39 percent of total liabilities and stockholders equity.
  • Retained earnings was 118 percent of equity.
  • Stockholders equity represents 61 percent of total liabilities and shareholders equity.

Interpretation

The balance sheet is liquid. The company’s current assets are sufficient for its current obligations. CVX is using more of the shareholders investment than the sources from creditors in the usual business operations. In other words the shareholders have more stake than the creditors in the trailing twelve months.

3. CVX INCOME AND MARKET

CVX INCOME AND MARKET

2014 2015 2016 2017 2018 2019
Revenue 200,494,000,000 129,925,000,000 110,215,000,000 134,674,000,000 158,902,000,000 145,629,000,000
EBIT 19,726,000,000 -3,710,000,000 -6,216,000,000 2,480,000,000 14,446,000,000 13,295,000,000
Net Income 19,241,000,000 4,587,000,000 -497,000,000 9,195,000,000 14,824,000,000 13,264,000,000
Market Capitalization 211,347,120,000 169,378,000,000 222,190,000,000 237,783,000,000 207,010,000,000 202,588,000,000
Intrinsic Value 209,073,862,419 212,683,314,721 333,795,619,400 423,503,597,323 716,272,790,115 995,200,421,499

Facts:

  • Revenue was $146 billion in the trailing twelve months.
  • EBIT was $13 billion in the trailing twelve months.
  • Net income was $13 billion in the trailing twelve months.
  • The market capitalization was $202.588 billion in the trailing twelve months.
  • Intrinsic value was $995 billion in the trailing twelve months.

Explanation:

  • Revenue was erratic in movement. It was down 8 percent from 2018.
  • EBIT represents 9 percent of revenue in the trailing twelve months.
  • Net income was 9 percent of revenue in the trailing twelve months.
  • Market capitalization was erratic in movement in the last five years. It shows a decrease of 2 percent from 2018.
  • Intrinsic value was higher than the market capitalization by 3x in the trailing twelve months.

Interpretation

The company was able to generate sufficient revenue for the operation of the business in the trailing twelve months.

 

4. CVX FINANCIAL RATIOS

CVX FINANCIAL RATIOS

2014 2015 2016 2017 2018 TTM
Asset turnover (average) 0.77 0.49 0.42 0.52 0.63 0.57
Return on assets % 7.4 1.72 -0.19 3.58 5.84 5.17
Return on equity % 12.65 2.98 -0.33 6.26 9.8 8.57
Debt/Equity 0.15 0.22 0.24 0.23 0.19 0.16
Return on invested capital % 10.92 2.45 -0.2 5.02 8.17 7.31
Interest coverage 0 0 -9.75 31.04 28.51 24.25

Facts:

  • Asset turnover was averaging 0.57 in the trailing twelve months.
  • Return on asset was 5.17 percent in the trailing months.
  • Return on equity was $8.57 percent in the trailing twelve months.
  • Debt/Equity was 0.16 in the trailing twelve months.
  • Return on invested capital was 7.31 percent in the trailing twelve months.
  • Interest coverage was 24.25 in the trailing twelve months.

Explanation

  • Asset turnover indicates that for every dollar invested in assets, the company generates 57 cents of sales.
  • Return on asset indicates that for every dollar invested in assets, CVX generated 5.17 cents of net income.
  • Return on equity indicates that for every dollar of the capital that the shareholders invested, the company generates 8.57 cents profit.
  • Debt to Equity indicates that the company has $0.16 debt for every dollar of assets.
  • Return on invested capital indicates that the company generated a 7.31 percent return from the company’s investments.
  • The interest coverage indicates that the company has the ability to make interest payments on its debt in due date.

Interpretation

The company has the ability to generate cash for its daily business operations. CVX is using more of the investors money than creditors.

 

5. CVX KEY EXECUTIVE COMPENSATION

CVX KEY EXECUTIVE COMPENSATION

2014 2015 2016 2017 2018
Key Executive Compensation 44,239,015 46,489,214 57,690,075 64,632,139 55,846,538
John S. Watson/Chairman of the Board and Chief Executive Officer 25,970,417 22,029,809 24,657,491 24,781,568 1,241,499
Patricia E. Yarrington/Vice President and Chief Financial Officer 9,781,357 7,379,867 6,541,425 8,152,053 7,159,079
Michael K. Wirth/Vice Chairman of the Board and Executive Vice President, Midstream & Development 8,487,241 8,123,840 9,129,645 11,669,681 20,640,623
James William Johnson/Executive Vice President, Upstream 8,955,698 9,416,320 11,024,515 10,925,982
Pierre R. Breber/Executive Vice President, Downstream & Chemicals 8,030,044
Joseph C. Geagea/Executive Vice President, Technology, Projects and Services 7,945,194 9,004,322 7,849,411

Facts:

  • Total key executive compensation was $55,846,538 in 2018.
  • Chairman of the Board and CEO compensation was $1,241,499 in 2018.
  • Vice President and CFO compensation was $7,159,079 in 2018.
  • Vice Chairman of the Board and EVP Mainstream & Development compensation was $20,640,623 in 2018.
  • EVP Upstream compensation was $10,925,982 in 2018.
  • EVP Downstream and Chemicals compensation was $8,030,044 in 2018.
  • EVP Technology, Projects and Services compensation was $7,849,411 in 2018.

Explanation:

  • The key executive total compensation represents 0.38 percent of net income in 2018.
  • Chairman of the Board and CEO compensation represents 2 percent of the total key executive compensation.
  • Vice President and CFO compensation represents 13 percent of the total key executive compensation in 2018.
  • Vice Chairman of the Board and EVP Mainstream & Development compensation represents 37 percent of the total key executive compensation in 2018.
  • EVP Upstream compensation represents 20 percent of the total key executive compensation in 2018.
  • EVP Downstream and Chemicals compensation represents 14 percent of the total key executive compensation in 2018.
  • EVP Technology, Projects and Services compensation  represents 14 percent of the total key executive compensation in 2018.

Interpretation

The company is spending less than one percent of its net income in its key executive compensation.

 

6. CVX LOBBYING AND CONTRIBUTIONS

CVX LOBBYING AND CONTRIBUTIONS

PERIOD USD PERIOD USD
2019 9,270,000 2008 12,994,000
2018 9,600,000 2007 9,030,000
2017 9,290,000 2006 7,480,000
2016 7,470,000 2005 9,490,000
2015 7,200,000 2004 5,220,000
2014 8,280,000 2003 4,620,000
2013 10,530,000 2002 4,620,000
2012 9,550,000 2001 1,519,296
2011 9,510,000 2000 1,680,000
2010 13,130,000 1999 2,040,000
2009 20,815,000 1998 2,969,825

Explanation:

The company has been lobbying and contributions to politicians yearly since 1998. A note from Center for Responsive Politics were quoted below:

NOTE: Figures on this page are calculations by the Center for Responsive Politics based on data from the Senate Office of Public Records. Data for the most recent year was downloaded on January 23, 2020 and includes spending from January 1 – December 31. Prior years include spending from January through December.”

Interpretation

The company’s total lobbying and contributions in 2019 represents 0.07 percent of net income in 2019.

 

7. CVX FINANCIAL STRENGTH

CVX FINANCIAL STRENGTH

DATA USD
Working capital 6,850,000,000
Total assets 253,683,000,000
Sales 145,629,000,000
EBIT 13,295,000,000
Market value of equity 211,134,800,000
Book value of total liabilities 99,309,000,000
Retained earnings 180,987,000,000

 

CALCULATION

Ratio Score Result
A – Working Capital / Total Assets 0.0270 1.20 0.03
B – Retained Earnings / Total Assets 0.71 1.40 1.00
C – EBIT / Total Assets 0.05 3.30 0.17
D – Market Value of Equity / Book Value of Total Liabilities 2.13 0.60 1.28
E – Sales / Total Assets 0.57 1.0 0.57
Z-Score     3.05

 

Formula: Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

 

Explanation:

Z-Score is a statistical measurement that compares data points from different sets of data to find correlations. This measurement by Dr. Edward Altman is a significant measure in determining the financial strength of the company because it relies on different weighted financial liquidity and profitability metrics to come up with the overall score. This measure indicates the probability of bankruptcy.

Interpretation

Chevron Corporation. has a Z-Score of 3.05. Dr. Altman’s grading scale of 3.0 and above indicates that the company will not declare bankruptcy in near future. In other terms, the company is not close to insolvency. The main factors of this statistical measurement are profitability, liquidity, leverage and efficiency.

Overview

The company is capable of producing sufficient revenue for the operation of the business and able to produce free cash flow in the last three years.

 

Citation

https://www.chevron.com/about

https://www.opensecrets.org/federal-lobbying/clients/summary?cycle=1998&id=D000000015

https://www.morningstar.com/stocks/xnys/cvx/quote

Researched and written by Criselda

exxon-mobil-corporation-xom

Exxon Mobil Corporation (XOM) Capable of Generating Sufficient Revenue

October 30th, 2012 Posted by Investment Valuation No Comment yet

Exxon Mobil Corporation (XOM), one of the world’s largest publicly traded energy providers and chemical manufacturers, develops and applies next-generation technologies to help safely and responsibly meet the world’s growing needs for energy and high-quality chemical products. Exxon Mobil Corporation website.

Exxon Value Investing Approach

This model is prepared in a very simple and easy way to value a company, it adopts the investment style of the Father of Value Investing Benjamin Graham. The essence is that any investment should be purchased at a discount, meaning the true value should be more than the market value. Graham believed in fundamental analysis and was looking for companies with a sound balance sheet and with little debt. The basis for this valuation is the company’s five years of historical financial records, the balance sheet, income statement, and cash flow statement. We calculated first the enterprise value as our first step. We believed this is important because it measures the total value of the company.

The Investment in Enterprise Value  

The concept of enterprise value is to calculate what it would cost to purchase an entire business. Enterprise Value EV) is the present value of the entire company.  Market capitalization is the total value of the company’s equity shares. In essence, it is a company’s theoretical takeover price, because the buyer would have to buy all of the stock and pay off existing debt, and taking any remaining cash.
Enterprise Value = Market Capitalization + Total Debt – (Cash and Cash Equivalent + Short Term Investment)XOM EV

The table showed the market capitalization of Exxon Mobil Corporation experienced the downfall in 2008 at 15 percent and another 15 percent down the following year.  From 2010, XOM recovered with an increase of 11 percent average until ttm6.  Total debt represented 3 percent of the enterprise value, while cash and cash equivalent represented 5 percent of the enterprise value, thus, enterprise value is lesser than the market capitalization by 2 percent.

Buying the entire business of XOM would be buying 100 percent of the equity because cash and cash equivalent are greater than the total debt. The current buying price as of to date October 23, 2012, was $404.9 billion at $85.29 per share. The market price to date was $90.18 per share.

Benjamin Graham’s Stock Test 

Net Current Asset Value (NCAV) Approach

The Net Current Asset Value (NCAV) is a method from Benjamin Graham it is to identify whether the stock is trading below the company’s net current asset value per share, specifically two-thirds or 66 percent of net current asset value. Meaning they are essentially trading below the company’s liquidation value and therefore, the stocks are trading in a bargain, and it is worth buying.

Net Current Asset Value (NCAV) Method 

XOM NCAVPS

The net current asset value method for XOM shows that the stock was trading at an overvalued price from 2007 to ttm6 of 2012 because the price was over the 66 percent of NCAV by 99 percent in average. This means that the stocks were trading above the liquidation value of XOM by 99 percent. The stocks did not pass the stock test of Benjamin Graham.

Market Capitalization/Net Current Asset Value (MC/NCAV) Valuation  

Another stock test by Graham is by using market capitalization and dividing it to net current asset value (NCAV).  If the result does not exceed the ratio of 1.2, then the stock passed the test for buying. So, let us see if the stock of Exxon Mobil Corporation passed the stock test.

  XOM MC NCAV

The market capitalization/net current asset value valuation (MC/NCAV) for Exxon Mobil Corporation tells us that the price was overvalued from 2007 to ttm6 2012 because the ratio exceeds 1.2. It shows that the stocks of the company did not pass the stock test of Benjamin Graham because the result of the valuation is greater than 1.2 ratio.

Benjamin Graham’s Margin of Safety (MOS)

The margin of safety is used to identify the difference between company value and price. Value investing is based on the assumption that two values are attached to all companies – the market price and the company’s business value or true value. Graham called it the intrinsic value. The difference between the two values is called the margin of safety. According to Graham, the investor should invest only if the market price is trading at a discount to its intrinsic value. Value investing is buying with a sufficient margin of safety. Graham considers buying when the market price is considerably lower than the intrinsic or real value, a minimum of 40 to 50 percent below. The enterprise value is used because, in my opinion, it is a much more accurate measure of the company’s true market value than market capitalization.

XOM MOS

Explanation

Benjamin Graham’s margin of safety valuation for XOM shows that there was MOS from 2007 to ttm6 2012 at an average of 75 percent. The intrinsic value was erratic in movement and it was 413 percent of the enterprise value.

Intrinsic Value = Current Earnings x (9 + 2 x Sustainable  Growth Rate)  

The explanation for the calculation of intrinsic value was as follows:

EPS, the company’s last 12-month earnings per share; G: the company’s long-term (five years) sustainable growth estimate;  9 : the constant represents the appropriate P-E ratio for a no-growth company as proposed by Graham  (Graham  proposed an 8.5, but we changed it to 9); 2: the average yield of high-grade corporate bonds.

The intrinsic value factors earning per share and the sustainable growth rate. By multiplying 9+2 to the sustainable growth rate (SGR) we get the annual growth rate. I have used the basic earnings per share in calculating the intrinsic value.

XOM IV

Explanation

The sustainable growth rate factors return on equity and the payout ratio.  The return on equity was multiplied by the result of 1- payout ratio over 100. Then, we get the sustainable growth rate as seen in the formula mentioned above. The average ROE for Exxon Mobil Corporation was $28 and the average SGR was $22. Payout ratio was $25 average in five years period.  XOM is paying cash dividends to its shareholders’ yearly.

XOM Graph

The table shows that the intrinsic value line was higher than the enterprise value line. In 2009, it shows a sudden drop of the line at -82 percent, then slightly going up at a rate of 131, 62 and 18 percent from 2010 to ttm6 2012 or an average of 70 percent. The distance between the two lines, enterprise value, and the intrinsic value is the margin of safety.

The Relative and the Averages Approaches

There are two approaches in calculating the sustainable growth rate and this affects the intrinsic value and the margin of safety.

XOM Relative

The table shows that relative return on equity produced a higher result than by using average approach, except for the margin of safety percentage.

XOM Relative Valuation Methods 

Price to Earnings/Earning Per Share (P/E*EPS)   

This method will determine whether the stocks are undervalued or overvalued by multiplying the Price to Earnings (P/E) ratio with the company’s relative Earning per Share (EPS) and comparing it to the enterprise value per share, we can determine the status of the stock price.

XOM PE EPS

The P/E*EPS relative valuation for Exxon Mobil Corporation indicate that the price was trading at the undervalued price. Because the price (enterprise value) was lesser than the P/E*EPS results.

The enterprise value per share was 97 percent, the price was 3 percent lower than the result of valuation, therefore, the price was undervalued.

The Relative and Average Approaches

There is another approach in calculating P/E*EPS, and this is by using the average price to earnings ratio.  The above table is the result of using the relative price to earnings ratio.

XOM Relative PE

It shows that using the average price to earnings produces a higher result, therefore, the price is undervalued by 5 percent.

Enterprise Value (EV)/Earning Per Share (EPS) or (EV/EPS)   

The use of this ratio is, to separate price and earnings in the enterprise value.

XOM EV EPS

The EV/EPS tells us that the price (P/E) 14 percent, while the earnings (EPS) was 86 percent.  The price was only 17 percent of the earnings. The price indicates that stock was trading at an undervalued price.

Enterprise Value (EV)/ Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA) or (EV/EBITDA).   

This metric is used in estimating business valuation. This metric is useful for analyzing and comparing profitability between companies and industries.

XOM EV EBITDA

Explanation

The EV/EBITDA valuation was 5 years or 5 times.  This means, that it will take 5 times the cash earnings to cover the costs of buying the entire business. In other words, an investor will wait 5 years to cover the cost of the purchase price.

This method also shows the profitability of the company.  The net earnings were 9 percent, while the gross margin was 37 percent. Moreover, XOM’s EBITDA was 19 percent on average.

Conclusion 

The market capitalization of Exxon experienced a down in 2008 and 2009 at 15 percent each year. Then an up movement in 2010 to ttm6 2012 with 11 percent average. The total debt represents 3 percent of the enterprise value. While cash and cash equivalent represent 5 percent of the enterprise value.  Buying the entire business  buying 100 percent of its equity because cash and cash equivalent are greater than total debt.

The net current asset value approach price was overvalued because the stock is trading above the liquidation value. Likewise, In MC/NCAV price was overvalued because the price was over the 1.2 ratios.

The margin of Safety (MOS)

Moreover, the margin of safety for Exxon indicates an average of 75 percent. Using the average return on equity in calculating the sustainable growth rate, the margin of safety was higher by 1 percent at 76 percent.

On the other hand, in PE*EPS valuation price was undervalued because the price was greater than the result of P/E*EPS. Using the average price to earnings ratio, the result was greater by 5 percent in the P/E*EPS percentage.

EV/EPS

The EV/EPS indicate that the price (P/E) was 14 percent average, while the earnings (EPS) was 86 percent. It indicates that the price was undervalued.

Furthermore, it will take 5 years or 5 times the cash earnings to cover the costs of buying the entire business. XOM has a fair margin of earnings and was capable of generating sufficient revenue for its daily operations.

The margin of safety was 75 percent and the relative valuation tells us that the stock was trading at the undervalued price. In other words, the price was cheap, I, therefore, recommend a BUY on the stock of Exxon Mobile Corporation.

Research and Written by Cris

Note:

Research Reports can be found under the company tab.