-RAVI CHANDRA GHANTA

FINANCIAL ANALYSIS
OF
EXXONMOBIL

Contents
Business Profile

Mission Statement

Vision

Shifts in supply and demand

Slowdown of economy

Liquidity changers

Other factors

S.W.O.T analysis

Major competitors

Chevron corporation overview

Financial analysis of ExxonMobil and Chevron

ExxonMobil Balance Sheet overview

Liquidity ratios

Working capital management

11

Overview of Income statement

12

Measures of Profitability

12

Cash flow statement

14

Financial leverage

15

The winner

16

References

17

ExxonMobil Balance sheet

18

ExxonMobil Income statement

20

ExxonMobil Cash flow statement

21

Chevron Balance sheet

23

Chevron Income statement

25

Chevron Cash flow statement

27
1

Business Profile:
Exxon Mobil Corp. (ExxonMobil), an American multinational oil and gas corporation formed by
the merger of Exxon and Mobil on November 30, 1999. Both Exxon and Mobil were the largest
direct descendants of John D. Rockefellers Standard Oil Company which was originally
established in 1870. ExxonMobil has several divisions and many groups of affiliates like
ExxonMobil, Exxon, Mobil or XTO and Esso operating and marketing in the United States as
well as in many other countries worldwide. In support of their various businesses as mentioned
below affiliates of ExxonMobil conduct extensive research. Their core business is energy which
involves the exploration and production of crude
oil including the manufacturing of petroleum
products, transportation and sale of crude oil,
natural gas and petroleum products. ExxonMobil is a major manufacturer of commodity
petrochemicals, including olefins, aromatics polyethylene and polypropylene plastics and the like
ones.

Mission Statement:
Exxon Mobil Corporation is committed to being the world's premier petroleum and
petrochemical company. To that end, we must continuously achieve superior financial and
operating results while simultaneously adhering to high ethical standards.

Vision:
To be at the leading edge of competition in every aspect of our business.

As a global company operating worldwide ExxonMobil is subjected to various risks in their

businesses. Perhaps, this could affect their financial and operating results adversely. Some of the
factors affecting the financial condition are as follows:

Shifts in Supply and Demand:

Being in a commodity business, ExxonMobils earnings may be significantly affected by the
price fluctuations in oil and gas. It can also be affected by the changes in margins on the refined
products. Oil and gas prices, margins depend upon regional, local or global situations that have
an impact on supply and demand for the relevant commodity.

Slowdown of Economy:
The demand for energy and petrochemicals depends upon the current economy of the country
and its rate of growth. Frequent recession periods will typically impact the bottom line of the
company. Additionally, in a region or in any part of the world, changes in population growth,
political instability or currency exchange rate fluctuations can impact the demand for energy and
petrochemicals.

Liquidity changers:
Some of the other factors that impact the demand and ultimately create liquidity crisis includes
technological advancements in using the energy efficiently, seasonal weather patterns where
there is a demand for heating or cooling, competition from government subsidized oil and gas
companies and change in consumer preferences especially in case of alternative fuels. Also the
laws for accidents where there is a huge amount of punitive damage especially in countries like
United States will have an adverse outcome.

Other factors:
Inflation causes negative business results. There is a direct relationship between oil and inflation
because oil acts as a major input in the economy for critical activities such as transportation,
running the machines, heating homes and many others. Apart from inflation, changes in interest
rates, currency exchange rate fluctuations, political developments, import and export restrictions
depending upon country and local conditions may impact the financial health. Additionally, this
also includes increase in government taxes and environmental regulations. Let us now look at the
strengths and weaknesses of the company.

S.W.O.T. Analysis:
Strengths:

ExxonMobil is a well-established company since many decades creating a sense of

security and trust among its customer base.

Improvement in financial performance.
They are one of the leading refiners in North America.
The company is known for its timely technological advancements as it has a very strong

R&D that strives to focus mainly on industry needs and stakeholder expectations.
They have a diversified revenue stream.
They have around 83,000 employees and 37 oil refineries in 21 countries. Moreover, due
to the presence in such huge marketplaces, they have a diversified revenue stream.

Weaknesses:

Taking the environmental concerns into account the company is not doing enough for the
environment. Stakeholders and others often accuse the company for excess pollution and
overuse of natural resources. The company is still finding it difficult to control their

carbon emissions in order to meet the environmental policies.

Environmental groups are still skeptical about ExxonMobils emissions and how

transparent they are in communicating to them claiming to be a greener company.

It may not be a successful sustainable strategy if the company continues to focus only on

oil rather than focusing on alternative fuels for future.

Environmental hazards and oil spills.
It is difficult to manage all the employees across the world.
Frauds and incidents of bribery in global operations.

Opportunities:

Increasing demand for energy especially in developing economies like Middle East, Asia,

South Asia and South East Asia.

Capital investments.
The company has the opportunity to build its image in all other countries where they can
be involved in community service and other social responsibility initiatives.

Threats:

Slowdown of economy in USA and the European Union.

Environmental regulations
High competition and declining oil prices
Competitors in the same industry are advancing in alternative energy sources in order to
meet their shareholder expectations. ExxonMobil is lagging behind in this area and this

could pressure the company to change its strategy.

Technological advancements in vehicles, therefore being fuel efficient than before or
using alternative fuels.

Major Competitors:
Major competitor of ExxonMobil in energy and petro chemical industry is Chevron. Other top
competitors are BP (British Petroleum), Shell, ConocoPhillips, Valero Energy and Marathon Oil.

Chevron Corporation overview:

Chevron is also an American multinational energy company, both Exxon and Chevron were part
of John D. Rockefellers Standard Oil until the Supreme Court declared that it was an
unreasonable monopoly and was broken into 90 independent companies. Chevron made its
presence in every aspect of oil, natural gas and geothermal energy industries which includes
exploration and production of hydrocarbons, refining, marketing and transport and power
generation.
Chevron is one of the worlds largest oil companies ranking sixteenth in Fortune Global 500
worldwide. Chevrons alternative energy operations include biofuel, solar energy, wind power,
hydrogen and fuel cells. There are 62,000 people working in Chevron, of which 31,000 are
employed in US operations.

Financial analysis of ExxonMobil and Chevron

ExxonMobil Balance Sheet overview with their corresponding ratios:
In this report we are going to compare the financial statements of ExxonMobil with Chevron and
find out their financial health, also let us see which company is better in terms of efficiency.

Financial health of the company:

The balance sheet of both the companies show the total assets, liabilities and equity till
December 2104. The ability to increase the cash indicates that the company is healthy to meet its
expenses and can also leads to jump in the stock price. From an investors standpoint, too much
cash in hand may indicate that the company is not looking to grow into new areas.
Starting with ExxonMobil, the items that needs attention which took a sharp drop are cash and
cash equivalents, from $4644 million to $4616 million (net change in cash was -$28 million) and
there is a jump in its assets. Fluctuating oil prices severely reduced the companys earnings
during this period.
If we look at their current liabilities, it is $64,633 million, their current assets is $52,910 million
which gives us a quick snapshot of their financial health. The numbers imply that their working
capital is negative and as a result they are unable to meet their short term obligations. This could
be a critical issue that might need some attention and also they may not be able to invest in new
products or avenues due to the fact that their current liabilities are exceeding their current assets.
Chevrons balance sheet reveals that there is a significant decreased in their cash and cash
equivalents. Which means they are also struggling to improve their cash from the year 2013 to
2014. Unlike ExxonMobil, Chevron has a positive working capital, which means they are able to
meet their short term obligations and other expenditures.
Capital is raised by taking on debt and through equity:
Now, let us look at their balance sheet and find out how they raised capital. It appears that they
have raised capital by taking on debt and also by issuing stock. Common stock is $10,792
million and long-term debt is $11,653 million. The numbers are pretty close to each other which
7

means that they have raised capital by taking on debt and also by issuing stock. There is a
possibility that the debt to equity is close to each other (when calculated the debt to equity ratio
is 0.167). From the shareholders standpoint increasing the stockholders equity might dilute the
ownership of existing shareholders.
Company is less leveraged:
They are less leveraged. If they had a lot of debt and just little bit of equity then thats a
leveraged company and if they are more leveraged then they tend to be more risky. Their debt to
equity is about the same so they are less risky. Their return on equity will be impacted if they are
more leveraged.
Vertical integration:
Appropriate signs for highly integrated are if they have a lot of inventory and if they have a lot of
fixed assets, from the balance sheet, yes they have and therefore highly integrated. They appear
to be asset intensive as well. (Vertical integration of the oil company was pioneered by John D.
Rockefeller in the 19th century. ExxonMobil is still adopting a vertically integrated structure
where they play a key role in supply chain effectively. As part of it they extract crude oil and
transport it worldwide for sale to their customers. As mentioned earlier, due to the speedy growth
in the Asian economy, it gives Exxon a major argument for being vertically integrated than that
of their rivals.
Lastly, the inventory levels have raised which is not a good sign during falling energy prices
which is resulting a decrease in sales.

Now let us discuss the liquidity ratios simultaneously of ExxonMobil and find out how the
company performed compared to previous year and also let us find out if it had outperformed
Chevron or not.
Liquidity ratios:

Cash Flow to Debt

Ratio
Working capital
Current Ratio
Quick Ratio

ExxonMobil
2014
0.30

2013
0.366

Chevron
2014
0.33

-11,723
0.82
0.56

-12,416
0.83
0.60

10,306
1.32
0.94

Liquidity
Quick ratio

Current ratio

Working Capital

Cash flow to debt

-15000

-10000

-5000
Exxon-2014

0
Exxon-2013

5000

10000

15000

Chevron-2014

Cash flow to debt ratio: This ratio indicates to what extent the company is able to payback their
debt. The higher the number the better chances it has to meet its long term obligations.
ExxonMobils cash flow to debt ratio decreased from the year 2013 to 2014. It is 0.30 which
means that they have to take debt or issue more stock but the cash flow generated by their
9

operations may not be sufficient enough. As the ratio is similar to Chevron which is 0.33, same
applies for Chevron too.
Working capital: As mentioned earlier ExxonMobils working capital is negative as current
liabilities has exceeded current assets. It appears that the company is in financial trouble and
additional capital is needed to run the business. But, compared to last year ExxonMobil is doing
better in 2014. However, it has to be strict in terms of cash in order to face their short term
obligations. Chevron is doing well by surpassing ExxonMobils working capital, in this case they
have a positive working capital and have no issues in their short term.
Current ratio and Quick ratio: Current ratio helps to assess a rough measurement of
companys financial health. In this case ExxonMobils ratio is under 1 which is sufficient enough
to go bankrupt but not necessary enough. Because sometimes the companys substantial returns
may outdistance the short term debt that is due. Similarly, ratio greater than 1 may be because of
taking on more long term debt. All in all, ratio below 1 is not a good sign. Similarly quick ratio
for ExxonMobil is very less compared to Chevron.
Working Capital Management:

Day Sales
Outstanding
AR Turnover
Inventory Turnover

ExxonMobil
2014
28.02

2013
31.00

Chevron
2014
31.85

11.92 (1.006 months)

16.37

11.45
18.56

9.99 (1.2 months)

18.89

10

Working Capital Management

Days Sales Outstanding

AR Turnover

Inventory Turnover

Exxon-2014

10
Exxon-2013

15

20

25

30

35

Chevron-2014

DSO and AR turnover: The average number of days for ExxonMobil to collect revenue is 28
days. ExxonMobils AR turnover has been raising and DSO is decreasing. It means that
ExxonMobil has improved over its previous year by managing payments from customers.
Looking at the accounts receivable turnover ratio, in a year, ExxonMobil is collecting its
receivables approximately every month whereas Chevron is collecting it just 10 times.
Inventory turnover: Over a period of 12 months ExxonMobil sold 16 times but Chevron sold
19 times. Low inventory turnover may not be a bad thing in case of oil companies as their
products do not deteriorate faster over a period of time. But low turnover implies poor sales
resulting excess inventory. But higher ratio means they have strong sales or it could even be
ineffective buying.
Overview of Income Statement with their corresponding ratios:

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From the income statement, looking at the five years trend, sales went down steadily from 2011
to 2014 and as a result their bottom line has hardly seen any growth. Possible reasons could be
either they are losing market share or they might be under pricing pressures. As mentioned
earlier fluctuating oil prices impacts the sales. Therefore, it has a negative impact on gross
margin percentage. What could have been done to improve is their efficiencies and managing
their throughput. In 2011 gross margin percentage is 28 and in 2014 it is 26 which means they
are losing efficiencies as well as economies of scale. Fixed costs in 2011 is $54,235 million and
in 2014 it is $34,082 million. So, obviously they have not reduced their fixed costs enough to
maintain their level of income. But, reducing costs doesnt mean they are reducing their fixed
expenses. If revenue goes down then gross margin percentage goes down. Margin maybe
maintained but ultimately gross margin dollars are taking a hit. Fixed costs could be same in
order to maintain that level of income but it is going to decrease net income.
Measures of Profitability:
ExxonMobil

Chevron

2014

2013

2014

Gross Profit Margin

26.3%

27.7 %

Return on Assets

9.48%

26.5% (was 28% in

2011)
9.32%

Return on Equity

18.67%

19.17%

11.56%

Return on Sales

8.9%

8.3%

10.0%

7.59%

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Measures of profitability
Gross profit margin

Return on Assets

Return on Equity

Return on Sales
0.00%

5.00%

10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

Exxon-2014

Exxon-2013

Chevron-2014

Gross profit margin: Looking at the gross profit margin for ExxonMobil it appears that they
lost economies of scale and also are losing efficiencies. Chevron has a better gross profit margin
in 2014.
Return on assets: Return on assets is an effective metric to measure the efficiency of a
company. Despite the deterioration of net income ExxonMobils return on assets have increased
and also it is more than Chevrons returns. Hence ExxonMobil has better management for a
better consistent delivery of profits.
Return on equity: In the past five years ExxonMobil has continuously outperformed Chevron in
terms of return on equity (of course, they can boost their returns by issuing on more debt which
may not necessarily mean the company is profitable).

13

Return on sales: Chevron is doing better than ExxonMobil in terms of return on sales. This
could be because Chevron has a better supplier or they are making a profit out of the economies
of scale. ExxonMobil could increase their return on sales by reducing their staff.
Cash Flows Statement:
ExxonMobils working capital is taking a hit because their net income is going down and it looks
like they are losing their market share yet they are investing on lot of equipment. To me it occurs
that they are willing to improve their efficiency or they are expanding their presence in other new
markets.
Cash flow from operating activities:
ExxonMobil: Cash flow from operating activities have increased from $44,914 million to
$45,116 million (net increase of $202 million in 2014). This shows that they have increased their
production and other services (it could also mean they are creating a new product).
Cash flow from investing activities:
ExxonMobil: ExxonMobil has generated $7 billion cash from investing activities. This excludes
short term obligations by focusing on purchasing fixed assets, plant and machinery.
Chevron: Negative cash flows are not always bad if they are because of investment expenses.
Just like in case of Chevron they have spent -$29,893 million in investing activities.
Cash flow from financing activities:
ExxonMobil: This section in the cash flow statement indicates the additions or reductions to
long term and short term debts. ExxonMobil spent $17,888 million in financing activities in the
form of issuing cash dividends to their shareholders, repayment of their loans and others.
14

Chevron: Chevrons cash flow from financing activities is -$4,999 million. Negative cash flow
implies when they bought back their shares, repayment of debt or payment of dividends.
Financial Leverage:
ExxonMobil

Chevron

2014

2013

2014

Debt to Equity

16.70

13.1

17.94

Long Term Debt to

Equity
Debt Service
Coverage

6.68

3.9

15.50

5.57

1.965

Financial Leverage
Debt to Equity

Long Term Debt to Equity

Debt Service Coverage

Exxon-2014

Exxon-2013

10

12

14

16

18

20

Chevron-2014

Debt to equity ratio helps to measure a companys financial leverage. In this case Chevron has
attempted to increase its value by taking more long term debt. Chevrons current and quick ratios
may deceive the fact that they are in a better position but from the bar graph we can see that the
actual reason for those higher current and quick ratios is because they took a higher debt than
ExxonMobil.
15

The winner:
It is no secret that both ExxonMobil and Chevron has taken an absolute beating in the last year
struggling under pricing pressures which worried their investors. However, both companies have
planned their growth for future. Though Chevron is a small company it is planning to invest $3
billion over oil and gas projects than ExxonMobil for 2017. This means that Chevron is seeking
for growth and ExxonMobil is seeking for stability. Based on these figures Chevron might attract
growth investors and ExxonMobil might attract income investors. Currently, Chevron is paying
bigger dividend than ExxonMobil. Now by this analogy it appears that Chevron could be the best
pick for growth and ExxonMobil for both income and stability. Moreover, ExxonMobil is
generating better returns than Chevron and shines in many areas compared with its peers despite
the recent economic challenges. I might go with ExxonMobil based on their long term goals. It is
because you might take less dividend today but the company is capable of, has the potential for,
dividend growth and share repurchases. Additionally, Russian interests in this situation are a bit
uncertain as ExxonMobil has continued to invest in Russian drilling rights and it would be
16

worthless if the relations between Russia and the West continue to deteriorate. There can be a lot
of potential growth otherwise and if Putin backs down.

17

References:
http://www.annualreports.com/Company/exxon-mobil
http://quotes.wsj.com/XOM/financials/annual/balance-sheet
http://quotes.wsj.com/XOM/financials/annual/income-statement
http://quotes.wsj.com/XOM/financials/annual/cash-flow
http://quotes.wsj.com/CVX/financials/annual/income-statement
http://quotes.wsj.com/CVX/financials/annual/balance-sheet
http://quotes.wsj.com/CVX/financials/annual/cash-flow

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ExxonMobil Balance Sheet - Assets

19

ExxonMobil Balance sheet Liabilities and Shareholders Equity

20

ExxonMobil - Income Statement

21

ExxonMobil - Cash Flow Statement

22

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24

Chevron Balance Sheet Assets

Chevron Balance Sheet Liabilities and Shareholders Equity

25

Chevron - Income Statement

26

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Chevron - Cash Flow Statement

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30

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