Exxon Mobil Corporation Ratio Analysis

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Exxon Mobil Corporation Ratio Analysis

Exxon Mobil Corporation

 

 

 

EXXON MOBIL CORPORATION

Exxon Mobil (Ticker symbol: XOM) is the largest publicly traded international oil and gas company that uses technology and innovation to help meet the world’s growing energy needs. An extensive history that spans more than 135 years began with the very first oil well found in Titusville, Pennsylvania. The start of the original Standard Oil Company, a refining company, then other similar types of companies like Vacuum Oil, a lubricant company, spawned acquisitions made over the years to grow the company throughout the world.

Early research and development in microscopic fossil fuels aided the company in finding oil resources in Texas and subsequently, supported development and growth throughout the country. Additionally, other chemicals such as the first commercial petrochemicals called rubbing alcohol and isopropyl alcohol were developed as well.(About Us: ExxonMobil Corporation) Regional activities such as these continued and formed the company’s base as a marketer for its wide variety of products throughout the world.

BP PLC (TICKER SYMBOL: BP), is a leading competitor to Exxon Mobil Corporation. It operates globally in 70 countries, producing oil and gas on land and offshore, moving energy, and manufacturing and marketing fuels and raw materials used in thousands of everyday products, from mobile phones to food packaging. (Our-history, 2018)

 

Common Size Analysis

The following table of data taken from the financial statements, using common size analysis, will assess the current financial performance for Exxon Mobil as compared to BP PLC, in an effort to identify and analyze the company’s performance, financial conditions, trends, and stability.

Exxon Mobil and BP PLC provide us with the important resources of energy to go through our daily lives. Both produce 2.3 million barrels of liquid per day and 10.2 billion and 7.7 billion cubic feet of natural gas per day respectively. Their capacities to produce oil alone stand at 4.9 million and 1.9 million respectively. (BP PLC, 2018), (Exxon Mobil, 2018)

The income statement for Exxon Mobil over the past three years and, for BP as of 2017, presents the COGS, Gross Profit, Expenses, and Net Income as a percentage of the whole of the annual revenue generated for ease of comparison. The table below shows that both companies have nearly the same sales for 2017, a slight difference of 1.3% in BP’s favor. However, Exxon Mobil’s revenue change from 2016 to 2017 is an increase of almost 8.5% and the Net Income jumped a little over 150%. While significant over the 3-year span of this analysis, no solid trend in one way or the other is illustrated for Exxon Mobil during this time. It’s a fluctuating period.

Exxon Mobil

2015

%

2016

%

2017

%

BP PLC ADR

2017

%

Revenue*

259,488

100

218,608

100

237,162

100

Revenue*

240,208

100

COGS

206,316

79.51

179,496

82.11

182,238

76.84

COGS

221,304

92.13

Gross Profit

53,172

20.49

39,112

17.89

54,924

23.16

Gross Profit

18,904

7.87

Expenses*

31,206

12.03

31,143

14.25

36,250

15.28

Expenses*

11,724

4.88

Net Income*

16,150

6.22

7,840

3.59

19,710

8.31

Net Income*

3,389

1.41

*USD in millions. Source: Morningstar|Independent Investment Research

Across the board we can see that during this time frame, Exxon Mobil had expenses running between 12% to just over 15% versus, BP’s expenses sat at almost 5% for 2017. That makes Exxon Mobil’s expenses for 2017 over three times greater than BP’s and a net income of 83% more. The expenses increased steadily over the 3-year period.

BP’s COGS are a little over 90% of the revenue that is generated and are about 20% greater than Exxon Mobil. What caused the decrease in the Net Income for Exxon Mobil from 2015 to 2016

*USD in millions. Source: Morningstar|Independent Investment Research

during this analysis period? How is Exxon Mobil making the difference with a larger bottom-line overall?

A review and comparison above of the Balance Sheet for each company shows that Exxon Mobil has a little over 20% more in assets to work with than BP and, carries about 28% less in liabilities.

Exxon Mobil

2015

%

2016

%

2017

%

BP PLC ADR

2017

%

Total Assets

336,758

100

330,314

100

348,691

100

Total Assets

276,515

100

Total Liabilities

165,947

49.28

162,989

49.34

161,003

46.17

Total Liabilities

178,024

64.38

Total Equity

170,811

50.72

167,325

50.66

187,688

53.83

Total Equity

98,491

35.62

 

Trend Analysis

2013

change

2014

change

2015

change

2016

change

2017

Revenue

420,836

-6.35%

 394,105

-34.16%

 259,488

-15.75%

 218,608

8.49%

 237,162

Net Income

32,580

-0.18%

 32,520

-50.34%

 16,150

-51.46%

 7,840

151.40%

 19,710

Gross PP&E

434,517

2.8%

446,789

0.12%

447,337

1.47%

453,915

LT debt

6,516

73.08%

 11,278

65.69%

 18,687

48.27%

 27,707

-16.70%

 23,079

In the table above, revenue from 2013 to 2016 shows declining figures in varied increments with a change in the other direction for 2016 to 2017. The chart below gives a visual account of these numbers with the revenue dollar range on the left of the graph and the net income and long-term debt range on the right. Naturally, the Net Income declined in the same pattern as the revenue, but made a great stride from 2016 to 2017 of over 151%! During the same period the long-term debt rose in significant increments of more than 73%, 65%, and 48% respectively between 2013 and 2016, then dropped from 2016 to 2017 by almost 17%. Clearly, this indicates something was happening in the background.

Over the past several years, Exxon Mobil, as well as other energy groups, has faced competition in refining in the foreign countries to which they are present. Foreign governments are in the refining business operating at little or no return just to have employment for its citizens. This has created pressure on the company’s profits. China has led the growth in refining capacity and it has surpassed its country’s demand while continuing plans for expansion of its refineries. This has created a surplus of oil. That surplus of China’s was being exported to European countries which have seen a decline in demand. (Trefis Team & Great Speculations, 2014)

Exxon Mobil meanwhile, has continued with research and development, has discovered more oil in foreign countries, has acquired off-shore blocks from countries, and is over-supplied in crude oil too. (Exxon Mobil, 2018)

The Gross PP&E data, an added line item to the table, though not on the chart, provides some support to the company’s activities mentioned above. The steady increase over the period from 2013 to 2016 clearly supports investments to fixed, tangible assets of a specific purpose in order to increase long-term value for the company.

 

Financial Ratio Analysis

A variety of the ratios are used to measure the liquidity, performance, and asset management of the company. The following look at the Liquidity Ratios begins with the Current Ratio.

2017

2016

2015

2014

2013

Liquidity Ratios:

Current

0.82

0.87

0.79

0.82

0.83

Quick

0.50

0.53

0.44

0.50

0.53

Debt/Equity

0.13

0.17

0.12

0.07

0.04

 Source: Morningstar|Independent Investment Research

The Current Ratio of .82 shows that there are not enough liquid assets to cover the current liabilities. It states that Exxon Mobil has only 82% in current assets to cover the current liabilities. Generally accepted as “healthy” would be in the range of 1.5 to 3 giving some breathing room after paying the bill. The Quick Ratio backs up the situation as well. To show a healthy position, a 1.0, or 1:1 ratio would cover the short-term liabilities. 1.5 to 2.0 is comfortable, however, the trend shows that over the 5-year period the ratio has remained in between .44 and .53 which means the company has in 2017, 50 cents of liquid assets available for every dollar of current liability. The company is not liquid.

In the Debt/Equity ratio, there is a range between .04 cents and .17 cents of every dollar that is put toward all recurring liabilities, or debt payments. Sitting on crude oil reserves as well as the investments in the Property, Plant, & Equipment (PPE) made over the past several years suggests a strong equity position.

Performance Ratios:

 2017

2016 

2015 

2014 

2013 

Gross Profit Margin

23.16

17.89

20.49

20.46

21

Operating Profit Margin

5.09

0.43

4.96

8.65

9.58

Net Profit Margin

8.31

3.59

6.22

8.25

7.74

Basic Earning Power (BEP)

4.63

1.88

3.85

7.60

7.37

ROA

 5.81

 2.35

 4.71

 9.34

 9.57

ROE

 11.10

 4.64

 9.36

 18.67

 19.17

 Source: Morningstar|Independent Investment Research

Review now the Performance Ratios in the table above. The Gross Profit Margin shows that over the 5-year period, a general trend higher–to a little over 23% in 2017– means that after the Costs of Revenue, or COGS, there is over 23% to cover operating expenses. The costs to produce revenue are being covered with approximately 80% of revenue. That 80% is further reduced to a little over 5% as the Operating Profit margin. This table shows fluctuations as well with a general decreasing trend for the Operating Profit Margin ratio. This number is important to our management. It is something that can be controlled in terms of revenue and especially expenses. Management cannot control the taxes and interest to be paid beyond this calculation that uses EBIT (Earnings Before Interest and Taxes), but they have the power within their respective budgets to trim operational costs and boost this ratio. The Net Profit Margin shows, again, slight fluctuation but generally an up-trend. This number is based on the “bottom line.” These ratios are important to management as they need to know what percentage of sales or revenue is left after all the expenses, interest, and taxes have been paid.

The graph above represents the table of Performance Ratios. The range of years is numerated on the left beginning with the most recent year, 2017 represented as number 1 through 2013 represented as number 5. Take a look at the green bars on the graph. They represent the Net Profit Margin. Look at how the green bar stacks against the red bar representing the Operating Profit Margin, in years 1, 2 and 3. These years directly correspond with the entries of the negative tax provisions on the Income Statement. (Morningstar, 2018)

The BEP referenced in the table, is trending down across the 5-year period which would be interpreted as Exxon Mobil becoming less efficient in generating income from its assets. If the trend would have gone the other way, we could say that the company is extracting more value from the assets on the books but we know, as was discussed previously how the company has been making investments back into the company by expanding PP&E. Additionally, this period of time has been spent building up reserves. Unless we take a broader view, we cannot say for sure the impact these actions will have but the goal of management should be to keep a keen eye toward continued growth for the company overall by increasing revenue.

The ROA, return on assets for 2017, shows us that for every dollar of assets, 5.81% is being generated in income for Exxon Mobil as compared to 1.26% at BP. (Morningstar, 2018) While Exxon Mobil is in the range of the benchmark of 5.14%, the current prime rate is at 5.25% and other investments that are able to gain more than the prime rate could help boost the overall return for the company. (Return on Assets Screening, 2018) A decline in the total liabilities from 2016 to 2017 suggests that some current obligations may have been retired which boosted the assets and, naturally the equity.

The ROE, return on equity for 2017, is calculated to be 10.5% and 3.44% respectively. Applying the Dupont Method however, the same figure was calculated but gives a little more insight by dividing the calculation into three components: Profitability, Efficiency, and Leverage Ratios as opposed to a quick calculation of the Net Income divided by the Equity. By breaking down the calculation we can see that the Profitability for Exxon Mobil in 2017 shows that 8.3% is leftover after all the expenses are paid. The Efficiency Ratio tells us about each dollar of company assets generating .68 in Sales, or put another way: Sales represent 68% of the Assets and, the equity multiplier of 1.86% means that the Equity on Exxon Mobil’s Balance Sheet is only generating 1.86% return and is lagging in comparison to BP’s 2.81% return on their equity.

Since Exxon Mobil is lacks liquidity, increasing debt to finance growth might be a challenge with creditors. That would be the preferred option so that interest payments would be deductible vs. dividends. At this point, it is necessary to increase revenue which may mean releasing some of the inventory at lower pricing.

2017

Profitability Ratio

Efficiency Ratio

Leverage Ratio

ROE

XOM

19710/237,162=

.083 or 8.3%

x

237,162/348,691=

.680 or 68%

x

348,691/187,688=

1.86 or 1.86%

=

.105 or 10.5%

BP

3389/240,208=

.014 or 1.4%

x

240,208/276,515=

.869 or 87%

x

276,515/98,491=

2.807 or 2.81%

=

.034 or 3.4%

Finally, a look at the Asset Management Ratios in the table below:

Asset Management Ratios:

 2017

2016 

2015 

2014 

2013 

Net Working Capital-to-Sales

-0.04

-0.03

-0.04

-0.02

-0.03

Days-of-Sales in Inventory

32.12

31.85

29.12

19.1

16.84

Days-of-Sales in Receivables

28.71 

24.44 

22.35 

20.62 

23.58 

 Source: Morningstar|Independent Investment Research

The negative Net Working Capital-to-Sales should be a flag to prompt members of management to a further review. As discussed previously with the current and quick liquidity ratios, there aren’t enough current assets to cover the current liabilities. The company is not liquid; therefore, this additional ratio will provide another area to alert an astute manager of any problems on the horizon.

Contrast that with BP, the company has built no new refineries since 1980 but has made improvements which have increased capacity by 1% per year. That means the company has opted to use its resources to build efficiency. BP is still paying for clean-up and penalties from the 2010 Deep Water Horizon accident, and has made an acquisitions set to increase the oil and gas resources by 57%. (BP PLC, 2018) If BP is set on refining processes for optimization, then we too have to continue our strategies to keep competitive in the field. Exxon Mobil’s PP& E trend has risen steadily over the 5-year period. This results in higher developments costs through this period of transition to position the company in line with its competitors for continued growth in the oil and gas sector. If the company wants to continue to compete, management must keep an eye on these ratios, continue to tighten up the expenses, position the company for increased growth through the use the all the readily available technological advances available for extracting oil domestically for maximum efficiencies that will keep the company as the largest of its peers. The fact that the company has proved reserves impacts production growth outlook. At the end of 2017, Exxon Mobil’s total proved reserves was at 21.2B oil-equivalent barrels. This equates to more than 20 years reserve life evenly distributed between liquid and natural gas in a global portfolio. The company can continue to fund long-term capital-intensive research and development efforts during down cycles. (Exxon Mobil, 2018)

Bibliography

  • About Us: ExxonMobil Corporation. (n.d.). Retrieved 11 5, 2018, from https://corporate.exxonmobil.com/en/company/about-us
  • BP PLC. (2018, November 11). Retrieved from Morningstar Independent Investment Research: https://www.morningstar.com/stocks/xnys/bp/quote.html
  • Exxon Mobil. (2018, November 11). Retrieved from Trefis: https://www.trefis.com/stock/xom/model/trefis?easyAccessToken=PROVIDER_cf604b4fb634df3472b4341868fd0fa81567d24e
  • https://www.bp.com/content/dam/bp/en/corporate/pdf/investors/bp-annual-report-and-form-20f-2017.pdf. (2018, 11 6). Retrieved from BP Global: https://www.bp.com/
  • Morningstar. (2018, November 11). Retrieved from Morningstar Independent Investment Research: www.morningstar.com
  • Our-history. (2018, 11 08). Retrieved from BP Corporation: https://www.bp.com/en/global/corporate/who-we-are/our-history.html
  • Return on Assets Screening. (2018, November 12). Retrieved from CSI Market.com: https://csimarket.com/screening/index.php?s=roa
  • Trefis. (2018, November 11). Retrieved from Trefis.com: https://www.trefis.com/stock/bp/model/trefis?easyAccessToken=PROVIDER_ce195eb3bd00c61760009b6790d3cdbcac014486
  • Trefis Team, C., & Great Speculations, C. G. (2014, March 3). Key Trends Impacting Global Refining Margins. Retrieved from Forbes.com: https://www.forbes.com/sites/greatspeculations/2014/03/03/key-trends-impacting-global-refining-margins/#3e7f8a483e2a

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