Exxon Mobil Financial Report - Research Paper Example

Exxon Mobil Financial Report Executive Summary Exxon Mobil is the world’s largest integrated gas and oil company that trades in the public stock exchange market. The organization mainly deals in natural gas and crude oil exploration and production aside from manufacturing petroleum products and transporting them to the market. In addition to that, Exxon Mobil is involved in selling natural gas, crude oil and petroleum products on a large scale. The scale in which the company operates provides it with the advantage of leveraging its size into projects considered to be too capital intensive by smaller companies. This serves to reduce the amount of competition that the company faces, in a time when more companies have joined the global gas and oil industry and are making in-roads into perennial and emerging markets (ExxonMobil, n.d.). The company is fully integrated, making it able to leverage its activities in gas and oil explorations in periods when the prices of oil are advantageous. Exxon Mobil can also focus on its downstream activities when the prices of oil are low. The ability of this organization to diversify has helped it in many ways, considering the fact that the gas and oil industry is cyclical (Elliot & Elliot. J, 2008). The organization has maintained a constant average rate of growth in revenue of 7.73% from 2003 to 2012. In the year 2012, Exxon Mobil had its revenue at more than $482 billion, with earnings coming to $44.9 billion in the same year. The gas and oil company operates at high levels, maintaining the highest standards of safety in the industry. Evidence of this is the low number of accident incidents at the organization. In terms of returns on employed capital, Exxon Mobil is way ahead of its competitors. The company achieved a rate of replacement reserve of 115% all through 2012. The company continues to reinvest into its business. Exxon Mobil has a plan to start up 31 major projects between 2012 and 2017, increasing its chances of maintaining its highly profitable status for the future. The company is rated as one of the best organizations worldwide in terms of value return to shareholders. The organization bought back shares worth $20 billion in 2012 and reduced outstanding shares by 35% since the turn of the decade (ExxonMobil, n.d.). This paper shall report and analyse the financial performance of Exxon Mobil for the year 2013 and compare its overall performance with that of competing organizations in the gas and oil industry. Financial Statement Analysis From the income statement, the operating revenue and sales figures for Exxon Mobil declined from $303,670 million in 2012 to $284,681 in 2013. This is the recognized aggregate revenue for the period. The organization experiences a growth in the expenses involved in manufacturing and production in gas and oil from $38521 million to $40,525 million and a decline in the sales from $453,123 million to $420,836 million. The company’s income before taxes significantly declined in 2013 to $57, 711 million from $78726 million in 2012. Net income due to Exxon Mobil also declined to $32580 million from $44880 million in 2012. This shows that the company’s profitability declined in 2013. The decline is attributed to the fluctuations in the global prices of oil, which made the company to focus more on its downstream activities (Elliot & Elliot J, 2008). However, Exxon Mobil’s adjustment of postretirement benefits reserves continued to increase in 2013, showing that the company continued to invest in benefits plans. From the company’s Comprehensive Income Statement, the comprehensive income due to Exxon Mobil significantly declined in 2013. The net cash value used in the organization’s operating activities also declined in the same year, resulting from the reduced activity upstream. The cash flow from sale of assets and operations declined from $63,825 in 2012 to $47,621 in 2013. Financial Ratio Analysis The gross margin for Exxon Mobil was 27.6% in 2013, down from 29.9% in 2012 and 31.6% in 2010. The operating margin for the organization in 2012 and 2013 was 16.3% and 13.2% respectively. The earnings per share for the organization for the two respective years were at 9.7 dollars and 7.37 dollars (ExxonMobil, n.d.). As indicated in the financial statements of the company, the organization failed to record a growth in its profits. This adversely affected the earnings per share for the organization, making them drop significantly. The decline in profitability and rate of growth for the company directly affected its earnings per share. The payout ratio of the company has been fluctuating over the last decade, with the highest payout ratio being recorded in 2009, at 41.6% and the lowest being 18.8% in 2007. The organization has enjoyed profitability over the years, making it able to pay good dividends to its shareholders (Elliot & Elliot J., 2008). DuPont Analysis The DuPont analysis of Exxon Mobil will examine its return on equity while analysing the total turnover from assets, financial advantage and the profit or loss margin (Bloomer, 2005). The formula used to calculate the return on equity is: ROE= Leverage factor * Total asset turnover * profit margin This formula can break down to read as: ROE= (Total assets/ equity of shareholders) (Revenues/Total assets) (Net income/Revenues) For Exxon Mobil, the total assets in the year 2013 were $358, 586 million while the shareholders’ equity was $174,003 million. The revenue for the organization in 2013 was at $438, 255 million while its net income was at $32,580 million. Exxon Mobil’s ROE for the year 2013 is calculated as follows: = (32580/438355) x (438355/358586) x (358586/174003) = 0.074 x 1.222 x 2.061 = 0.19 or 19% The ROE indicates a weakness in the operating efficiency of Exxon Mobil. The organization needs to put in measures to increase the efficiency of its operations, since the current efficiency levels reduce the profitability of the organization. However, the organization had a better return on equity that its main competitor, Royal Dutch Shell. Royal Dutch Shell had a Return on Equity of 9.01%. Capital Spending Exxon Mobil plans to spend an approximated $37 billion every year on capital spending through 2016. The organization plans to spend most of this amount on both its domestic and international projects. The organization’s previous guide on capital spending ranged from $33 billion per year to $37 billion, giving it the highest projected spending level that any other gas and oil company worldwide. Royal Dutch Shell has projected its annual capital spending to be at $30 billion. Exxon Mobil plans to spend more than $185 billion on capital spending over the next half decade. The organization bases its spending plan on its positive macro-view on the projected growth in demand for energy in the global markets over the coming decades, owed to economic growth in developing countries and good overall economic performance by most significant economies in the world (ExxonMobil, n.d.). Stock Growth The company saw an increase in the value of its stock, from $14542 million in 2012 to $16135 million in 2013. The crude oil, merchandise and products stocks in 2012 and 2013 were at £10, 836 million and $12,117 million respectively. The materials and supplies for the two years were at $3,706 million and $4,018 million respectively. The organization has seen a constant growth in the value of its stock over the last five years, mainly owing to its increased exploration and processing activities over the same period. Credit rating service valuations With the financial capabilities it enjoys, Exxon Mobil has a positive credit rating from the world’s major financial institutions. From as early as 1998, Exxon Mobil had a credit rating of AAA. Domestically, the organization enjoys a corporate credit rating of AAA for senior unsecured loans and a (P) AAA rating for the senior unsecured shelf loans. The advantages of having such high credit ratings is that the company can access credit facilities with relative ease, which the organization can add to its available capital and either invest in new projects or reinvest in the company. The credit ratings that Exxon Mobil enjoys are also an indication of the good performance of the organization, therefore attracting more people to invest in the company through purchase of shares in the stock market and in the purchase of bonds whenever the organization seeks to sell bonds to raise additional revenue (Elliot & Elliot J., 2008). Stock Performance of Exxon Mobil Exxon Mobil has maintained a strong and steady performance in the stock exchange market (Bloomer, 2005). The company began 2012 with a value of 85 dollars per share. This value increased to its highest point in the same year, $95 for every share. The increase in the value of Exxon Mobil shares is attributed to the optimism surrounding its investment in 31 major projects over the next half decade. When more people want to earn from the profitability of the organization, they increase demand for the shares of Exxon Mobil, therefore increasing their value in the stock market (Elliot & Elliot J, 2008). The Exxon Mobil stocks closed the year at $85 per share. The Exxon Mobil stocks continued performing strongly in the stock exchange market, with the company executives presenting their outlook of the organization to analysts at the stock exchange. This increased optimism, leading to an increase in the value of the shares to $102 per share at the end of 2013. However, the challenges that the organization experienced through the fluctuations in the prices of oil in the global market saw a decline in the value of shares to 86 at the beginning of the third quarter of 2013 (ExxonMobil, n.d.). Recommendations The organization has a stable financial capacity. It therefore needs to diversify its production further to other products, and consider investing in retail markets. Investment in retail markets will ensure the organization increases its profit margin, since its retail prices will include the margins that would otherwise be for intermediaries. By diversifying its portfolio further, the company will be better cushioned in times of low fuel prices and avoid losses (Bloomer, 2005). In order for the organization to take advantage of the projected increase in demand for gas and oil, Exxon Mobil needs to increase its presence in emerging markets, especially in developing countries. These countries record the highest rates of population growth, therefore will hold the greatest demand for gas and oil products in the next decade. The company should position itself strategically for these changes by increasing their share of the market in these economies (Elliot & Elliot J., 2008). The organization has a positive economic performance outlook, since analysts project the organization to perform well in future. The organization’s recent trend of losses is not expected to last for a long period. The performance of the company in the stock market is positive, indicating the belief that the organization will perform well into the future. Coupled with its strong financial base, Exxon Mobil is a viable long term partner with which an investor can enter into a commitment to last many years. References Bloomer, J. (2005). Developments in International Financial Reporting Standards and Other Issues in Financial Reporting. The Geneva Papers on Risk and Insurance Issues and Practice, 30(1), 101-107. Elliott, B., & Elliott, J. (2008). Financial accounting and reporting (12th ed.). Harlow: Financial Times Prentice Hall. Financial Statements and Supplementary Information. (n.d.). ExxonMobil Website. Retrieved September 30, 2014, from http://cdn.exxonmobil.com/en/shareholder-archive/~/media/Reports/Other%20Reports/2014/2013_ExxonMobil_Financials.pdf Read More