ExxonMobil Final Report

Financial Analysis of

December

2011Advanced Corporate Finance

ADVANCED CORPORATE FINANCE

FINANCIAL ANLYSIS REPORT

Table of Contents Page 3 4 4 5 5 5 6 6 7 9 12 14 14

Abstract Introduction - Industry Overview - Corporate Analysis 1) Corporate Introduction a. Brief History b. ExxonMobil Today c. Corporate Structure and Organization Chart 2) Marketing Mix Analysis 3) Segmentation, Targeting Market, and Positioning 4) SWOT Analysis - Competitor Analysis Financial Ratio Analysis 1) Liquidity Ratio Analysis 1.1 Current Ratio 1.2 Quick Ratio 2) Profitability 2.1 Net Profit Margin 2.2 Return on Asset Ratio 2.3 Return on Equity Ratio 3) Debt Management 3.1 Debt to Total Asset Ratio 3.2 Debt to Equity Ratio 3.3 Times-interest-ratio (TIE) 4) Asset Management 4.1 Inventory Turnover Ratio 4.2 Receivable Turnover 4.3 Total Assets Turnover Ratio 5) Market Value 5.1 Price/Earning (P/E) Ratio 5.2 Price/Cash Flow Ratio 5.3 Market/Book Ratio Income Statement &Balance Sheet Highlights Other Factors to Consider Conclusion Recommendation Reference Appendix

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Taking on the Worlds Toughest Energy Challenges |

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AbstractExxonMobil is one of the largest publicly traded companies by market capitalization in the world, having been ranked either 1st or 2nd for the past 5 years. It has been reported by CNN Money as being the 1st most profitable companies in the world in 2008 earning up to USD45 Billion (Top companies: Most profitable, 2011). This shows that ExxonMobils management has done a respectable job in managing its resources and investment decisions. For this reason, I have chosen to conduct a Financial Analysis as to evaluate the viability, stability, and profitability of ExxonMobil compared with its overall market. From this, I would like to determine whether I would advise potential investors to add ExxonMobil equity to their portfolio. My report includes the analysis of ExxonMobils financial data broken down into two parts. For the first part, I have conducted a financial ratio comparison between ExxonMobils 2010 financial data with MSN Moneys Integrated Oil & Gas Industrys Average, and to ExxonMobils leading competitors Royal Dutch Shell and British Petroleum. Through the analysis, I have calculated key financial ratios and illustrated past financial highlights which demonstrates ExxonMobils ability to construct high profit margins, return on equity, and a considerably outstanding return on assets. From the calculations, ExxonMobil outperforms its major competitors for most parts of the analysis report. For the second part of my report, I have examined ExxonMobils past financial data during 2005-2010 in order to analyze its growth trends it terms of its sales revenue, net income, and cash dividend to its shareholders. I have expectedly discovered an upward trend in all of the figures. What surprised me was that even during the economic crisis in 2008 and 2009, when its profits were significantly impacted, its cash dividend to its shareholders were still increasing. This shows its management abilities in managing its resources during tough economic times, and its commitment to ensuring its shareholders values. In summary, based on the financial analysis conducted, I would recommend investor to buy ExxonMobils stock. I believe that investors who wish to acquire ExxonMobils equity will prosper from high returns on investments.


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IntroductionIndustry Overview Oil and gas represent global commerce on a massive scale. It provides the world's 6.9 billion people with 60 percent of their daily energy needs. Oil and gas are consumed by everyone, whether it is from enormous industrial manufacturers down to individual consumers. For industrial manufacturers, oil and gas are the raw materials used to manufacture fertilizers, fabrics, synthetic rubber and the plastics that go into almost everything we use these days such as toys, personal, household items. Oil accounts for approximately 1/3 and natural gas accounts for approximately words energy use and growing (Overview of World Energy, 2009). For individuals, fuels are generally used to generate electricity and fuel our transportations. That is why an increase in the prices of gasoline will all affect us in some way (Oil & Gas Industry Overview, n.d.).

Economic Relations to the Industry The oil and gas business is a commodity-based business and one that is very competitive. This means that the market basically offers the same product to its customer. Therefore, in order for companies to remain competitive in this kind of industry, they must focus on reducing unit cost by improving efficiency through advanced technology improvements, productivity enhancements, and strict cost control. This is why the worlds largest oil corporations are continually expanding, and companies spend billions of dollars annually to maintain and increase their oil and gas production. These large organizations are constantly searching and negotiating for the rights to explore oil lands or territorial waters, hoping that they will find prime areas for oil and gas (Avalon Oil & Gas Inc., 2010). Despite the uncontrollable and instability of the oil and gas prices, consumers will find it difficult to cut down on energy usages, even during economic downturns. This is why the oil and gas industry is one of the few if not the only industry that has outperformed the S&P. The Energy Information Administration (EIA) believes the economic recovery since 2008 is expected to contribute towards global oil demand growth of 1.4 million barrels per day in 2011 and 1.6 million barrels per day in 2012 (Zack Investment Research, 2011). Virtually all the growth in energy use will most likely occur in developing countries, especially in China and India where it is expected with a more than a 70 percent growth. ExxonMobil executives also have a market Outlook for Energy: A View to 2030, which expects that global energy demand will grow by about 35% from 2005 to 2030. According to the International Energy Agency, the investment required in new energy supply infrastructure is likely to be more than $1 trillion per year on average through 2035. A recent survey suggests that 1.4 billion people in the world still lack access to electricity (ExxonMobil, 2010). ExxonMobils executives believe that expanding access to these modern forms of energy will be essential to meet global targets for reducing poverty, hunger, and improving health and education. That is why the company is committed to expand access to scarce energy countries and make it widely available, reliable, and affordable in a responsive matter. This will require huge levels of investments on the development and application of new technologies and international partnerships and cooperation.Taking on the Worlds Toughest Energy Challenges |

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Corporate AnalysisCorporate Introduction ExxonMobil Corporation is an American Multinational Oil and Gas Corporation, one of the largest publicly traded companies by market capitalization in the world. It is reported by CNN Money as being the 1st most profitable companies in the world in 2008 earning up to USD45 Billion (Top companies: Most profitable, 2011). It engages in the exploration, production, supply, transportation, marketing and sales of crude oil and natural gas worldwide under the brand names Exxon, Mobil, and Esso. Its products basically steers modern transportation, power cities, lubricate industries and provide petrochemical building blocks that lead to thousands of consumer products. The company has operations in more than 200 countries including the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania totaling up to a combined daily refining capacity of 6.3 million barrels (1,000,000 m3) (Wikipedia, 2011).

Brief History ExxonMobil Corporation was form on the 30th November 1999 by the merger of Exxon Corporation and Mobil Corporation. The merger was formed due to oil industries pressure to reduce cost and the instability of the oil prices. In the late 1990s, in the wake of the Asian economic downturn, oil prices fell to $10 a barrel. This greatly affected the industry because many small companies went bankrupt while some larger companies merged including ChevronTexaco, ConocoPhillips, BP-Amoco-Arco and Royal Dutch Shell. After the merger, these oil and gas companies controlled 14 percent of global oil production (Avalon Oil & Gas Inc., 2010). The merger was a success decreasing expenses, increasing revenue, and significantly improving capital productivity. It combined the strength of Exxon in finance and engineering to Mobils strength in marketing and deal-making. ExxonMobil earned $75 billion in profit and $123 billion in cash within 4 years after the merger. It was one of the top leaders in every aspect of the business, including financial, operational, technological, and human resources excellence (Wikipedia, 2011). ExxonMobil understands that the nature of its business requires a focused, long-term approach to its ethical practices, and a high level of flexibility in order for them to adapt to changing market conditions and competitive force quickly. Improving efficiency and productivity through learning, sharing and implementing best practices is what ExxonMobils policy forces among its peoples.

ExxonMobil Today As mentioned, ExxonMobil (XOM) participates in three very profitable industries: Mining/Crude-Oil industry, Petroleum Refining, and Chemicals. ExxonMobils business and products include 1) upstream activities of oil and natural gas exploration, development, and production, 2) downstream activities of refining and marketing of petroleum products, and 3) chemical businesses tightly integrated with the downstream refining operations (About Us, 2011). See Picture 1 in Appendix.


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ExxonMobil Corporate Structure 2010 ExxonMobil has a long history of leadership in the petroleum and petrochemical industries. Currently ExxonMobil has a total of 83,600 employees. ExxonMobil is comprised of stockholders, a board of directors, an executive board, and numerous committees. The executive board consists of: Chairman and Chief Executive Officer Rex W. Tillerson, Senior Vice President Mark Albers, Senior Vice President Michael Dolan, Senior Vice President M.J. Donald, and Senior Vice President Treasurer Donald Humphreys. Out of these executives, two of them hold the highest amount of shares in Exxon. Rex Tillerson as of May 5, 2009 owned 1,116,318 shares of stock. Donald Humphreys owned 491,910 shares of stock as of December 1, 2008 (About Us, 2011). These 40 members have remained relatively stable in the past six years with only a few minor changes (See Organizational Structure in Appendix for full list of executives).

Marketing Mix Analysis Product Strategy ExxonMobil has a wide range of products that cover almost every aspect of the worlds energy needs including crude oil, fuels, lubricant and specialties, and chemicals. ExxonMobil focuses on manufacturing and marketing high quality products and services with their Global Product Quality Management System (GPQM). Their world class brands have key features and benefits that include energy efficiency, fuel economy, extended oil drain intervals, and equipment durability, while maintaining peak performances (About Us, 2011). Pricing Strategy The prices of crude oil are determined by international markets and Organization of the Petroleum Exporting Countries (OPEC). It depends heavily weighted on the consumer demand, supply, interest rates, and the economic state of the world. Hence, the prices of ExxonMobils crude oil and fuels are relatively fixed. However, ExxonMobil adds value to its lubricant and specialties with its focuses on technological advancements, superior services, product variation, and product qualitys to enable them to markup price higher compared to its competitors. Price reduction cannot be imposed as ExxonMobils strategy because of its positioning. It aims to differentiate its products and services in order to create a higher brand image and perceived quality which cannot easily be imitated by competitors. Plus, competing in price wars will cut down on its profits. Distribution Strategy ExxonMobils upstream activities are spread throughout 38 countries and downstream activities in more than 100 countries. They are known to operate one of the worlds largest and most complex supply chains. Executing manufacturing operations on a global scale is very difficult, but with ExxonMobils technical experts and technological advancement, they are able to use advanced optimization models to assist decision making in complex and timeconstrained activities such as transportation scheduling. With these models in place, they are able to match supply availability with refinery capabilities in order to meet their customers needs the lowest cost.Taking on the Worlds Toughest Energy Challenges |

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Promotional Strategy Since ExxonMobil is an international company its advertising campaigns must be customized to fit each culture that they are targeting. Obviously, the target market for energy is very broad, but government regulations and shared values of cultures make it a difficult task to campaign globally without offending any group. Currently, ExxonMobils promotion of their products is geared now towards safety and environment issues with the latest slogan ExxonMobil, Taking on the Worlds Toughest Energy Challenges. For the past decade, these have been the main challenges that ExxonMobil has had to face, especially during the Exxon Valdez oil spill which took years and huge sums of money to recover from. ExxonMobils builds its corporate values based upon responsibility and sustainability. It hopes to generate positive impact upon the society and the environment in order for the company to sustainably grow and work as a unit to maximize shareholder value. They base their promotions on their stern business principle of integrity.

Segmentation, Targeting, and Positioning Segmentation Upstream ExxonMobils upstream activities include the oil and natural gas exploration, development, production, gas and power marketing, and upstream reserves (See Picture 1 in Appendix for chart). Its strength is in its global presences, which enables the organization to explore and capture all resource types across the globe at both new and mature fields. ExxonMobil industry-leading project includes conventional, heavy oil, tight gas, shale gas, deep-water, liquefied natural gas (LNG), Arctic and sour gas projects. Currently, ExxonMobil has upstream activities in more than 50 countries and expanding (About Us, 2011).

Downstream ExxonMobils downstream activities include Refining & Supply, Fuels Marketing, and Lubricants & Specialties, and Research and Engineering (See Picture 1 in Appendix for chart). Currently, ExxonMobil has refining operations in 26 countries that include 45,000 service stations in more than 100 countries, and lubricant marketing in almost 200 countries. Their global network of manufacturing plants, transportation systems, and distribution centers provides fuels, lubricants, and other high-value products to customers. Its known to be the worlds top suppliers of lube base stocks and the largest global marketer of finished lubricants. Its highly trained staffs, a strong distributor network, and a robust supply allow it to deliver high-quality products and application to its customers around the world. ExxonMobil creates long-term value by selling high-quality products and services daily to millions of customers across the globe and markets its fuels products to millions of customers worldwide through our retail service stations and three global business-to-business segmentsIndustrial and Wholesale, Aviation, and Marine (About Us, 2011).Taking on the Worlds Toughest Energy Challenges |

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Chemicals ExxonMobil Chemical is one of the largest petrochemical companies in the world. It had a performance record that outperformed its competitors in 2010 due to its disciplined execution of its strategies over many business cycles. ExxonMobil Chemical provides the building blocks for a wide range of products, from packaging materials and plastic bottles to automobile bumpers, synthetic rubber, solvents and countless consumer goods (About Us, 2011).

Targeting Because the oil and gas industry is a commodity-based industry, the target market for oil and gas, petroleum products is almost infinite. Almost every country uses petroleum products or some form of energy to maintain a civilization. ExxonMobil has products that cover consumers at all channels, starting from individuals all the way to the government and even national levels.

Positioning: Current Slogan: ExxonMobil, Taking on the Worlds Toughest Energy Challenges ExxonMobil 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 and a strong commitment to operational excellence (Tillerson, 2010).

Below are the following principles that guide ExxonMobils relationships with its shareholders, customers, employees, and communities. All of which are retrieved from ExxonMobil Corporation Annual Report (Tillerson, 2010). Shareholders - ExxonMobil is committed to enhancing the long-term value of the investment dollars entrusted to it by its shareholders. By running the business profitably and responsibly, ExxonMobil expect its shareholders to be rewarded with superior returns. This commitment drives the management of its corporation. Customers - Success depends on its ability to consistently satisfy ever changing customer preferences. ExxonMobil commits to be innovative and responsive, while offering high quality products and services at competitive prices. Employees - The exceptional quality of ExxonMobils workforce provides a valuable competitive edge. To build on this advantage, ExxonMobil will strive to hire and retain the most qualified people available and to maximize their opportunities for success through training and development. ExxonMobil is committed to maintaining a safe work environment enriched by diversity and characterized by open communication, trust, and fair treatment.


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Communities - ExxonMobil commits to be a good corporate citizen in all the places it operates worldwide. It will maintain high ethical standards, obey all applicable laws, rules, and regulations, and respect local and national cultures. Above all other objectives, ExxonMobil is dedicated to running safe and environmentally responsible operations.

SWOT Analysis StrengthStrength Establishment Description ExxonMobil has a long established name that has been in existence for over 50 years which gives its customers a sense of security when dealing with the organization. ExxonMobil is one of the global leaders in the oil and gas industry best known by its familiar brand names: Exxon, Esso and Mobil. The organization has geographically diversified into many different areas of the industry covering almost every the worlds energy demands. It has many strong brands under its main umbrella group. Its business and products include upstream, downstream, and chemicals. This diversification of business and revenue helps shield it from shocks in any one part of its business. Different countries or locations around the world have different characteristics. The company lowers its risk by investing in part of the world with low correlations. The lower the risk, the more the value of the business over the long-term. ExxonMobil has the leading advancement in technology and continually strives to find new innovations to produce better, safer and cleaner ways to deliver the energy the world needs. ExxonMobil is a very stable and vicious cash generator having grown from USD25.4 billion in 2004 to USD30.4 billion in 2010, a 20% increase in net income. A strong and steady financial performance allows it to make future investments when prices are lower during recession. Risk measures are also lower, because investors have more confidence in the companys ability to avoid bankruptcy. The organization spends USD 1 billion annually in research, development, and technology applications which shows its commitment to development innovations to improve the supply of reliable, affordable energy in a safe and environmentally responsible manner. ExxonMobil is known to produce the highest product quality and product variation that covers all aspects of the oil and gas business. The organization has a global presence and thus has access to a wider customer base and a larger market than other energy companies. It is located in more than 200 countries giving it a competitive edge in the marketplace. It also allows the company to explore for and capture all resource types, across all geological and geographical environments,Taking on the Worlds Toughest Energy Challenges |

Leading market position

Diversified revenue stream

Technological Advancement

Strong & steady financial performance

Strong research & development

Product Quality & Product Variation

Global Presences

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using industry-leading technology and capabilities. International Markets The international market offers great sales and profits. Gaining economies of scale from higher production helps ExxonMobil in increasing margins and market share. ExxonMobil spends millions of dollars in investment to attract and retain the highest qualified executives to bring new and innovative ideas to the firm. The organization has a business code of conduct in with ensures good corporate citizenship, correct and appropriate crisis management and crisis communication management strategy. This has enables it to be able to survive negative criticism and avoid lawsuits without much damage to its reputation even after the Exxon Valdez oil spill.

Human Resource

Strong Business Policies and Management

Weakness Weakness Legal proceedings Description ExxonMobil is faced with a lot of legal proceedings by the public such as being accused of not doing enough to go green and conserve the environment. Since ExxonMobil is multinational organization, it can be slow in responding to the environment due to its large size such as amounts of paperwork and policies that need to be taken place before a decision can be made. ExxonMobil is a company under the public microscope which is a significant weakness of the organization. It must constantly avoid negative activities which can be difficult to recover from and cost it the good will of its consumers. For example, there has been much negative publicity generated from the Exxon Valdez spill and also the human rights. Another example was when the organization was accused for exorbitant profits in the last few years as energy prices were increasing. Foreign governments are hostile to international companies that make lots of profits off the resources of those foreign territories without investing much into the country. In such cases, like in the energy segment, those foreign countries feel political pressure to tax foreign comes in order to gain money and fill their budgets.

Slow Response to Market

Negative Public Perception

Foreign Grounds

Opportunity Opportunity Increasing demand for refined products in developing economies Description The biggest opportunities that are available to the organization are the increased demands of energy in developing economies in the South and South East Asia such as Malaysia, Indonesia, Korea and Vietnam.


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Increasing demand for liquefied natural gas (LNG)

Liquefied Natural Gas (LNG) is becoming more popular worldwide because it reduces greenhouse gases. Expansion of LNG supplies will support a growing need for natural gas imports to meet rising demand in many markets, including the United States, Europe, and Asia Pacific. Energy prices are bound to increase meaning good returns for investors. The inability for Saudi Arabia to supply oil will cause demand to exceed supply leading to higher oil prices benefiting the profitability of the company. Renewable energy depends on natural gas as a standby form of energy. Even as the world diversifies to renewable forms of energy, the use of natural gas will still be needed in large amounts. When inflation hits consumers, they can rarely afford to cuts down in energy consumption. This means that energy tend to prosper in inflationary environments. Added demand for natural gas will help natural gas producers and transporters.

High Energy Prices

Demand exceeding supply

Renewable Energy Needs Natural Gas

Inflation tragic booms for Energy companies

Low Prices for Natural Gas

Threat Threat Increase in Prices of Materials Change of Market Demand (Alternative energy sources) Competition Description An increase in prices of materials can significantly reduce the profitability of the organizations. The market demand is shifting towards conservation of the environment which has resulted in the reduction in the use of energy. This can result in a loss of sales. The emerging economies of China and India are being affected by recession. This is a great threat to the company because China and India are one of the biggest demanders of energy in the past few years. Governments are planning to regulate fuel economy standards, which would put additional pressure on cars with low average fuel economy standards. Governmental regulations around the world can post a great threat to the organization. For example, an increase in tax for oil companies can significantly lower profits. Also, political risk increases the cost of doing business, especially in foreign territories. This risk can include government instability, or other hostile conditions of doing business. This can lead to costly results.

Environmental regulations

Governmental Regulations and Political Risk


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Cyclical industry

Cyclical industry can become a huge threat during the economic bad times especially when the organization decides to lay off employees to cope with it leading to negative publicity. Long term threat could be investment in alternative energy if fuel prices stay high enough for competitors to make energy saving substitutes. Energy reserves decreasing without new replacements. This could lead to shrinking supply and less revenue.

Alternative Energy

Declining Oil Reserves

Competitor AnalysisExxonMobils leading competitors are Royal Dutch Shell, British Petroleum, Chevron, and Conoco. 1. Royal Dutch Shell: Royal Dutch Shell plc (Shell) is an independent oil and gas company. Shell is engaged worldwide in the principal aspects of the oil and gas industry and also has interests in chemicals and other energy-related businesses. Similar to ExxonMobil, the Shell operates in three segments: Upstream, Downstream and Corporate (Royal Dutch Shell Plc (OTCOTHER: RYDAF) , 2011). 2. British Petroleum: BP p.l.c. (BP) is an international oil and gas company. BP operates its products in more than 80 countries, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products. The Company operates two segments: Exploration and Production and Refining and Marketing (BP ADR Each Representing Six Ord Shs (NYSE: BP) , 2011). 3. Chevron: Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates and provides administrative, financial, management and technology support to the United States and international subsidiaries that engage in petroleum operations, chemicals operations, mining operations, power generation and energy services (Chevron Corp (NYSE: CVX), 2011). 4. ConocoPhillips: ConocoPhillips is an international, integrated energy company. the Company operates in six segments: Exploration and Production (E&P), Midstream, Refining and Marketing (R&M), Investments, Chemicals, and Emerging Businesses (ConocoPhillips (NYSE: COP), 2011).


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Competitor 2010 Revenue Comparison

Revenue 2010500,000 400,000 300,000 200,000 100,000 0 XOM Shell BP Chevron Conoco**MSN Money, 9 December 2011Chevron 14% Conoco 14% XOM 26%

BP 21%

Shell 25%

In terms of revenue, ExxonMobil is the leader followed by Shell, BP, Chevron, and Conoco. Competitor 2010 Net Income Comparison

Net Income 201040,000 30,000 20,000 10,000 0 -10,000 XOM Shell Chevron Conoco BPConoco 13%

BP -4%

XOM 36% Chevron 23%

Shell 24%

**MSN Money, 9 December 2011

In terms of net income, ExxonMobil remains the leader followed by Shell, Chevron, Conoco, and BP. Competitor 2010 Market Value Comparison

Market Value 20103 2.5 2 1.5 1 0.5 0 XOM Chevron BP Conoco ShellShell 16% XOM 29%

Conoco 17% Chevron 21%

BP 17%


In terms of market value, ExxonMobil is still the leader. Chevron overtook Shell spot as the second place, followed by BP and Conoco which have equal market value, and Shell.


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Financial Ratio AnalysisExxonMobil vs. IndustryI have gathered most of ExxonMobils 2010 data from MSN Money and computed some of the ratios myself referring to the companys financial statements in order to compare it to the MSN Money integrated oils and gas industrys average, S&P 500, and to its direct competitors Shell and BP which will be referred to as the overall market. 1. Liquidity Ratio Analysis According to the authors of the Financial Management Theory and Practices textbook, liquidity ratio (Figures F 1.1) looks at how many dollars in assets are likely to be converted to cash within one year in order to pay debts as they fall due during that same year (Eugene F. Brigham and Michael C.Ehrhardt, 2005).Figures F 1.1 Financial Ratio AnalysisCurrent Ratio Quick Ratio

Company0.9 0.7

Industry1.2 0.9

S&P 5001.4 0.8

Shell1.2 0.9

BP1.2 0.8

**MSN Money, 9 December 2011 1.1Current Ratio and 1.2 Quick Ratio First, the Current Ratio is calculates by dividing current assets by current liabilities. It measures whether a company has enough resources to pay its debts over a one year period. The Quick Ratio on the other hand looks at another aspect of liquidity by looking at ExxonMobils ability to pay off its short term obligations without relying on the sales of its inventory (liquid assets). Observing the data, ExxonMobils current and quick ratio in 2010 is slightly lower than those of the overall market at 0.9 and 0.7 respectively. Although having a current and quick ratio that is lower than 1 may be worrying for most organizations due to the indication that it may have difficulty meeting current obligations, it is most certainly not a critical case for ExxonMobil. Firstly, calculating ExxonMobils 5 year average historical current and quick ratio during 2005 2009 (See figures F 1.2 and F 1.3 in appendix) turns out to be relatively high at 1.43 and 1.21 respectively. Secondly, since ExxonMobil have good long-term prospects and a significantly strong financial history; it would have no problem borrowing against those prospects to meet the current obligations. However, again looking on historical current ratio pattern, I have discovered that it has seen a steady increase from 2005 2008, but started to decrease since 2009 2010. This can be accounted for many reasons such as an increase in short term investments and the increase in short/current long term debt in 2009 and 2010. The economic crisis in 2008 might have also have had a great impact of ExxonMobils liquidity status. Also, ExxonMobils quick ratio has seen a decline over the past six consecutive years. This can indicate they are relying more on the sales of inventory to pay for their liabilities. If their quick ratio continuesTaking on the Worlds Toughest Energy Challenges |

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decreases even more over the next three years, this means that ExxonMobil will have to rely more and more on their sales. If their inventory sales decrease, they can be at risk of not being able to pay their creditors, hence, could be faced with a financial distress.

2. Profitability Profitability measures the effectiveness of a firms operations by combining the effects of liquidity, asset management, and debt on operations (Eugene F. Brigham and Michael C.Ehrhardt, 2005). Figures 2.1Financial Ratio AnalysisNet Profit Margin Return on Asset Ratio Return on Equity Ratio

XOM8.9 10.1 20.7

Industry10.3 11.0 20.8

S&P 50013.2 8.90 26.3

Shell6.9 9.6 20.3

BP6.3 8.6 23.4

**MSN Money, 9 December 2011 2.1 Net Profit Margin The Net Profit Margin compares the net income with sales. This is especially useful for looking at the net profit margin for ExxonMobil overall as a company. Because the organization is so large and divided into many segments, it is almost impossible to make a good analysis because there are so many cost and other factors that are associated with the petroleum industry. With the net profit margin, I am able to draw a simple conclusion as to the companys overall performance it terms of its net profit margins, although, as investors, we will need to take into account of all the other ratios and factors involved. ExxonMobils net profit margin is at 8.9% in 2010, a 2.5% increase from 2009, which indicates a good sign (see Figures 2.1above and Figures 2.2 in appendix). Although its net profit margins are lower than those of the industry and the S&P 500, it is reasonable higher than those of Shell and BP. In fact, ExxonMobil is reported by CNN Money as being the 1st most profitable companies in the world in 2010 earning up to USD40 Billion (Top companies: Most profitable, 2011). 2.2 Return On Asset The Return On Asset ratio assisted me in determining what earnings have come from invested capital. ExxonMobils high return on assets at 10.1 indicates that the company is doing rather well compared to the overall market. This can indicate that ExxonMobil is more successful than its competitors when it comes to converting investment money into net income. Investor should definitely be interested in its high ROA. Looking back on ExxonMobils historical ROA shows (see Figures 2.1 in appendix) that it has steadily increased until it significantly dropped in 2009. This is probably affected by the demand and supply of the economy during the crisis in 2008. It is very dependable upon the prices of oil which is relatively unstable. As the economy started to recover in the late 2009 and early


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2010, ExxonMobil experience a rather significant increase in ROA from 8.3% to 10.1% respectively (see Figures 2.3 in appendix). 2.3 Return On Equity The Return On Equity measures a firm's efficiency at generating profits from every unit of shareholders' equity. ROE shows how well a company uses investment funds to generate earnings growth (Wikipedia, 2011). ExxonMobil 20.7% ROE (see Figures 2.1 above) is reasonably higher than those of the overall market including the S&P 500. Looking at these figures helps me figure out that this business is most likely an equitable investment. Although other factors must certainly be considered, however overall, it seems like we can have faith in ExxonMobils profitability when it comes to ROE.

3. Debt Management According to the author, debt management looks at a whether companies have the right mix of debt and equity (Eugene F. Brigham and Michael C.Ehrhardt, 2005). Debt ManagementFigure F 3.1 Financial Ratio AnalysisDebt to Total Asset Ratio Debt/Equity Ratio

XOM0.51 1.06

Shell0.54 1.18

BP0.65 1.87

**MSN Money, 9 December 2011 3.1 Debt to Total Asset The Debt to Total Asset ratio shows the percentage of a company's assets that are provided by debt. Over the past six years, ExxonMobil has increased its debt in order to earn higher returns. This is evident in their debt to equity ratios. ExxonMobil has increased their debt to from 47% in 2005 to 51% in 2010 (See Figures F3.1 above and Figures F 3.2 in Appendix). This means that in the event of liquidation, creditors would have a 51% chance of losing their investment (Debt-Asset Ratio, n.d.). This is a relatively higher percentage than what creditors would like, but it is still lower than that of its competitors. 3.2 Debt to Equity The Debt to Equity ratio shows the financial leverage of a company. It measures how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed (Eugene F. Brigham and Michael C.Ehrhardt, 2005). ExxonMobils debt to equity ratio is relatively high at 1.06 (See Figures F3.1 above and Figures F 3.3 in Appendix) signifying that the company is highly leveraged through debt, but it is lower than that of its competitors. Even though ExxonMobil is highly leveraged through debt financing, the company is rather stable based on supporting metrics. Also the company has a very high ROA, ROE, and a P/E ratio, therefore, this high amount of leverage does not necessarily equate to a significant risk.Taking on the Worlds Toughest Energy Challenges |

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3.3 Times-Interest-Earned (TIE) ExxonMobils Times-Interest-Earned (TIE) ratio measures a company's ability to meet its debt obligations (Eugene F. Brigham and Michael C.Ehrhardt, 2005). This ratio looks at how many times a company can pay its interest payments with before tax and interest. Viewing the data in figure (See Figures F 3.4 in Appendix), it shows an increase from 2.3 in 2009 to 2.46 in 2010. ExxonMobil has healthy TIE consistency averaging at approximately 2.4 which indicate that ExxonMobils does not have any problems meeting its interest payments. Investors generally look at TIE with the idea that anything over 1.5 is acceptable. As long as ExxonMobil does not increase their debt and therefore increase their interest, they will be okay in paying their interest expense. Based on TIE, ExxonMobil would be an ideal investment.

4. Asset Management Asset Management measures how effective and efficient a firm is at managing its assets (Eugene F. Brigham and Michael C.Ehrhardt, 2005). Management must use these ratios to determine if total amount of assets on the balance sheet are reasonable, too high, or too low in the view our current projects and sales level.Figure F 4.1 Financial Ratio AnalysisInventory Turnover Ratio Receivable Turnover Ratio Fixed / Total Assets Turnover Ratio

XOM21.0 14.5 1.5

Industry15.4 14.6 1.1

S&P 50012.4 15.8 0.8

Shell12.0 6.4 1.4

BP12.7 9.7 1.4

**MSN Money, 9 December 2011 4.1 Inventory Turnover Inventory Turnover ratio measures how much the firm sells and replaces inventory within their business cycle. ExxonMobils inventory turnover is at 21 times (See Figures 4.1 above) which are significantly higher than the overall market. This can indicate that inventories are the least liquid form of asset. This means that there would be 21 inventory turns per year which is rather healthy. Investors and management can use this ratio to determine whether inventory purchases is satisfactory, especially in the oil business since ExxonMobil has numerous items within its product lines. 4.2 Receivable Turnover The Receivable Turnover ratio measures how long it takes for the company to collect from its account receivables. It can be used to determine whether the company is having any difficulties in collecting sales made on credit. The higher the turnover, the faster the business is collecting its receivables. Therefore, ExxonMobils receivable is 14.5, slightly below the industrys average and the S&P 500, but relatively higher than those of its competitorsTaking on the Worlds Toughest Energy Challenges |

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indicating that ExxonMobil is able to collect its receivables fairly quicker compared to its competitors. 4.3 Total Asset Turnover Total Asset Turnover ratio measures how efficient the company is in using its assets. Currently, ExxonMobils total asset turnover is well above those of the overall market. This can mean that ExxonMobil is using its assets more efficiently to generate sales compare to its competitors.

5. Market Value Market Value relates the firms stock price to its earnings, cash flows, and book value per share (Eugene F. Brigham and Michael C.Ehrhardt, 2005). These ratios give investors indication of the companys past and future performance. For instance, usually if the liquidity, profitability, debt management, and assets management ratios are healthy, then the market value and stock prices will also be high.Figure F 5.1 Financial Ratio AnalysisPrice/Earning (P/E) Ratio Price/Cash Flow Ratio Market/Book Ratio

XOM9.80 0.83 6.70

Industry8.30 1.23 6.20

S&P 50026.9 2.10 11.60

Shell7.10 2.10 3.98

BP5.9 0.36 1.24

**MSN Money, 9 December 2011 5.1 Price/Earnings Price/Earnings ratio shows how much investors are willing to pay per dollar of reported profit. ExxonMobils price/earnings ratio is at 9.8 (See Figures 5.1 above), which is above the industry average. This suggests that investors are willing to pay significantly more per dollar of earnings for ExxonMobil, then for other companies in the industry. 5.2 Price to Cash Flow The Price to Cash Flow ratio measures how well an organization will be able to withstand the future in terms of its financials by comparing cash flow to the market value. ExxonMobil has a price to cash flow ratio of 0.83 which is slightly below the industry average. Comparing to its competitors, Shells price to cash flow ratio is above ExxonMobil at 2.10, while outperforming BP by almost triple. 5.3 Market to Book The Market to Book ratio compares the companys market stock price per share with the book value per share. ExxonMobils market to book ratio is at 6.7, which is higher than the overall market. This may indicate that investors are more likely to pay more for a dollar of Exxons book value than other companies.


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Income Statement &Balance Sheet HighlightsIn this section, I demonstrate key figures in ExxonMobils income statement and balance sheet during 2006 2010 to further investigate ExxonMobils performance. All of the figures I have pulled out from ExxonMobils income statement and balance sheet in their annual reports.

Sales Revenue & Net Income2006 - 2010500,000.00 450,000.00 400,000.00 350,000.00 300,000.00 250,000.00 200,000.00 150,000.00 100,000.00 50,000.00 -

US Dollars

2006 39,500.00

2007 40,610.00

2008 45,220.00

2009 19,280.00

2010 30,460.00

Sales Revenue 365,467.00 390,328.00 459,579.00 301,500.00 370,125.00 Net Income

The chart above shows a steady increase in both the sales revenue and net income of ExxonMobil during 2006 2010. Notice that in 2008-2009, the chart shows a sharp fall. This is due to the economic crisis in 2008. ExxonMobils sales revenue and net income drop 34%and 57% respectively. While this might be worrying, once compared with its competitors, ExxonMobils drop seems normal (Royal Dutch Shell sales revenue and net income dropped by 39% and 52% respectively).

ExxonMobil's Dividend Trend 2006 - 20102 Dividends Per Share 1.5 1 0.5 0 Dividend to shareholders 2006 1.28 2007 1.37 2008 1.55 2009 1.66 2010 1.74

The chart above shows that the cash dividend to shareholders per share has been a consistently increasing during 2006 -2010 despite the economic crisis in 2008. This shows ExxonMobils resource management abilities, even in tough economic times, and demonstrates its commitment to ensuring its shareholders value.


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Other Factors to ConsiderIndustry Structure Changes in economic conditions, consumer demographics, and preferences are occurring throughout the world. Alternative energy sources are being developed. Although currently, alternative energy sources are yet too expensive and not able to replace oil and gas, in the long run, it could post great threat if fuel prices remain high enough for competitors to make energy saving substitutes. Economic Risk An increase fear amongst economist and financial analyst is their outlook for the global economy. The recession in Europe, weak growth in the United States, and a sharp slowdown in China and in most emerging-market economies will significantly have effect on ExxonMobil (The global economic outlook for 2012, 2011). As the global economy goes down, demand will go down, prices will go up, thus unemployment will increase. Then consumers will spend least disposable income cutting down on unnecessarily leisure such as travelling and vacations. Legal & Political Risks Governmental regulations around the world can post a great threat to the organization. A slight increase in taxation structure for oil companies can significantly affect the companys profits. Also, political risk increases the cost of doing business, especially in foreign territories. This risk can include government instability, or other hostile conditions of doing business. Another issue is government regulations on the exploration of oil and gas. If regulations post restrictions on exploration, this could harm the companys supply, thus diminishing it profits. Supply Disruption Because ExxonMobil operates on a global scare, it is prone to supply disruptions, whether it be from weather, supply development, or natural disasters such as the hurricane Katrina or the Exxon Valdez in 1989-1998. Rising price of oil As the oil and gas reserves are diminishing throughout the world, the price of oil will surely continue to rise. However, as the energy reserves are decreasing without new replacements, this would lead to a shrinking supply which means less revenue. ** See Weaknesses and Threats in SWOT Analysis for additional factors (Pg. 10&11)


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ConclusionAfter a through conduct of ExxonMobils financials, I would conclude that ExxonMobil is financially a viable, stable, and a very profitable organization compared with its overall market. Even though the company is highly leveraged through debt financing, the company is rather stable based on supporting facts. Also the company has a very high ROA, ROE, and a P/E ratio, therefore, this high amount of leverage does not necessarily equate to a significant risk. Its net profits are steadily recovering since the economic crisis in 2008 and its upward trend and future estimates are among the best in the industry. In terms of its competition, it outperforms the majority of its competitors ratios (See F.6.1 in Appendix for ratios summary table). Furthermore to ExxonMobils financial strength, investors can rest assured on ExxonMobils management capabilities. It has one of the best and most stable upper management team in the industry and a profound code of business conduct that is transparent globally. This enables them to efficiently and effectively manage their resources and identify prosperous investment opportunities in order to meet global energy demands and maximize shareholders values. In summary, ExxonMobils financial strength, management capabilities, plus an increasing demand for oil and natural gas worldwide is a guarantee that the company will continue to experience a healthy growth.


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RecommendationBased on the financial analysis conducted, I would recommend investor to buy ExxonMobils stock. I support this recommendation with ExxonMobils majority of increasing trends, which includes an increase trend in sales revenue, net income, ROE, ROA, and most importantly, cash dividend to shareholders. The only warning I bound to mention is to pay close attention to ExxonMobils Liquidity and Debt trends. Overall, I believe that investors who wish to acquire ExxonMobils equity will prosper.


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ReferencesAbout Us. (2011). Retrieved November 2011, 28, from ExxonMobil, "Taking on the world's toughest energy challenges": http://www.exxonmobil.com/Corporate/about_what.aspx BP ADR Each Representing Six Ord Shs (NYSE: BP) . (2011). Retrieved December 9, 2011, from MSN Money: http://investing.money.msn.com/investments/company-report?symbol=BP Chevron Corp (NYSE: CVX). (2011). Retrieved December 9, 2011, from MSN Money: http://investing.money.msn.com/investments/company-report?symbol=cvx ConocoPhillips (NYSE: COP). (2011). Retrieved December 9, 2010, from MSN Money: http://investing.money.msn.com/investments/company-report?symbol=cop Key Ratios. (2011). Retrieved December 2, 2011, from MSN Money: http://moneycentral.msn.com/investor/invsub/results/compare.asp?symbol=xom Price of Petroleum. (2011, November 23). Retrieved 2011 4 December, from Wikipedia: The Free Encyclopedia: http://en.wikipedia.org/wiki/Price_of_petroleum Royal Dutch Shell Plc (OTCOTHER: RYDAF) . (2011). Retrieved December 9, 2011, from MSN Money: http://investing.money.msn.com/investments/stock-price?symbol=RYDAF&ocid=qbes The global economic outlook for 2012. (2011). Retrieved December 12, 2011, from The Guardian News and Media: http://www.guardian.co.uk/business/economicsblog/2011/dec/15/global-economic-outlook-2012-roubini?newsfeed=true Top companies: Most profitable. (2011). Retrieved November 2011, 15, from CNN Money: http://money.cnn.com/magazines/fortune/global500/2009/performers/companies/profits/ Avalon Oil & Gas Inc. (2010). Overview. Retrieved December 2011, 2, from Avalon Oil & Gas Inc.: http://www.avalonoil.com/html/overview.html Eugene F. Brigham and Michael C.Ehrhardt. (2005). Financial Management: Theory and Practice, 11th Edition. South-Western. ExxonMobil, Energy Outlook (2010). 2010 The Out look for Energy: A View to 2030. Debt-Asset Ratio. (n.d.). Retrieved December 2, 2011, from Investopedia: http://www.investopedia.com/university/ratios/debtasset.asp#axzz1h3VOWZL5 Oil & Gas Industry Overview. (n.d.). Retrieved December 2, 2011, from Petroleum Online: http://www.petroleumonline.com/content/overview.asp?mod=1 Overview of World Energy. (2009, November). Overview of World Energy. Retrieved December 2, 2010, from Year of Energy 2009: From Sigma Xi, the Scientific Research Society: http://energy.sigmaxi.org/?p=551 Tillerson, R. W. (2010). ExxonMobil, 2010 Financial & Operating Review. ExxonMobil Corporation.


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Wikipedia. (2011, December 8). Return on equity. Retrieved from Wikipedia, the free encyclopedia: http://en.wikipedia.org/wiki/Return_on_equity Zack Investment Research. (2011, July 19). Analyst Interviews: Oil & Natural Gas Stock Outlook. Retrieved December 2011, 2, from Daily Markets: http://www.dailymarkets.com/stock/2011/07/19/analyst-interviews-oil-natural-gas-stockoutlook/


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AppendixOrganizational Structure Standing Committees of the Board Audit Committee M.J. Boskin (Chair), P. Brabeck-Letmathe, L.R. Faulkner, S.S Reinemund Board Affairs Committee M.C. Nelson (Chair), K.C. Frazier, W.W. George, S.J. Palmisano Compensation Committee W.W. George (Chair), J.S. Fishman, S.J. Palmisano, E.E. Whitacre, Jr. Finance Committee R.W. Tillerson (Chair), M.J. Boskin, P. Brabeck-Letmathe, L.R. Faulkner, S.S Reinemund Public Issues and Contributions Committee E.E. Whitacre, Jr. (Chair), J.S. Fishman, K.C. Frazier, M.C. Nelson Executive Committee R.W. Tillerson (Chair), M.J. Boskin, W.W. George, M.C. Nelson, S.J. Palmisano

Functional and Service Organizations Upstream N.W. Duffin President, ExxonMobil Development Company S.M. Greenlee President, ExxonMobil Exploration Company R.M. Kruger President, ExxonMobil Production Company S.N. Ortwein President, ExxonMobil Upstream Research Company T.R. Walters President, ExxonMobil Gas & Power Marketing Company J.P. Williams, Jr. President, XTO Energy Inc. Downstream H.R. Cramer President, ExxonMobil Fuels Marketing Company S.J. Glass, Jr. President, ExxonMobil Refining & Supply Company A.J. Kelly President, ExxonMobil Lubricants &Petroleum Specialties Company R.V. Pisarczyk President, ExxonMobil Research and Engineering Company Chemical S.D. Pryor President, ExxonMobil Chemical Company Other N.A. Chapman President, ExxonMobil Global Services Company Officers R.W. Tillerson Chairman of the Board M.W. Albers Senior Vice PresidentTaking on the Worlds Toughest Energy Challenges |

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M.J. Dolan Senior Vice President D.D. Humphreys Senior Vice President and Treasurer A.P. Swiger Senior Vice President S.J. Balagia Vice President and General Counsel L.J. Cavanaugh Vice President Human Resources K.P. Cohen Vice President Public and Government Affairs W.M. Colton Vice President Corporate Strategic Planning H.R. Cramer Vice President T.M. Fariello Vice President Washington Office R.S. Franklin Vice President and President ExxonMobil Upstream Ventures S.J. Glass, Jr. Vice President S.M. Greenlee Vice President A.J. Kelly Vice President R.M. Kruger Vice President P.T. Mulva Vice President and Controller O.K. Owen Vice President Safety, Security, Health & Environment S.D. Pryor Vice President D.S. Rosenthal Vice President Investor Relations and Secretary J.M. Spellings, Jr. Vice President and General Tax Counsel S.K. Stuewer Vice President Environmental Policy & Planning T.R. Walters Vice President

Picture 1


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LiquidityFigures F 1.1 Financial Ratio AnalysisCurrent Ratio Quick Ratio

Company0.9 0.7

Industry1.2 0.9

S&P 5001.4 0.8

Shell1.2 0.9

BP1.2 0.8

**MSN Money, 9 December 2011Figures F 1.2

ExxonMobil's Current Ratio 2005 - 20101.80 1.60 1.40 1.20 Ratio 1.00 0.80 0.60 0.40 0.20 0.00 Current Ratio 2005 1.58 2006 1.55 2007 1.47 2008 1.47 2009 1.06 2010 0.94

Figures F 1.3

ExxonMobil's Quick Ratio 2005-20101.60 1.40 1.20 1.00 Ratio 0.80 0.60 0.40 0.20 0.00 Quick Ratio 2005 1.38 2006 1.33 2007 1.28 2008 1.23 2009 0.84 2010 0.73


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Profitability Figures 2.1Financial Ratio AnalysisNet Profit Margin Return on Asset Ratio Return on Equity Ratio

XOM8.9 10.1 20.7

Industry10.3 11.0 20.8

S&P 50013.2 8.90 26.3

Shell6.9 9.6 20.3

BP6.3 8.6 23.4


Figures 2.2 ExxonMobil's Net Profit Margin Ratio 2005 - 201012.0% 10.0% 8.0% Ratio 6.0% 4.0% 2.0% 0.0% Profit= 2005 10.1% 2006 10.8% 2007 10.4% 2008 9.8% 2009 6.4% 2010 8.2%

Figures 2.3

ExxonMobil's ROA 2003 - 201025.00% 20.00% Ratio 15.00% 10.00% 5.00% 0.00%

2003

2004 13%

2005 17.3%

2006 18.0%

2007 16.8%

2008 19.8%

2009 8.3%

2010 10.1%

ROA= 12.30%


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Figures 2.4

ExxonMobil's ROE 2003 - 201045.00% 40.00% 35.00% 30.00% Ratio 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2003 2004 2005 32% 2006 35% 2007 33% 2008 40% 2009 17% 2010 20.7%

ROE= 12.40% 24.90%

Debt ManagementFigure F 3.1 Financial Ratio AnalysisDebt to Total Asset Ratio Debt/Equity Ratio

XOM0.51 1.06

Shell0.54 1.18

BP0.65 1.87

Figure F 3.2

ExxonMobil's Debt to Total Assest Ratio 2005 - 20100.54 0.53 0.52 0.51 0.50 0.49 0.48 0.47 0.46 0.45 0.44 0.43 Debt to Total Asset =

Ratio

2005 0.47

2006 0.48

2007 0.50

2008 0.50

2009 0.53

2010 0.51


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Figure F 3.3

ExxonMobil's Debt to Equity Ratio 2005 - 20101.20 1.00 0.80 Ratio 0.60 0.40 0.20 D/E = 2005 0.87 2006 0.92 2007 0.99 2008 1.02 2009 1.11 2010 1.06

Figure F 3.4

ExxonMobil's TIE Ratio 2005 - 20102.60 2.55 2.50 2.45 2.40 2.35 2.30 2.25 2.20 2.15 2.10 TIE=

Ratio

2005 2.55

2006 2.42

2007 2.39

2008 2.28

2009 2.30

2010 2.46

Asset ManagementFigure F 4.1 Financial Ratio AnalysisInventory Turnover Ratio Receivable Turnover Ratio Fixed / Total Assets Turnover Ratio

XOM21.0 14.5 1.5

Industry15.4 14.6 1.1

S&P 50012.4 15.8 0.8

Shell12.0 6.4 1.4

BP12.7 9.7 1.4



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Market ValueFigure F 5.1 Financial Ratio AnalysisPrice/Earning (P/E) Ratio Price/Cash Flow Ratio Market/Book Ratio

XOM9.80 0.83 6.70

Industry8.30 1.23 6.20

S&P 50026.9 2.10 11.60

Shell7.10 2.10 3.98

BP5.9 0.36 1.24

**MSN Money, 9 December 2011Figure F 6.1

Financial Ratio Analysis

IND

COM

Liquidity Ratio Analysis Current Ratio Quick Ratio Profitability Net Profit Margin Return on Asset Ratio Return on Equity Rat Debt Management Debt to Total Asset Debt to Equity Ratio TIE Ratio Asset Management Inventory Turnover Receivable Turnover Total Asset Turnover Market Value P/E Ratio Price/Cash Flow Ratio Market/Book Ratio Y N Y Y M Y Y N Y Y Y Y Y Y N N N Y Y Y N N N N


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