4
Financial Analysis of Exxon Mobil Corporation
Financial Analysis of Exxon Mobil Corporation
There were two last annual financial reports on SEC.gov for the Exxon Mobil Corporation (XOM), which were dated at 31 December 2023, and 31 December 2022.
Liquidity
The three ratios I decided to select for liquidity analysis are current ratio, quick ratio, and cash ratio. The current ratio evaluates the Exxon Mobil’s short-term liquidity and ability to cover its short-term liabilities with the short-term assets the company possesses. The current ratios are increasing from 0.78 in 2019 to 1.49 in 2023. This suggests that there is an improvement in Exxon Mobil’s short-term liquidity position. In 2023, the current ratio of 1.48 suggests that Exxon Mobil has $1.48 in current assets for every $1 of current liabilities. Quick ratio demonstrates the ability of Exxon Mobil to meet its short-term liabilities with its most liquid assets. We can observe fluctuations in Exxon Mobil’s quick ratio over the years. In 2023, the quick ratio of 1.10 suggests that Exxon Mobil has $1.10 in liquid assets (excluding inventories) for every $1 of current liabilities. Hence, the company improved its ability to cover short-term obligations and strengthened its liquidity positions. Finally, the cash ratio represents how well the company covers its short-term liabilities with cash and cash equivalents. The cash ratio in 2019 year was only 0.05, but it has been increasing to 0.48 over years, showing that the ability of covering its short-term liabilities by cash was improved as well. Overall, Exxon Mobile demonstrated a considerable improvement in its liquidity positions.
Solvency
We will consider debt-to-equity ratio, debt ratio, and interest coverage ratio. The debt-to-equity ratio demonstrates what proportion of a company’s financing that comes from debt relative to its equity. The ratio changed over the years with both increases and decreases. In is equal to 0.2 during the last two years. This shows that the level of debt is $0.2 per $1 of equity, which is low level and may be seen as favorable in terms of financial risk. The debt ratio in 2019 – 2023 changed from 0.13 to 0.11 with the maximum of 0.2 in 2020. Currently, about 11% of the company’s total assets is accounted for total debt. Finally, the interest coverage ratio showed significant fluctuations over years. There is even one observation (in 2022), when the ratio was negative, because the company faced loss. However, except for this year, the ratio was very high and it suggests that Exxon Mobil’s earnings were more than adequate to cover its interest expenses in those years. Generally, we can conclude that Exxon Mobil currently has a very low debt burden, which may tell us about a good company’s financial health.
Profitability
The analysis of company’s profitability will be based on the gross profit margin, net profit margin, and return on equity. The gross margin ratio shows the percentage of revenue that exceeds the cost of goods sold and represents the profit generated from core business activities. We see that the gross profit margin of Exxon Mobil remains approximately stable over the years. This stability may indicate that the company has been able to effectively manage its production costs relative to its revenue, resulting in consistent profitability from its core business operations. Considering the net profit margin, which indicates a proportion of revenue that represents net profit after accounting for all expenses, we can say that there was a negative margin in 2020. This means that the company incurred a net loss in that year. Finally, return on equity shows us the profitability of the company in relation to how much profit it generates relative to its shareholders’ equity. The ROE values in the last years are quite high and positive, meaning that the company generates considerable profit. However there is a considerable decrease in profitability in 2023 after the ROE of 28% in 2022. It seems that 2020 year was a negative year for Exxon Mobil from the perspective of profitability, which may be associated with a lower business activity due to the COVID-19 pandemic.
Market Value
In the market value part, we will consider three ratios: price-to-earnings ratio, price-to-book-ratio, and dividend yield. The price-to-earnings ratio is one of the common measures of market value, which reflects the valuation of a company’s stock by comparing its current market price per share to its earnings per share. The current P/E ratio is quite high and positive, which may suggest that the stock is currently overvalued, because the positive dynamics of the last two years showed that investors are likely to pay more for the Exxon Mobil shares. Next, price-to-book ratio, which shows us a comparison between the company’s market price per share and book price per share. The ratio is at its maximum in the last two years, showing that market price is highly above its book value, which is another evidence of that the stock is overvalued. The ratio was below one in 2020, when the company incurred a loss. In that year, the market price was trading below the book value per share, which means that the stock was undervalued in 2020. Finally, considering the dividend yield, which is a measure of the annual dividend income received from owning a stock relative to its market price per share, we can conclude the following. The dividend yield varied from the minimum of 3% in 2022 to the maximum of 8% in 2020. The higher dividend yield in 2020 was associated with lower market price in this year. At the same time, the dividend per share payments were relatively stable during these years, and were slightly increased in 2022 ($3.55) and 2023 ($3.68). This increase is mostly associated with a considerably grown market price per share over the last two years.
Projections
Summing up the above analysis of Exxon Mobil Corporation, we can see that the company considerably improved its positions over the last five years. The company has shown a considerable improvement in its liquidity positions, with increasing current ratios, quick ratios, and cash ratios over the years. Exxon Mobil currently demonstrates a very low debt burden, with consistent debt-to-equity ratios of 0.2 and declining debt ratios. The company’s gross profit margin has remained stable over the years, indicating consistent profitability from core business operations. Last but not least, the price-to-earnings ratio and price-to-book ratio indicate that Exxon Mobil’s stock may currently be overvalued, with positive dynamics in the last two years suggesting that investors are willing to pay more for the company’s shares. All this indicates a favorable financial projection for this company. This is consistent with the recent claim made by the Exxon Mobile management. On December 2023, the company offered a corporative plan that will doubles the potential profit of Exxon Mobil by more than twice over 2019 – 2027 year period. They also expect the compound annual earnings growth of 18%, which is significantly higher than in the competitors within the industry (ExxonMobil corporate plan more than doubles earnings potential from 2019 to 2027; 18% compound annual earnings growth significantly outpaces peers¹ 2023).
The post 4 Financial Analysis of Exxon Mobil Corporation Financial Analysis appeared first on essayfab.