Exxon Mobil Corporation

Exxon Mobil Corporation:

Introduction:

Exxon corporation was founded in the year 1870, however in 1999 it changed its name to Exxon Mobil corporation after merging with Mobil, in 2007 the company was ranked as the largest company in terms of it revenue, it is a fortune 500 company whose business include exploration and the production of petroleum products. The company operates in Canada, US, South America and other regions and has over 16,000 wells in these regions, according to the 2007report the company employs over 106,000 employees and has been ranked one of the best in terms of divided earnings.

This company has a comparative advantage over its competitors due to economies of scale that help in reducing production costs and also technological advantage that helps in reducing these costs through optimal drilling and pipelines used in transporting their products, this paper discusses financial ratios of Exxon Mobil that will help in determining the companies profitability, return on equity, return on assets, liquidity and leverage.

Liquidity:

The company has maintained a good liquidity position, some of the ratios that show the liquidity position of the company include the current ratio, the cash ratio and the cash flow from operation ratio, the current ratio is determined by dividing the current assets by current liabilities, according to the balance sheet as at 31 December 2007 current assets amounted to $85,963,000 while current liabilities amounted to $58,312,000, the current ratio is therefore determined by dividing the current assets by the current liabilities which yield the value of 1.47, the following table summarizes the current ratio over the years:

1/14

Exxon Mobil Corporation

2007

2006

2005

current assets

85963000

75777000

73342000

current liabilities

58312000

47115000

2/14

Exxon Mobil Corporation

44536000

current ratio

1.474191

1.608341

1.646803

From the table it is evident that there has been an increase in current assets, also an increase in the current liabilities but the current ratio has declined over the years. The current ratio for the year 2007 is 1.47 and this means that for every dollar the company owes its creditors it has 1.47 dollars in form of assets, therefore this ratio has decline but its creditworthiness is still appropriate in the market.

The effective management of its assets:

To determine the effective management of the company’s assets we will use the asset turnover ratio, fixed assets turnover and the return on assets to determine how well the company effectively manages its assets.

3/14

Exxon Mobil Corporation

The asset turnover ratio is determined by dividing the sales by the total assets, for the year 2007 the companies sales level was$ 404,552,000 while the total assets level was $242,082,000, the asset turnover ratio for this year is equal to 1.67, and the following chart summarizes the asset turnover over the years:

2007

2006

2005

sales

404552000

377635000

370680000

4/14

Exxon Mobil Corporation

assets

242082000

219015000

208335000

asset turnover

1.6711362

1.7242426

1.7792498

From the above table it is evident that there has been a decline in the asset turnover ratio from 1.779 in 2005 to 1.62 in 2007. The higher the asset turnover ratio then the more a company is efficient in using its assets to increase sales level, the ratio for the company over the years has therefore reduced its efficiency in the use of its assets to generate sales.

5/14

Exxon Mobil Corporation

Return on assets:

The return on asset ratio is determined by dividing the net income by total assets, for the year

2007 the net income amounted to $ 40,610,000 while total assets amounted to $242,082,000,

therefore the return on assets derived is 0.168, the table below shows the trend over the years

2007

2006

2005

net income

40,610,000

39,500,000

36,130,000

6/14

Exxon Mobil Corporation

total assets

242,082,000

219,015,000

208,335,000

return on assets

0.16775308

0.18035294

0.17342261

From the table above there has been a decline in the return on asset ratio, this means that the company has increased its assets but has not be efficient in using its assets to increase its sales and income level, despite this however the companies profitability has increased.

7/14

Exxon Mobil Corporation

Leverage:

Leverage is the borrowing which allows the company to purchase assets more than the stake holders provide, for this reason therefore more assets are purchased and therefore more sales and net income increases, some of the ratios that are to determine financial leverage include the debt ratio and the debt equity ratio.

The debt ratio is determined by dividing the total liabilities by total assets, in 2007 total assets for the company amounted to $242,082,000 while the total liabilities amounted to $120,320,000, therefore the debt ratio is equal to 49.70%, this is the percentage of cash that the company can acquire through borrowing, this percentage has increased shows an improvement in the companies creditworthiness and therefore the company can finance its operations through borrowing. The following table summarizes the debt ratio of the company over the years.

2007

2006

2005

total liabilities

8/14

Exxon Mobil Corporation

120,320,000

105,171,000

97,149,000

total assets

242,082,000

219,015,000

208,335,000

debt ratio

0.49702167

0.48019999

0.46631147

9/14

Exxon Mobil Corporation

The table shows the debt ratio for the year 2007, 2006 and 2005, from the table there has been an increase in the debt ratio.

The debt equity ratio is determined by dividing the total liabilities by total share holder equity; this ratio shows the level of borrowing per unit of equity invested. For the year 2007 total liabilities amounted to $120,320,000 while the total share holder equity amounted to $121,762,000, therefore the debt equity ratio is equal to 0.988, the following table summarizes the debt equity ratio over the last three years

2007

2006

2005

total liabilities

120,320,000

10/14

Exxon Mobil Corporation

105,171,000

97,149,000

share holder equity

121,762,000

113,844,000

111,186,000

debt equity ratio

0.98815722

0.9238168

0.87375209

From the above table it is evident that there has been an increase in the debt equity ratio, this means that the company has increased its financing through debts and a relative decline in its financing through equity.

11/14

Exxon Mobil Corporation

Profitability:

The company over the years has increased its profitability, gross profit has increased and this is attributed to the proper management of its assets, liquidity and debt management. The factor that has led to an increase in profitability is an increase in borrowing that has enabled the company to increase its assets and therefore generate more sales levels using these assets, despite the decline in efficiency in the use of these assets it is still evident that these assets have increased the profits of the company, the return on assets ratio is equal to 0.1677 which is a decline from previous years and also the debt equity ratio which is 0.98 is a decline from the previous years showing that the company has relatively increased borrowing rather than finance the operation through equity. The borrowing has enabled the company to have comparative advantage over fiancé through equity.

From the above discussion therefore this company has achieved high profitability through an increase in assets financed by borrowing which has proved less expensive than equity financing. The efficiency in the use of assets has also aided the company to improve on profits, finally the current ratio shows that the company’s creditworthiness has allowed it to borrow more to finance operations.

Firms stock prices:

The following chart summarizes the stock prices of Exxon Mobil; data was retrieved from yahoo finance available at http://finance.yahoo.com/q/hp?s=XOM

From the above chart there has been a decline in the stock prices of Exxon Mobil over the last few months, however this shows that in the near future the prices may rise to a peak as depicted by the business cycle curve.

12/14

Exxon Mobil Corporation

Revenue per share according to recent data shows is $80.367 and cash per share is $7.643, the book value per share according to the financial times is 23.03, cash flow per share according to the financial times is 10.39, the cash flow margins according to the financial times is 12.85. From previous levels it is evident that the book value per share has increased over the last three years, this has increased the value of shares and therefore created value to investments by the investors.

Trend:

The company has improved its performance over the years, profits have increased as a result of increase in operations by the company, increasing oil prices has also resulted to an increase in the level of revenue realized by the company, the company also enjoys comparative advantage in that it adopts technologies that aid in reducing the cost of production, it has also in the recent past improved its distribution networks that has helped reduce the cost of production.

The return on equity ratio is currently at 36.19% which is very attractive to investors, the company therefore enjoys the advantage of acquiring funds for expanding its operations either through debts or equity, this is because its returns on equity is high and also its debt ratio allows it to fiancé through debts.

The following chart summarizes the profit levels earned by the company over the last three years:

From the above chart it is evident that the gross profits have increased over the years, however there has been slight increase in the net profits, therfore it is evident that despite the increase in the profits of the compnay there has also been relative increase in the expenses and

13/14

Exxon Mobil Corporation

therefoer the company should icnrease its efficiency to reduce its expensses.

References:

Exxon Mobil (2008) financial reports, retrieved on 9th September, available at http://72.14.205.1 04/search?q=cache:HDDrZPPI9b0J:www.exxonmobil.com/Corporate/Files/news_release_earn ings2q08.pdf+exxon+mobil+fiancial+report+2008&hl=en&ct=clnk&cd=1&gl =ke

Financial times (2008) Exxon Mobil financial ratios, retrieved on 9th September, available at htt p://markets.ft.com/ft/tearsheets/financialsSummary.asp?s=XOM%3ANYQ

Yahoo finance (2008) Exxon Mobil prices and financial ratios, retrieved on 9th September,

available at http:// finance.yahoo.com/q/ks?s=XOM

14/14