Comment on the 3-year trends in the following liquidity, solvency, and profitability ratios:
Current Ratio
Exxon Mobil current ratio for the 3-year-period 2017-2019 are relatively stable with a slight increase experienced in 2018 followed by a drop in 2019 from 0.84 to 0.78 occasioned by an increase in the current liabilities of the company (Yahoo Finance, 2020) . This downward trend is expected to continue in 2020 with the current liabilities of the company increasing slightly during the first quarter of 2020 from $63.99 billion to $64.77 billion ( Macrotrends, 2020).
Debt Ratio
The debt ratio for Exxon Mobil for the 3-year-period 2017-2019 seems to be back up in 2019 from a slight drop in 2018 moving from 0.13 in 2017 to o.10 in 2018 and back up to 0.13 in 2019. The rise was caused by an increase in the company’s long-term debt that was not proportional to the increase in shareholder’s equity. By 31 st Dec 2018, long term debt was $20.54B while shareholder’s equity was $198.53B with these figures increasing to $26.34B and $198.94B respectively by 31 st Dec 2019. The disproportionate rise in long-term debt caused the upward trend in debt ratio and is bound to continue through 2020 with long-term debt increasing in the 1 st quarter of 2020 to $31.86B and shareholder’s equity dropping to $188.74B ( Yahoo Finance, 2020).
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Return on Assets
Exxon Mobil’s ROA is on a downward trend due to the decreased net income being recorded by the company against a relatively stable and unchanging asset base. The decreased income was expected as the energy industry was affected by falling prices of oil and concerns about oversupply of oil in the world markets ( Stevens, 2019). ROA had experienced a slight increase in 2018 to reach 5.96% from 5,695 the previous year before dropping significantly to 3.99% in 2019 ( Yahoo Finance, 2020). This figure is projected to go lower in 2020 with operating income expected to drop even further as oil prices remain low in the world markets.
References
Macrotrends (2020). Exxon ROA 2006-2020 | XOM. Macrotrends. https://www.macrotrends.net/stocks/charts/XOM/exxon/roa
Stevens, P. (2019). Exxon Mobil earnings drop 49% in the third quarter on lower oil prices. MSN Money . https://www.msn.com/en-us/finance/markets/exxon-mobil-earnings-drop-49-25-in-the-third-quarter-on-lower-oil-prices/ar-AAJGjSR
Yahoo Finance (2020). Exxon Mobil Corporation (XOM). Yahoo Finance . https://finance.yahoo.com/quote/XOM/balance-sheet?p=XOM
