Financial Ratio Analyses for Exxon Mobil Corporation

Introduction 

Exxon Mobil Corporation is a leading American multination company operating in the energy sector. The organization is involved in extraction of oil and gas resources and has its headquarters in Texas. Across the world, it is the seventh largest company in terms of capitalization (Exxon Mobil, 2017). The focus of this report is on financial analyses of the performance of the organization between 2015 and 2016. Ratio analyses are an important tool of financial analyses that aids in indicating the relationship that exists between financial items presented in financial statements. The tool aids in assessment of the financial capability of an accounting entity, and help in future forecasting. 

Ratio analyses 

A summary of financial analyses for Exxon Mobil between 2015 and 2016 accounting period is as presented in the diagram below 

		2016		2015
	Amount in millions
	formula	Amount	Ratio	Amount	Ratio
current ratio	current assets/current liabilities	41416/47638	0.87	42623/53976	0.79
quick ratio	current assets-inventory/current liabilities	(41416-21394)/47638	0.42	(42623-19875)/53976	0.42
debt equity ratio	long term debt/equity	28932/173830	0.17	19925/176810	0.11
inventory turnover ratio	sales/inventory	218608/15080	14.50	259488/16245	15.97
receivables turnover ratio	sales/receivables	218608/21394	10.22	259488/19875	13.06
total assets turnover ratio	sales/total assets	218608/330314	0.66	259488/336758	0.77
net profit margin ratio	net profit margin/sales	7840/218608	0.04	16150/259488	0.06
return on assets ratio	net income/total assets	7840/330314	0.02	16150/336758	0.05

Source: Exxon Mobil (2017). 

Current ratio 

Current ratio is a measure of liquidity in an accounting entity. It indicates the ability of an accounting entity to meet its immediate financial obligations from current assets. Between 2015 and 2016, the ratio increased. The increase indicates that the ability of the entity to meet such short term financial obligations has increased ( Prasanta 2011). 

Quick ratio 

Quick ratio is an indicator of the ability of an accounting entity to meet its financial obligations from the most liquid assets ( Campbell, & Brown, 2005) . Unlike the current ratio, quick ratio excludes inventory from the calculations as it is not always easy to covert inventory to cash especially in scenario where the inventory is slow moving. In this particular case, the ratio in Exxon Mobil did not change between 2015 and 2016 indicating that the ability of the organization to pay short term debts using its most liquid assets has stabilized ( Robert, 2009). 

Debt equity ratio 

Debt equity ratio is a measure of the level of exposure of an accounting entity to the risk of insolvency. It indicates the portion of long term debt held by the organization as compared to total equity. Between 2015 and 2016 the ratio increased. The increase is an indication that the exposure of Exxon Mobil to the risk of insolvency have increased during this period ( Robert, 2009). 

Inventory turnover ratio 

Inventory turnover ratio indicates the frequency at which an accounting entity converts its inventory into sales. Between 2015 and 2016, inventory turnover declined as indicated in the diagram below: 

Source: Exxon Mobil (2017). 

As indicated above, the decline in inventory turnover during the period is an indication that the entity is selling less of its inventory as compared to 2015. Such an occurrence has the potential of significantly reducing the level of sales generated by the organization in its operations. 

Receivables turnover ratio 

Receivables turnover ratio indicates the rate at which the entity is making credit sales. High turnover ratio indicates that the entity is collecting cash from credit sales at a fast rate. At the same time, low receivables turnover indicates that the entity is taking long to collect cash from credit sales ( Robert 2009). 

Total assets turnover ratio 

The ratio indicates the amount of dollars generated in sales from each dollar invested in assets. It is a measure of efficiency on how well an entity is utilizing its assets. Between 2015 and 2016, the level of total assets turnover declined. The implication is that the level of efficiency in generation of sales has declined. It is thus important for the organization to look for ways through which it can enhance its assets ( Prasanta, 2011). 

Net profit margin ratio 

Net profit margin is an indicator of the extent to which an entity generates net income from sales. Increase in net income increases the sustainability of business ( Prasanta, 2011) . Net profit margin has reduced between 2015 and 2016. A decline in net income has indicated decline in the ability of the organization to reward its equity providers ( Prasanta, 2011). 

Return on assets ratio 

Return on assets indicates the amount of net income generated by each dollar invested in an organization’s assets. Between 2015 and 2016, return on assets went down in Exxon Mobil. As a result, the entity s level of efficiency in usage of assets to generate income has declined. Such an occurrence could be as a result of over investment in assets that are not utilized. It could also be as a result of poor utilization of assets, keeping them idle for very long instead of utilizing them to generate income. It is thus important for the organization to boost its level of asset utilization ( Prasanta, 2011). 

Conclusion 

From the above report, it is clear that ratio analyses are important approaches in assessment of the financial capability of an accounting entity. The study indicates that Exxon Mobil level of liquidity increased between 2015 and 2016, enhancing its ability to repay short term debts. Solvency levels declined over the same period as well as the level of efficiency. The profitability of the accounting entity equally declined as indicated by the decline in return on assets and the net profit margin. It is thus important for the entity to take corrective actions if it is to continue operating sustainably. 

References 

Campbell, HF & Brown (2005). A multiple account framework for cost-benefits analysis. Evaluation and Program Planning, 28(1), 23-32 Exxon Mobil (2017). SEC filings. Retrieved from http://ir.exxonmobil.com/phoenix.zhtml?c=115024&p=irol-SEC 

Robert O. (2009) An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction. Financial Review 7(2), 477-1493. 

Prasanta P. (2011). Financial Performance Evaluation NBFC 5(5), 44-88