Exxon Mobil:Case Study
...ailers. The growth of the oil industry looks very positive. This is based on the overall increase energy demand of the different economies across the globe. From the Standard and Poor’s site, this is what the industry information suggests: “As of October 22, the S&P Integrated Oil & Gas Index was up 22.2% year to date, versus a 0.9% drop in the S&P 1500 Index, reflecting, in our view, upward revisions in energy earnings estimates this year as oil prices remain at lofty levels. As of late October, WTI oil prices had climbed above $56 per barrel, reflecting worries over potential supply disruptions amid little spare oil production capacity. As of October 28, about 332,072 b/d of oil and 1.23 Bcf/d of natural gas remained shut in from the impact of Hurricane Ivan in the Gulf of Mexico. About 30% of the Gulf pipelines and 4% of the Gulf structures appear to have been damaged; however, about 96% of Gulf oil and gas production should be back on line within six months. In response, Saudi Arabia, Kuwait and the U.A.E. pledged to add 1.5-2.0 million b/d of spare oil production capacity. As of October 29, the independent economic forecaster Global Insight expected WTI oil prices to remain near $52.50 per barrel through March 2005, but drop to $39 by the end of 2005 as global oil demand growth slows from a projected 3.5% in 2004 to 2.0% in 2005. On September 15, OPEC agreed to raise its 26.0 million b/d quota by 1 million b/d from November 1, to align output of 27.5 million b/d to a more realistic target; OPEC is set to meet again on December 10. On the U.S. natural gas front, despite strong demand, mild weather had permitted natural gas inventories to build to above a normal range this year. However, with U.S. distillate inventories low, spot U.S. natural gas prices spiked above $8.70 per million BTU as they tracked residual fuel oil prices higher. As of October 29, Global Insight projected U.S. natural gas prices will average $6.09 per million BTU in 2004 and $6.24 in 2005 (S&P, Industry Info).” The competitors in this industry are quite significant. Exxon has numerous competitors: 7-Eleven Amerada Hess Ashland BHP Billiton BP Celanese ChevronTexaco ConocoPhillips Costco Wholesale Dow Chemical Eastman Chemical DuPont Eni Huntsman Imperial Chemical Industries Kerr-McGee Koch Lyondell Chemical Marathon Oil Norsk Hydro Occidental Petroleum PETROBRAS PDVSA PEMEX Racetrac Petroleum Repsol YPF Royal Dutch/Shell Group Saudi Aramco Sunoco TOTAL Unocal But, the top three competitors of Exxon are BP, ChevronTexaco, Royal Dutch/Shell group. Size of the three top competitors: Exxon BP ChevronTexaco Royal Dutch/Shell Annual Sales ($mil) 213,199.0 232,571.0 112,937.0 201.728.0 Employees 88,300 103,700 50,582 119,000 Market Cap ($mil.) 317,533.8 215,704.2 113,728.7 0.0 Competitors (All) Integrated Oil & Gas Company Ticker Market Cap EPS Yield % Beta Exxon Mobil XOM 317,598.84 3.60 2.10 0.37 BP p.l.c. ADS BP 215,404.27 3.52 2.70 0.58 Total 'B' ADS TOT 129,596.46 7.57 2.20 0.51 Royal Dutch Petrol ADR RD 113,298.41 4.79 2.90 0.69 ChevronTexaco Corp CVX 112,791.33 5.47 3.00 0.60 ENI S.p.A. ADS E 86,370.98 10.07 2.80 0.26 Shell Transp/Trad ADR SC 76,260.46 4.09 3.50 0.75 ConocoPhillips COP 57,827.45 9.64 2.30 0.75 Petroleo Brasileiro S.A. ADS PBR 39,028.56 4.64 4.90 China Petrol & Chem ADS SNP 33,267.55 3.23 3.10 Statoil ASA ADS STO 31,573.19 1.15 2.40 Repsol YPF S.A.ADS REP 26,483.49 1.04 1.90 0.54 LUKOIL Company ADS LUKOY 25,338.00 17.20 0.90 BG Group plc ADS BRG 23,530.98 1.96 0.90 0.51 Occidental Petroleum OXY 21,758.82 5.54 1.90 0.55 Shell Canada SHC.C 20,577.70 4.67 1.30 Imperial Oil Ltd IMO 20,416.21 4.89 1.20 0.20 YPF Sociedad Anonima ADS YPF 16,113.00 4.02 9.90 0.80 Petroleo Brasileiro Pfd ADS PBR.A 15,130.50 4.64 5.40 Suncor Energy SU 15,010.06 2.15 0.50 0.16 Petro-Canada PCZ 14,350.84 5.26 0.90 0.24 Husky Energy HSE.C 13,257.92 2.40 1.50 Marathon Oil MRO 13,022.31 4.06 2.90 0.54 Murphy Oil MUR 7,293.23 6.78 1.10 0.50 Amerada Hess AHC 7,276.02 7.91 1.40 0.58 PetroKazakhstan Inc'A' PKZ 2,940.98 5.99 Petrobras Energia Particip ADS PZE 2,515.76 1.11 Kayne Anderson MLP Inv KYN 751.20 N/A Atlas America ATLS 343.32 1.75 PetroChina Co Ltd ADR PTR 91.81 5.31 4.40 This chart shows that BP leads in annual sales and Royal Dutch/Shell has the most employees, but Exxon dominates the Market Cap category with an astounding number of 317,533.8 million dollars. This means that the value for the business is outstanding compared to the competition. This is determined by multiplying the number of shares outstanding by the current price of a share. By looking at this chart, it also shows the competitive rivalry between the annual sales of the different firms. Exxon, BP, and Royal Dutch/Shell are all one step behind each other when competing in this respect. The overall oil industry profitability can be determined by examining the different margins and a number of other financial categories. 1. The Gross Profit Margin is 26.95%. The percentage represents the amount of each dollar of Revenue that results in Gross Profit. 2. The Pre-Tax Profit Margin is 11.95%. The percentage represents the amount of each dollar of Revenue that results in Income before Taxes. 3. The Net Profit Margin is 7.30%. The percentage represents the amount of each dollar of Revenue that results in Total Net Income. 4. The Return on Equity is 20.1%. It measures the return on each dollar invested by the common shareholders in a company. 5. The Return on Assets is 9.0%. A measure of profitability, ROA measures the amount earned on each dollar invested in assets. 6. The Return on Invested Capital is 16.8%. The Invested Capital equals the Long-Term Debt plus Preferred Equity plus Common Stock Equity. Financial Assessment of the Industry & Exxon Income Statement ($ mil.) Dec 03 Dec 02 Dec 01 Revenue 213,199.0 178,909.0 187,510.0 Cost of Goods Sold 129,928.0 109,701.0 111,631.0 Gross Profit 83,271.0 69,208.0 75,879.0 Gross Profit Margin 39.1% 38.7% 40.5% SG&A Expense 13,396.0 12,356.0 12,900.0 Depreciation & Amortization 9,047.0 8,310.0 7,944.0 Operating Income 23,183.0 14,970.0 21,658.0 Operating Margin 10.9% 8.4% 11.6% Non-operating Income 9,684.0 3,557.0 4,071.0 Non-operating Expenses 37,852.0 33,970.0 33,670.0 Income Before Taxes 32,660.0 17,719.0 24,688.0 Income Taxes 11,006.0 6,499.0 9,014.0 Net Income After Taxes 21,654.0 11,220.0 15,674.0 Continuing Operations 20,960.0 11,011.0 15,105.0 Discontinued Operations 0.0 449.0 0.0 Total Operations 20,960.0 11,460.0 15,105.0 Total Net Income 21,510.0 11,460.0 15,320.0 Net Profit Margin 10.1% 6.4% 8.2% The above chart shows ExxonMobil’s performance from the last three years from December of 2001, 2002, and 2003. The past performance showed fluctuations between the years in the Revenue, Gross Profit, Cost of Goods Sold, Gross Profit Margin, and the Net Income after Taxes sections of the Income statement. The reason why these specific sections are the most important of the Income statement is because it gives a good assessment on how the company will perform in the future years. The trends from December of 2002 to 2003 show a direct increase in these selected categoeries of the Income statement. The revenue of Exxon increased 34290.0 million dollars, the gross profit increased 14063.0 million dollars, cost of goods sold increased 20227.0 million dollars, the gross profit margin increased only .4% (a minute increase), and the net income after taxes increased 10434.0 million dollars. Listed below are charts that explain the key financial performance and valuation of the major players in the industry: Valuation Exxon Mobil BP ChevronTexaco Royal Dutch/Shell Group1 Industry2 Market3 Price/Sales Ratio 1.36 0.85 0.91 -- 1.00 1.24 Price/Earnings Ratio 14.81 16.62 10.50 -- 12.41 20.90 Price/Book Ratio 3.37 2.91 2.71 -- 2.72 2.54 Price/Cash Flow Ratio 10.17 8.75 7.13 -- 7.67 10.49 Financial Exxon Mobil BP ChevronTexaco Royal Dutch/Shell Group1 Industry2 Market3 Current Ratio 1.32 0.97 1.37 -- 1.05 1.43 Quick Ratio 0.9 0.7 1.1 -- 0.7 1.0 Leverage Ratio 1.93 2.39 2.16 -- 2.22 5.87 Total Debt/Equity 0.11 0.27 0.30 -- 0.31 1.32 Interest Coverage 176.00 25.00 40.60 -- 20.70 3.00 The Valuation shows that ExxonMobil’s Price/Sales Ratio (1.36), Price/Book Ratio (3.37), Price/Cash Ratio (10.17) leads its competitors with a slight margin in this oil industry. Therefore, ExxonMobil’s rates are higher than the industry average listed in this chart. The Financial data shows that ExxonMobil has superiority in the Current Ratio (1.32), Quick Ratio (0.9), and the Interest Coverage among its competitors. However, BP and ChevronTexaco are just the opposite in the other categories. ExxonMobil has a 12-month revenue growth rate of 14.8 and a 12-month net income growth rate of 23.8 percent. Its competitor, ChevronTexaco, out ways its opponents with substantial revenue and net income growth rates of 16.3 and 179.8 percent. This is a significant yearly amount when it comes down to looking at the charts to predict future returns. Under Standard & Poors credit ratings, ExxonMobil’s seem to have a competitive advantage because of its financ...