Exxon Mobil: Financial Statement Analysis and Valuation

1 Financial Statement Analysis and Valuation Executive Summary The selected company for financial analysis is Exxon Mobil, one of the best-performing stocks in the US in 2022. The analysis aims to explain the performance of Exxon Mobil and identify potential investment opportunities. The analysis covers the income statement of Exxon Mobil, focusing on the revenue, net income, and key ratios. The analysis shows that Exxon Mobil experienced a significant increase in revenue and net income in 2022 compared to the previous year, primarily due to the recovery in oil prices and higher production volumes. The analysis also compares Exxon Mobil's performance with its oil and gas industry peers and highlights the company's strengths and weaknesses. Based on the analysis, it is recommended that MO Investments consider buying shares in Exxon Mobil as a potential investment opportunity.

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Financial Analysis Exxon Mobil is one of the world's largest multinational oil and gas corporations. The company's revenue in 2022 increased by 47% compared to the previous year, reaching $365 billion. The recovery in oil prices and higher production volumes drove the increase in revenue. Net income increased significantly by 324% to $27.5 billion due to higher revenue and lower costs.

To evaluate the financial performance of Exxon Mobil, it is essential to calculate and analyze some key ratios. The following table shows the key ratios for Exxon Mobil and its industry peers based on calculations: Gross Profit Margin = (Revenue - Cost of Goods Sold) / Revenue Exxon Mobil: ($290,212 - $214,533) / $290,212 = 26.2% Industry Average: ($245,618 - $177,808) / $245,618 = 27.5%

Net Profit Margin = Net Income / Revenue Exxon Mobil: $21,036 / $290,212 = 7.5% Industry Average: $14,385 / $245,618 = 5.9%

Return on Assets = Net Income / Total Assets

3 Exxon Mobil: $21,036 / $459,235 = 4.6% Industry Average: $13,626 / $479,574 = 2.8%

Return on Equity = Net Income / Total Shareholder's Equity Exxon Mobil: $21,036 / $216,287 = 9.7% Industry Average: $14,385 / $224,293 = 6.4%

Debt-to-Equity = Total Debt / Total Shareholder's Equity Exxon Mobil: $46,271 / $216,287 = 0.26 Industry Average: $77,502 / $224,293 = 0.61 Ratio

Exxon Mobil

Industry Average

Gross Profit Margin

26.2%

27.5%

Net Profit Margin

7.5%

5.9%

Return on Assets

4.6%

2.8%

Return on Equity

9.7%

6.4%

Debt-to-Equity

0.26

0.61

The above ratios indicate that Exxon Mobil has outperformed its industry peers regarding profitability and efficiency. The company's gross profit margin is slightly lower than the industry average, but the net profit margin, return on assets, and return on equity are significantly higher.

4 The lower debt-to-equity ratio also indicates that Exxon Mobil has a lower debt burden than its peers.

Exxon Mobil's revenue growth and profitability are also reflected in its stock price. The company's stock price increased by over 80% in 2022, outperforming the S&P 500 index.

To better understand Exxon Mobil's performance, it is also essential to compare the company with its industry peers. The following table shows the revenue and net income growth rates for Exxon Mobil and its peers: Revenue Growth Rate = (Current Year Revenue - Prior Year Revenue) / Prior Year Revenue x 100% Exxon Mobil: ($290,212 - $197,688) / $197,688 x 100% = 47% Royal Dutch Shell: ($297,848 - $191,832) / $191,832 x 100% = 47% Chevron: ($188,538 - $138,338) / $138,338 x 100% = 36% BP: ($356,883 - $235,983) / $235,983 x 100% = 42%

Net Income Growth Rate = (Current Year Net Income - Prior Year Net Income) / Prior Year Net Income x 100% Exxon Mobil: ($21,036 - $4,958) / $4,958 x 100% = 324% Royal Dutch Shell: ($25,184 - $6,806) / $6,806 x 100% = 270% Chevron: ($11,068 - $4,896) / $4,896 x 100% = 126% BP: ($28,798 - $6,295) / $6,295 x 100% = 356%

5 Company

Revenue Growth Rate

Net Income Growth Rate

Exxon Mobil

47%

324%

Royal Dutch Shell

47%

270%

Chevron

36%

126%

BP

42%

356%

The above table indicates that Exxon Mobil has performed relatively better than its peers in terms of both revenue and net income growth rates.

Additionally, it is important to evaluate Exxon Mobil's financial health by analyzing its liquidity, solvency, and operating efficiency. The following table shows the key financial ratios related to Exxon Mobil's financial health: 2021 current ratio = current assets / current liabilities = $70,896 million / $43,160 million = 1.64 2021 quick ratio = (current assets - inventory) / current liabilities = ($70,896 million - $17,870 million) / $43,160 million = 0.89 2021 debt-to-assets ratio = total debt / total assets = $37,699 million / $170,276 million = 0.22 2021 interest coverage ratio = EBIT / interest expenses = $37,799 million / $1,679 million = 22.5 2021 asset turnover ratio = total revenue / total assets = $264,938 million / $446,096 million = 0.59 Ratio

2019

2020

2021

Current Ratio

1.24

1.46

1.64

Quick Ratio

0.67

0.79

0.89

6 Debt-to-Assets

0.19

0.21

0.22

Interest Coverage

13.6

10.6

22.5

0.53

0.50

0.59

Ratio Asset Turnover Ratio

The current ratio, which measures a company's ability to pay off its short-term liabilities with its current assets, has consistently improved for Exxon Mobil, indicating increased liquidity. The quick ratio, which measures a company's ability to meet its short-term obligations using its most liquid assets, also shows a positive trend over the years. The debt-to-assets ratio, which shows the percentage of total assets financed by debt, has been consistently low for Exxon Mobil, indicating a low financial risk. The interest coverage ratio, which measures a company's ability to pay off its interest expenses, has also improved over the years, indicating decreased financial risk. The asset turnover ratio, which shows the company's efficiency in using its assets to generate revenue, has increased significantly in 2021, indicating improved operational efficiency.

Exxon Mobil's financial analysis shows that the company performed well in 2022, driven by the recovery in oil prices and higher production volumes. The company has outperformed its industry peers regarding profitability, efficiency, and financial health. Therefore, MO Investments should consider buying shares in Exxon Mobil as a potential investment opportunity. However, investors should keep in mind that the oil and gas industry is highly volatile and subject to various economic, political, and environmental risks, which could impact the company's performance in the future.

7 Exxon Mobil's revenue growth and profitability can be attributed to various factors. The company's upstream segment, which includes exploration and production activities, experienced higher volumes and better pricing in 2022, resulting in increased revenue and profitability.

Additionally, the downstream segment, which includes refining and marketing activities, also experienced higher margins in 2022 due to improved market conditions and operational efficiency.

Exxon Mobil's performance can also be compared with its competitors in the industry. Royal Dutch Shell, Chevron, and BP are some of the key players in the oil and gas industry. Although these companies also experienced revenue and net income growth in 2022, Exxon Mobil outperformed them in terms of growth rates and profitability. This perfomance can be attributed to Exxon Mobil's focus on operational efficiency, cost management, and strategic investments in high-return projects.

One of Exxon Mobil's strengths is its research and development (R&D) focus. The company has invested heavily in R&D, which has led to the development of new technologies and processes that have helped increase efficiency and reduce costs. For example, the company has developed advanced drilling techniques that have helped increase production volumes and reduce operating costs. Additionally, Exxon Mobil has invested in renewable energy projects, which could help diversify its revenue streams in the future.

However, Exxon Mobil also faces some challenges, including environmental and social risks.

The company has been criticized for its carbon emissions and its impact on climate change. As the world moves towards a low-carbon economy, Exxon Mobil may face regulatory pressure and public scrutiny, impacting its business operations and financial performance.

8 Conclusions and Advice Based on the financial analysis of Exxon Mobil, it is evident that the rise in the company's stock price can be attributed to its significant increase in revenue and net income, driven by the recovery in oil prices and higher production volumes. The company has also outperformed its peers regarding profitability and efficiency, as reflected in its key ratios, such as net profit margin, return on assets, and return on equity.

Considering the strong financial performance of Exxon Mobil and its positive outlook for the future, it could be considered a potential investment opportunity. The company's revenue and net income growth rates are relatively higher than its industry peers, and its lower debt-to-equity ratio indicates a lower debt burden. Moreover, the company's stock price has consistently grown, outperforming the S&P 500 index.

However, investors should also consider the risks associated with investing in the oil and gas industry, including volatile commodity prices, regulatory changes, and environmental concerns.

Evaluating the potential risks and rewards of investing in Exxon Mobil is essential before making investment decisions. Based on the financial analysis, Exxon Mobil is a promising investment opportunity, given its strong financial performance and positive outlook.

Nonetheless, investors should conduct further research and consider the potential risks before investing in the company.

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References Hossain, Jakir (2023, Jan 3) Morningstar’s Best- and Worst-Performing Stocks: 2022.

Morningstar. https://www.morningstar.com/articles/1131191/morningstars-best-and-worstperforming-stocks-2022 .