Principals of Accounting II
Financial Statement Analysis Project
EXXON MOBIL CORPORATION
June 6, 2006
5959 Las Coloinas boulevard
Irving, Texas 75039
Billions of times everyday at the flip of a switch, turn of a key, or push of a
button, energy is delivered instantly providing fuel for the world’s growing economies.
Affordable, reliable energy is the backbone of everyday life, people simply expect it.
This enormous challenge must be met practically, safely and in an environmentally and
socially responsible manner. To these challenges ExxonMobil brings dedication and the
fundamental principles of consistency, integrity, discipline, reliability and ingenuity.
These principles are the keys to the company’s current success and will remain so
as they continue to take on the world’s toughest energy challenges. ExxonMobil is the
industry leader in each of its core businesses and has unmatched technologies aimed at
increasing the productivity of its assets and employees. The company conducts business
in almost 200 countries and territories around the globe.
Last year was an exceptional year for ExxonMobil with net income of $36 billion,
being the highest in company history. Return on average capital employed increased to
31 percent. The success was spread across the company with Upstream, Downstream,
and Chemical businesses all posting strong earnings. The results demonstrate the
strength of their business model.
ExxonMobil’s Upstream strategy begins by maximizing the profitability of their
existing oil and gas production. The company consistently captures more earnings per
barrel then their competition, accomplishing this by applying the most cost-effective
technology and management systems. The Downstream strategy is ExxonMobil’s
refining and supply business. By utilizing an efficient network of manufacturing
facilities, transportation and distribution systems the company improves returns and
creates shareholder value by lowering raw materials cost. ExxonMobil’s unique mix of
Chemical business allows the company to hold strong positions in the supply chain in
many of the largest-volume and highest-growth petrochemicals in the global economy.
Specifically they are the largest in Adhesive Polymers, Polyethylene (plastic), Olefins
(basic petrochemical building blocks), and the list goes on.
The corporation’s accounting and financial reporting reflect its straightforward
business model. The preparations of financial statements are in conformity with U.S.
GAAP, but do require management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses.
The total assets reported on the 2005 summary annual report balance sheet were
208,335(million). These assets included 97,149(million) in total liabilities, leaving
111,186(million) in equity. Total current liabilities equaled 46,307(million), with
accounts payable totaling the enormous sum of 36,120(million). Current property, plant
and equipment are valued at an impressive sum of 107,010(million). Reinvested earnings
were also an impressive figure totaling 163,335(million). The overall look of
ExxonMobil’s balance sheet is impressive, with figures in the hundreds of millions, but
no figure stands out as a cause for alarm.
ExxonMobil has one of the strongest financial positions of any industrial
company in the world. It is one of only a few public companies to maintain the highest
credit ratings from Standard & Poor’s (AAA) and Moody’s (Aaa), and have had that
rating for 87 years. Total cash and cash equivalents reported on the 2005 report are
28,671(million). Restricted cash and cash equivalents total 4,604(million). Total
revenues for 2005 were 307,680(million). Total operating expenses 56,958(million). Net
income was a record setting total of 36 billion.
During the first quarter of 2005, Exxon Mobil Corporation purchased 64 million
shares of its common stock for the treasury at a gross cost of $3,624 million. These
purchases were to offset shares issued in conjunction with company benefit plans and
programs and to reduce the number of shares outstanding. Shares outstanding were
reduced from 6,401 million at the end of the fourth quarter of 2004 to 6,366 million at the
end of the first quarter. In April, the Corporation increased its rate of share purchases.
Purchases to reduce shares outstanding are anticipated to increase from $2.5 billion in the
first quarter to approximately $3.5 billion in the second quarter. Purchases are being
made in both the open market and through negotiated transactions, and may be increased,
decreased or discontinued at any time.
April 1, 2006 was a Saturday and the New York Stock Exchange (NYSE) was
closed to trading that day. On Friday March 31, 2006 ExxonMobil (XOM) closed at
60.86, on trade volume of 19,309,600. On Monday April 3, 2006 XOM closed at 61.03
on trade volume of 16,697,300. Earnings per share for 2005 were 5.71(million). The 52
week range is 52.78 (5/16/2005) low, and 65.96 (9/22/2005). Dividends paid for the total
year equal 1.14(million) – for an annual return to investors of 11.7 percent. Net cash
flow for operations was 48,138(million). Net cash flow for investing was a loss of
10,270(million). Net cash flow for financing activities was another loss of
26,941(million). No bonds were reported on the balance sheet.
With the price of gas an everyday issue in the media, the war on Iraq and its
connection with oil, and the record industry profits recorded this year as well as record
company profits, ExxonMobil was an easy selection for this project.
Today the world consumes an average of 230 million barrels of oil per day.
Energy demands are going to steadily increase as more markets in the East (specifically
China) begin to open and become industrialized, that would equal North America and
Europe combined. Although alternative energy is a hot topic, fossil fuels will continue to
play a major role in providing the majority of energy. Hydro-energy and nuclear
programs are being adopted by China and India, but oil and gas will represent close to 60
percent of overall energy, comparable to their share today. Wind and solar energy
growth will likely grow every year, with help from government subsidies and mandates,
but even with strong projected growth their share of total energy in the near future will
only be about 1 percent. If presented with the opportunity to invest $10,000 in one sector
and one company - ExxonMobil would definitely be a wise choice. I strongly
recommend investing in the oil sector, and strongly advise investing in ExxonMobil.