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Page 1: BUSA 302 Exxon Mobile

By:Mitch Dietz, Bryan Nuemiller, Aaron Murphy, Kyle Edwards

Page 2: BUSA 302 Exxon Mobile

INDEX

Introduction to Company……………………………………………….

Ratios (02’, 03’, 04’, 05’, 06’)………………………………………………………………

Sales Forecast………………………………………………………………………

Random Walk…………………………………………………………...............

Pro Forma………………………………………………………………………………..

Profits from Economy……………………………………

Analysis w/ Shell…………………………………………..

Page 3: BUSA 302 Exxon Mobile

Who ExxonMobil is…

ExxonMobil is the world’s largest publicly traded international oil and gas company. We

hold an industry-leading inventory of global oil and gas resources. We are the world’s

largest refiner and marketer of petroleum products. And our chemical company ranks

among the world’s largest. But we are also a technology company, applying science and

innovation to find better, safer and cleaner ways to deliver the energy the world needs.

What they do and where….

Meeting the world’s growing energy needs is an enormous challenge. By 2030, as

populations and economies grow, global energy demand will reach close to 325 million

oil-equivalent barrels a day — more than 60% higher than in the year 2000.

Increasingly, developing significant new oil and gas resources requires exploration in

more-remote areas and difficult operating environments. The complexity of these

environments places greater emphasis on financial strength, technological innovation and

execution excellence, areas in which ExxonMobil excels.

An industry leader in almost every aspect of the energy and petrochemical business, we

operate facilities or market products in most of the world’s countries and explore for oil

and natural gas on six continents.

Past 125 years…..

ExxonMobil has evolved from a regional marketer of kerosene in the U.S. to the largest

publicly traded petroleum and petrochemical enterprise in the world. Today we operate in

Page 4: BUSA 302 Exxon Mobile

most of the world's countries and are best known by our familiar brand names: Exxon,

Esso and Mobil. We make the products that drive modern transportation, power cities,

lubricate industry and provide petrochemical building blocks that lead to thousands of

consumer goods. Learn more by using the slider or the arrows below to browse our

history over time.

Ratios for ExxonMobil

2006 Ratios for Return on Investment and for Risk

Return on Assets 18.79%Return on Equity 34.60%Earnings Yield 18.30%Price/Earnings Ratio 5.47Dividend Yield 3.54%Profit Margin 10.46%Operating Margin 36.70%Gross Margin 40.10%

Current Ratio 64%Quick Ratio 0.67Inventory Turnover 22.6Average Days to Sell Inventory 16.2Receivables Turnover 1.39Average Days to Collect Receivables 263.5Debt Ratio 52.73%Debt/Equity Ratio (Total) 1.1Debt/Equity Ratio (Long-Term) 0.866TIE Ratio 212Asset Composition Ratio 15.80%Dividend Payout Ratio 19.30%

Book Value Per Share $9.53 Operating Cycle 279.7Average Cash from Operations 135857Market Price Per Share $36.19 Dividend $1.28 EPS $6.62

2005 Ratios for Return on Investment and for Risk

Return on Assets 17.14%Return on Equity 32.89%Earnings Yield 18.60%Price/Earnings Ratio 5.38%Dividend Yield 3.71%Profit Margin 9.75%Operating Margin 35.90%Gross Margin 38.90%

Current Ratio 63%Quick Ratio 0.72Inventory Turnover 22.6Average Days to Sell Inventory 16.1Receivables Turnover 1.28Average Days to Collect Receivables 285.2Debt Ratio 54.10%Debt/Equity Ratio (Total) 1.18Debt/Equity Ratio (Long-Term) 0.91TIE Ratio 268.2Asset Composition Ratio 16.70%Dividend Payout Ratio 20%

Book Value Per Share $8.11 Operating Cycle 301.3Average Cash from Operations 135857Market Price Per Share $30.70 Dividend $1.14 EPS $5.71

Page 5: BUSA 302 Exxon Mobile

2004 Ratios for Return On Investment and for Risk

ROA 12.34%ROE 23.92%Earnings Yield 8.97%Price/Earnings Ratio 11.15 timesDividend Yield 3.24%Profit Margin 9.07%Operating Margin 35.98%Gross Margin .5867

Current Ratio 1.1973Quick Ratio .96397Inventory Turnover 12.02Average Days toSell inventory 30.37Receivables Turnover 1.24%Average Days toCollect Inventory 294.35Debt Ratio .4941Debt/Equity (total) .93825Debt/Equity (long term) .88499TIE Ratio 154.43Asset Composition Ratio 12.23%Dividend PayoutRatio 18.7%

Page 6: BUSA 302 Exxon Mobile

Book Value/Share $13.69Operation Cycle 273.9Average Cash from Operations $28,498Market Price/Share $41.00Dividend $0.98EPS $3.24

2003 Ratios for Return On Investment and for Risk

ROA 12.34%ROE 23.92%Earnings Yield 8.97%Price/Earnings Ratio 11.15 timesDividend Yield 3.24%Profit Margin 9.07%Operating Margin 35.98%Gross Margin .5867

Current Ratio 1.1973Quick Ratio .96397Inventory Turnover 12.02Average Days toSell inventory 30.37Receivables Turnover 1.24%Average Days toCollect Inventory 294.35Debt Ratio .4941Debt/Equity (total) .93825Debt/Equity (long term) .88499TIE Ratio 154.43Asset Composition Ratio 12.23%

Page 7: BUSA 302 Exxon Mobile

Dividend PayoutRatio 18.7%

Book Value/Share $13.69Operation Cycle 273.9Average Cash from Operations $28,498Market Price/Share $41.00Dividend $0.98EPS $3.24

2002 Ratios for Return on Investment and for Risk

Return on Assets 7.51%Return on Equity 15.36%Earnings Yield 4.48%Price/Earnings Ratio 22.57Dividend YieldProfit Margin 5.70%Operating MarginGross Margin 5.48%

Current Ratio 115%Quick Ratio 0.95Inventory Turnover 27.39Average Days to Sell Inventory 13.33Receivables TurnoverAverage Days to Collect ReceivablesDebt Ratio 51.13%Debt/Equity Ratio (Total) 1.05Debt/Equity Ratio (Long-Term) 0.99TIE Ratio 43.99

Page 8: BUSA 302 Exxon Mobile

Asset Composition RatioDividend Payout Ratio

Book Value Per Share $11.13

Average Cash from OperationsMarket Price Per Share $37.70 Dividend $0.92 EPS $1.69

Sales Forecast

Year Sales2001 2087152002 2009492003 2370542004 2912522005 2589552006 365467 -2007 304239.9 +

2008 365467 +

Sales for 2009

426694.1259

2009 426694.1 +

Sales for 2010

487921.2519

2010 487921.3STD. DEV.

61227.13

Page 9: BUSA 302 Exxon Mobile

Sales forecasting is especially difficult when you don’t have any previous sales history to

guide you, as is the case when you’re working on preparing cash flow projections as part

of writing a business plan. Here, Terry Elliott provides a detailed explanation of how to

do sales forecasting. –Ed.There is all sorts of ways to estimate sales revenues for the

purposes of sales forecasting. One point to remember when sales forecasting is that if you

plan to work with a bank for financing, you will want to do multiple estimates so as to

have more confidence in the sales forecast. How do you do this?

Sales Forecasting Method #1

For your type of business, what is the average sales volume per square foot for similar

stores in similar locations and similar size? This isn't the final answer for adequate sales

forecasting, since a new business won't hit that target for perhaps a year.

Sales Forecasting Method #2

For your specific location, how many households needing your goods live within say, one

mile? How much will they spend on these items annually, and what percentage of their

spending will you get, compared to competitors? Do the same for within five miles (with

lower sales forecast figures). (Use distances that make sense for your location.)

Sales Forecasting Method #3

If you offer say, three types of goods plus two types of extra cost services, estimate sales

revenues for each of the five product/service lines. Make an estimate of where you think

you'll be in six months (such as "we should be selling five of these items a day, plus three

of these, plus two of these.") and calculate the gross sales per day. Then multiply by 30

for the month. Now scale proportionately from month one to month six; that is, build up

Page 10: BUSA 302 Exxon Mobile

from no sales (or few sales) to your six month sales level. Now carry it out from months

six through 12 for a complete annual sales forecast.

Don’t Just Do One Sales Forecast

Instead of forecasting annual sales as a single figure, use one or two of the sales

forecasting methods above and generate three figures: pessimistic, optimistic, and

realistic. Then put the figures in by month, as depending on your business, there could be

HUGE variations by month. (Some retail firms do 50 percent of their gross sales around

Christmas, from the end of October to the end of December, for example, yet barely get

by June through August.)

Include Expenses in Your Sales Forecasting

Now put in your expenses by month, including big purchases by season (or however you

buy materials/goods). Remember, you may buy materials or inventory in say, July, for

Christmas, yet not get all of your receipts until 45 days after Christmas. There can be big

cash flow implications. Also, will you be buying vehicles? Capital equipment? Make sure

to show depreciation expense. In your expenses, put in an allowance for bad debts. Figure

how much of your sales are by cash, how much by credit card, how much by your

extending credit. Deduct say four percent or more for credit card expense for that portion

sold by credit card. For payroll expenses, put in estimated tax withholding payments

quarterly that must be paid to the government. If you're going to a bank for financing, be

able to answer questions such as, have you made an allowance for a reserve cash account,

for your slow months, but also in case you have to quickly replace a vehicle or

equipment? You say you'll charge x dollars for your product, but what happens when

your competition cuts the price by 33 percent and still makes a profit? How specifically

Page 11: BUSA 302 Exxon Mobile

will you grow your business-- selling more to existing customers, selling existing

products to new customers, selling new products to existing customers, and selling new

products in order to attract new customers? They're going to want to see if you've got a

real plan. Remember that it is acceptable (and realistic) to have a negative cash flow

projection for the early months of your cash flow projection period.

Random Walk

Closing Prices Coin Flip

Plus/Minus

81.44 + 83.99481.89 + 86.54981.71 - 83.99483.22 + 86.54984.38 + 89.10385.49 - 86.54985.55 - 83.99485.37 + 86.54987.01 - 83.99488.1 + 86.54986.92 + 89.10387.17 + 91.65889.13 + 94.21289.89 - 91.658

Page 12: BUSA 302 Exxon Mobile

89.39 + 94.21289.38 + 96.76787.01 - 94.21287.75 + 96.76786.69 + 99.32187.19 - 96.76784.51 + 99.321

Std. Dev2.554440

48

The random walk hypothesis is a financial theory stating that stock market prices

evolve according to a random walk and thus the prices of the stock market cannot be

predicted. It has been described as 'jibing' with the efficient market hypothesis. Investors,

economists, and other financial behaviorists have historically accepted the random walk

hypothesis. They have run several tests and continue to believe that stock prices are

completely random because of the efficiency of the market. The term was popularized by

the 1973 book, A Random Walk Down Wall Street, by Burton Malkiel, currently a

Professor of Economics and Finance at Princeton University.

Burton G. Malkiel, an economist professor at Princeton University and writer of A

Random Walk down Wall Street, performed a test where his students were given a

hypothetical stock that was initially worth fifty dollars. The closing stock price for each

day was determined by a coin flip. If the result was heads, the price would close a half

point higher, but if the result was tails, it would close a half point lower. Thus, each time,

the price had a fifty-fifty chance of closing higher or lower than the previous day. Cycles

or trends were determined from the tests. Malkiel then took the results in a chart and

graph form to a chartist, a person who “seeks to predict future movements by seeking to

Page 13: BUSA 302 Exxon Mobile

interpret past patterns on the assumption that ‘history tends to repeat itself’”.[2] The

chartist told Malkiel that they needed to immediately buy the stock. When Malkiel told

him it was based purely on flipping a coin, the chartist was very unhappy. This indicates

that the market and stocks could be just as random as flipping a coin.

The random walk hypothesis was also applied to NBA basketball. Psychologists

made a detailed study of every shot the Philadelphia 76ers made over one and one-half

seasons of basketball. The psychologists found no positive correlation between the

previous shots and the outcomes of the shots afterwards. Economists and believers in the

random walk hypothesis apply this to the stock market. The actual lack of correlation of

past and present can be easily seen. If a stock goes up one day, no stock market

participant can accurately predict that it will raise again the next. Just as a basketball

player with the “hot hand” can miss his or her next shot, the stock that seems to be on the

rise can fall at any time, making it completely random.

There are other economists, professors, and investors who believe that the market

is predictable to some degree. The people believe that there are trends and incremental

changes in the prices and when looking at them, one can determine whether the stock is

on the rise or fall. There have been key studies done by economists and a book has been

written by two professors of economics that try to prove the random walk hypothesis

wrong.

Martin Weber, a leading researcher in behavioral finance, has done many tests

and studies on finding trends in the stock market. In one of his key studies, he observed

the stock market for ten years. Over those ten years, he looked at the market prices and

Page 14: BUSA 302 Exxon Mobile

looked for any kind of trends. He found that stocks with high price increases in the first

five years tended to become under-performers in the following five years. Weber and

other believers in the non-random walk hypothesis cite this as a key contributor and

contradictor to the random walk hypothesis.[3]Another test that Weber ran that contradicts

the random walk hypothesis was finding stocks that have had an upward revision for

earnings outperform other stocks in the forthcoming six months. With this knowledge,

investors can have an edge in predicting what stocks to pull out of the market and which

stocks — the stocks with the upward revision — to leave in. Martin Weber’s studies

detract from the random walk hypothesis, because according to Weber there are trends

and other tips to predicting the stock market. Professors Andrew W. Lo and Archie Craig

MacKinlay, professors of Finance at the MIT Sloan School of Management and the

University of Pennsylvania, respectively, have also tried to prove the random walk theory

wrong. They wrote the book A Non-Random Walk down Wall Street, which goes

through a number of tests and studies that try to prove there are trends in the stock market

and that they are somewhat predictable. They prove it with what is called the simple

volatility-based specification test, which is an equation that states:

Where

Xt is the price of the stock at time t

μ is an arbitrary drift parameter

εt is a random disturbance term.

Page 15: BUSA 302 Exxon Mobile

With this equation, they have been able to put in stock prices over the last number of

years, and figure out the trends that have unfolded.[4] They have found small incremental

changes in the stocks throughout the years. Through these changes, Lo and MacKinlay

believe that the stock market is predictable, thus contradicting the random walk

hypothesis.

ExxonMobil

Pro FormaYear 2005 Actual 2006

Net Sales 358,955Growth Rate in Net Sales 14%Cost of Goods Sold/Net Sales 12%Gen…Sell…and Admin/Net Sales 4%Long-term Debt 6645Current Portion long-term debt 1702Interest Rate 0.18%Tax rate 7.77%Dividend 19.31%Current Assets/Net Sales 21.11%Net fixed assets 105328Current Liab./Net Sales 14%Owner's Equity 113844

         Income Statement

Forecast 2006 Forecast 2007

Net Sales 409208.7

Page 16: BUSA 302 Exxon Mobile

Cost of Goods Sold 49933.14Gross Profit 359275.56Gen…sell…admin...exp 16271.22Interest Exp -532.7598

Earnings before Tax343537.099

8

Tax26703.5482

4

Earnings after Tax316833.551

6Dividends Paid 61083.51

Add. To retained earnings255750.041

6

Balance SheetCurrent Assets 86385.78Net Fixed Assets 105328Total Assets 191713.78

Current Liab. 55651.38Long-term Debt 6645

Equity369594.041

6

Total Liab. And Equity 431890.421

6

External Funding Req. -300758.00Pro forma describes a presentation of data, typically financial statements, where the data

reflect the world on an 'as if' basis. That is, as if the state of the world was different from

that which is in fact the case. For example, a pro forma balance sheet might show the

balance sheet as if a debt issue under consideration had already been issued. A pro forma

income statement might report the transactions of a group on the basis that a subsidiary

acquired partway through the reporting period had been a part of the group for the whole

period. This latter approach is often adopted in order to ensure comparability between

financial statements of the year of acquisition with those of subsequent years.

Page 17: BUSA 302 Exxon Mobile

A pro forma document is provided in advance of an actual transaction. Such a

document serves as a model for the actual documents of the transaction. For example,

when a new corporation is envisioned, its founders may prepare a business plan

containing pro forma financial statements, such as projected cash flows and income

statements. In addition, pro forma operating figures or profit and/or loss figures may be

preferred or even demanded by investors when the actual figures are known to be

inaccurate because of sloppy or suspected falsified business accounting practices. Pro

forma figures should be clearly labeled as such and the reason for any deviation from

reported past figures clearly explained.

In trade transactions, a pro forma (or proforma) invoice is a document that states

a commitment from the seller to sell goods to the buyer at specified prices and terms. It is

used to declare the value of the trade. It is not a true invoice, because it is not used to

record accounts receivable for the seller and accounts payable for the buyer.

Profits from Economy

BP Amoco enjoyed a profit increase of 117% between 2002 and 2004. In 2002, BP

Amoco netted a hefty 8.4 billion. In 2004, this went to 17 billion. Shell raked in a

massive 10 billion dollar profit in 2002 which ballooned to 18 billion by 2004. Not to be

outdone is Exxon Mobil. In 2002, Exxon Mobil’s profit was 11.5 billion and by 2004,

they were taking the public for 25 billion. By any measure, Exxon Mobil’s performance

last year was a blowout. The company reported Friday that it beat its own record for the

highest profits ever recorded by any company, with net income rising 3 percent to $40.6

Page 18: BUSA 302 Exxon Mobile

billion, thanks to surging oil prices. The company’s sales, more than $404 billion,

exceeded the gross domestic product of 120 countries. Exxon Mobil earned more than

$1,287 of profit for every second of 2007. The company also had its most profitable

quarter ever. It said net income rose 14 percent, to $11.7 billion, or $2.13 a share, in the

last three months of the year. The company handily beat analysts’ expectations of $1.95 a

share, after missing targets in the last two quarters.

While gas prices continue to rise, people still don’t take action! Profits from these high

gas prices are outrageous. ExxonMobil has seen this firsthand. Their profits have nearly

tripled since 2002. Fuel prices are impacted by a number of factors, including changes in

the price of crude oil, supply and demand, fuel specifications, government regulations,

taxes, and transportation costs. Actual or perceived changes in these fundamentals, such

as those caused by geopolitical uncertainty or market speculation, can have an impact on

commodity markets. Therefore, it's important to recognize that a number of factors may

combine to impact transportation fuel prices at any given time.

ExxonMobil Position

Gasoline prices are influenced by a highly competitive retail marketplace and many other

Page 19: BUSA 302 Exxon Mobile

factors, including global commercial trading markets for crude oil and refined petroleum

products. Our focus at ExxonMobil is to continually take steps to improve our ability to

compete through a selective investment program, ongoing efforts to reduce costs, and a

strong commitment to operational excellence.

Prices for crude products are set by worldwide markets comprised of buyers and sellers

reacting to their individual needs as well as perceptions of supply and demand. Policies

and initiatives need to be advanced that support the underlying economic fundamentals

that lead to a balanced marketplace. In the U.S., this includes support for increased

domestic crude production, and focused efforts to reduce the complexities and limitations

that are creeping into the refinery and logistics systems due to the proliferation of

specialty fuels.

This is from an article by: Beth Boerger

“With gas prices headed towards the stratosphere, whining about the oil industries

stuffing their pockets with our money and pointing our fingers toward the ever-present

scapegoat that is Washington won’t likely result in gas prices going down anytime soon.

If the price of gas is to re-enter Earth’s atmosphere in the near future, we need to stop

daydreaming and take action. For one thing, this country’s ridiculous obsession with

over-the-top, impractical SUVs need to stop. A vehicle big enough to go charging

through the jungle is not anything someone needs for any reason.

By driving these vehicles with poor gas mileage, some Americans can put some of the

blame of high prices on themselves. They waste gas and keep demand high, thus leaving

people with cars, such as myself, to keep contributing to Big Oil’s piggy bank.

With all that is going on with the “go green” initiatives, and everybody jumping on the

“save the planet” bandwagon these days, why don’t more people put their money where

their mouths are?”

Page 20: BUSA 302 Exxon Mobile

Royal Dutch Shell

Page 21: BUSA 302 Exxon Mobile

Royal Dutch Shell, commonly known simply as Shell, is a multinational oil company of

British and Dutch origins. It is one of the largest private sector energy corporations in the

world, and one of the six "super majors" (vertically integrated private sector oil

exploration, natural gas, and petroleum product marketing companies). The company's

headquarters are in The Hague, Netherlands, with its registered office in London, United

Kingdom (Shell Centre).[1]

The company's main business is the exploration for and the production,

processing, transportation and marketing of hydrocarbons (oil and gas). Shell also has a

significant petrochemicals business (Shell Chemicals), and an embryonic renewable

energy sector developing wind, hydrogen and solar power opportunities. Shell is

incorporated in the UK with its corporate headquarters in The Hague, its tax residence is

in Netherlands, and its primary listings on the London Stock Exchange and Euronext

Amsterdam (only "A" shares are part of the AEX index).

Shell's revenues of $318.8 billion in 2006 made it the third-largest corporation in

the world by revenues behind only ExxonMobil and Wal-Mart. Its 2006 gross profits of

$26 billion made it the world's second most profitable company, after ExxonMobil and

before BP. Forbes Global 2000 in 2007 ranked Shell the eighth largest company in the

world. Also n 2007, Fortune magazine ranked Shell as the third-largest corporation in the

world, behind Wal-Mart and ExxonMobil. Shell operates in over 140 countries. In the

United States, its Shell Oil Company subsidiary, headquartered in Houston, Texas, is one

of Shell's largest businesses.

Page 22: BUSA 302 Exxon Mobile

Ratios (Royal Dutch Shell)

2006 Ratios for Return On Investment and for Risk

Current 1.19

Acid 1.76

Working Capital $ 114,945.00

Net Profit Margin $ 55,856.00

ROA 11.1%

ROE 22.0%

Interest Coverage 37.84%

Cash Flow to Long Term Debt 2.00

Long Term Debt to Equity 1.04

EBITDA $ 55,856.00

Dividend Yield 3.6%

Dividend Payout 0.32

Page 23: BUSA 302 Exxon Mobile

P/E 13.52%

Price to Cash Flow 9.51%

Cash Flow Per Share 7.47

Price to Book 3.99%

Production to Reserve 8.41%

Reserve Life Index 11.89

2005 Ratios for Return On Investment and for Risk

Current 1.15

Acid 0.91

Working Capital $ 97,918.00

Net Profit Margin $ 54,109.00

ROA 11.9%

ROE 26.8%

Interest Coverage 40.72%

Cash Flow to Long Term Debt 2.33

Long Term Debt to Equity 1.24

EBITDA $ 54,109.00

Dividend Yield 5.1%

Dividend Payout 0.41

P/E 17.02%

Price to Cash Flow 10.39%

Cash Flow Per Share 6.2

Price to Book 4.41%

Page 24: BUSA 302 Exxon Mobile

Production to Reserve 9.39%

Reserve Life Index 10.64

2004 Ratios for Return On Investment and for Risk

Current 1.13

Acid 0.85

Working Capital $ 91,383.00

Net Profit Margin $ 43,127.00

ROA 10.2%

ROE 19.6%

Interest Coverage 28.89%

Cash Flow to Long Term Debt 1.82

Long Term Debt to Equity 1.05

EBITDA $ 43,127.00

Dividend Yield 3.9%

Dividend Payout 0.39

P/E 21.76%

Price to Cash Flow 9.80%

Cash Flow Per Share 6.07

Page 25: BUSA 302 Exxon Mobile

Price to Book 4.51%

Production to Reserve 9.83%

Reserve Life Index 10.17

2003 Ratios for Return On Investment and for Risk

Current 0.89

Acid 0.63

Working Capital $ 105,733.00

Net Profit Margin $ 33,215.00

ROA 7.8%

ROE 15.8%

Interest Coverage 15.42%

Cash Flow to Long Term Debt 2.41

Long Term Debt to Equity 0.81

EBITDA $ 33,215.00

Dividend Yield 3.9%

Dividend Payout 0.55

P/E 29.02%

Price to Cash Flow 10.70%

Cash Flow Per Share 4.9

Page 26: BUSA 302 Exxon Mobile

Price to Book

Production to Reserve

Reserve Life Index

2002 Ratios for Return On Investment and for Risk

Current 0.84

Acid 0.61

Working Capital $ 90,858.00

Net Profit Margin $ 25,795.00

ROA 6.6%

ROE 14.5%

Interest Coverage 12.41%

Cash Flow to Long Term Debt 2.31

Long Term Debt to Equity 0.94

EBITDA $ 27,795.00

Dividend Yield 3.8%

Dividend Payout 0.59

P/E 32.02%

Price to Cash Flow 13.88%

Page 27: BUSA 302 Exxon Mobile

Cash Flow Per Share 3.25

Price to Book

Production to Reserve

Reserve Life Index

 

Comparison between ExxonMobil and Shell

Royal Dutch Shell

The ROE for Shell has somewhat of a pattern. From 2002-2005 it steadily increases. But

in 2006 it went from 26.8% to 22.0%. ROE measures the rate of return on the ownership

interest (shareholders' equity) of the common stock owners. ROE is viewed as one of the

most important financial ratios. It measures a firm's efficiency at generating profits from

every dollar of net assets (assets minus liabilities), and shows how well a company uses

investment dollars to generate earnings growth. ROE is equal to a fiscal year's net income

(after preferred stock dividends but before common stock dividends) divided by total

equity (excluding preferred shares), expressed as a percentage. But not all high-ROE

companies make good investments. Some industries have high ROE because they require

Page 28: BUSA 302 Exxon Mobile

no assets, such as consulting firms. Other industries require large infrastructure builds

before they generate a penny of profit, such as oil refiners. You cannot conclude that

consulting firms are better investments than refiners just because of their ROE.

Generally, capital-intensive businesses have high barriers to entry, which limit

competition. But high-ROE firms with small asset bases have lower barriers to entry.

Thus, such firms face more business risk because competitors can replicate their success

without having to obtain much outside funding. As with many financial ratios, ROE is

best used to compare companies in the same industry.

The P/E ratio is decreasing throughout the years. It starts out at 32.02% in 2002

and ends at 13.52% in 2006. The P/E ratio is a measure of the price paid for a share

relative to the annual income or profit earned by the firm per share. A higher P/E ratio

means that investors are paying more for each unit of income. It is a valuation ratio

included in other financial ratios. The reciprocal of the P/E ratio is known as the earnings

yield. By comparing price and earnings per share for a company, one can analyze the

market's stock valuation of a company and its shares relative to the income the company

is actually generating. Investors can use the P/E ratio to compare the value of stocks: if

one stock has a P/E twice that of another stock, all things being equal (especially the

earnings growth rate), it is a less attractive investment. Companies are rarely equal,

however, and comparisons between industries, companies, and time periods may be

misleading.

Page 29: BUSA 302 Exxon Mobile

\References

Shell International B.V. (2007-03-28). "Royal Dutch Shell plc updates on Chief Executive". Press release. Retrieved on 2007-08-30.

ExxonMobil's Form 10-K. SEC. Retrieved on 2008-04-21.

ExxonMobil stock information. MarketWatch.com. Retrieved on 2008-02-28.

http://www.exxonmobil.com/corporate/

http://www.shell.com/

Exxon Mobil Profit Sets Record Again: Top of Form bottom of FormBy JAD MOUAWAD Published: February 1, 2008 http://www.nytimes.com/2008/02/01/business/01cnd-exxon.html?em&ex=1202101200&en=575e77c5fd8688b0&ei=5087%0A