Running head: EXXONMOBIL TAKES CARE

ExxonMobil Takes Care of Its Stockholders: A Financial Analysis Robin Holt McLaren ACCT 5300 MBA126 Shorter University Dr. Tarlton September 13, 2011

On my honor, I will abstain from all deceit. I will neither give nor receive unacknowledged aid in my academic work, nor will I permit such action by any member of this community. I will respect the persons and property of the community, and will not condone discourteous or dishonest treatment of these by my peers. In my every act, I will seek to maintain a high standard of honesty and truthfulness for myself and for the University. Robin Holt McLaren

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ExxonMobil Takes Care of Its Stockholders: A Financial Analysis

ExxonMobil has held the number one or two company slot on the U.S. Fortune 500 list for over eight years. This year, Exxon comes in second on the 2011 Fortune 500 list, right after Wal-Mart (Fortune 500, 2011). However, ExxonMobil, based out of Irving, Texas, is the most profitable of all U.S. companies. This comes as no surprise to those who have been watching ExxonMobil for even a short time. ExxonMobil is number one in the oil industry and has hit alltime highs with growth in its chemical sector (Brewer, 2011). Not only have growth and large numbers been the standout feature for the company, but Exxons consistency over time also contributes to the confidence it gets from shareholders. The growth, the consistency, the companys performance and all its future prospects can be gleaned from a financial analysis of the ExxonMobils reports. For specific proof of the praise this giant in the oil and gas industry receives, one only has to look to the companys annual report, its web site, and articles found in newspapers and business publications. The most recent complete report at the time of this writing is for the 2010 year. Within this report are given 2010 figures, but also the comparative years 2006 through 2010. The most succinct version of the annual report is the Summary Annual Report, which highlights all the important information found in the Financial Statements and Supplemental Information, to a mere forty-four pages. Even though 2006-2010 are financial statements for the companys past, they still provide essential insights into the companys future. Within the reports, it is important to examine the trends in key financial data in order to compare Exxons data across the industry and to analyze the financial ratios. These factors point to the financial health and future of the company (Garrison, Noreen, & Brewer, 2010). The auditor of the annual report is

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PricewaterhouseCoopers, LLP, which gave Exxon an unqualified audit opinion (U.S Securities and Exchange Commission, 2011). To give an unqualified audit opinion indicates that the financial statements are in alignment with GAAP standards and there is no scope of limitations (Garrison, Noreen, & Brewer, 2010). Therefore, Exxon is squeaky clean when it comes to the legitimization of their financial reporting, and there can be confidence in the information for the analysis. The Exxon annual report uses the LIFO inventory accounting policy. The inventory costs include expenditures and other charges, including depreciation directly and indirectly incurred in bringing the inventory to its existing condition and location. Selling expenses and general and administrative expenses are reported as period costs and are excluded from inventory cost (ExxonMobil, 2011). Inventories of materials and supplies are valued at cost or less. (ExxonMobil, 2011). ExxonMobil Corporations main business is energy, involving exploration for, and production of, crude oil and natural gas, petroleum products as well as the transportation and sale of crude oil, natural gas and petroleum products (ExxonMobil, 2011). There are also a host of petrochemicals manufactured by ExxonMobil. Exxons stock was performing so well in 2010 that it distributed $19.7 billion in dividends to its shareholders. Value Lines 2011 analysis points out Exxons strong first quarter, in which earnings per share of $2.14 topped the value line estimate of $1.75 and the year earlier tally of $1.33, was a solid indicator of continuing health (Brewer, 2011, para. 1). The high performing stock is attributed by most to be a result of higher crude oil and natural gas prices, increased refining margins, and a record performance from the chemicals division (Brewer, 2011). Since the time the annual report hit the record books, three important deals took place that will certainly affect the future earnings of ExxonMobil. In August, ExxonMobil affiliates sold shares of Malaysian downstream business to San Miguel Corporation and they also

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signed an agreement with Americas Petrogas for a shale oil and gas project in Argentina. Most recently, in September, 2011, Exxon partnered with Rosneft Drilling to begin a project in 2015. ExxonMobil has been in business in Malaysia, dating back to 1893 (ExxonMobil Corporation, 2011). The announcement is said to merely mark a refocusing of its operations. ExxonMobil still remains committed to Malaysia as a producer and supplier of crude, lubricants, asphalt, waxes and chemical products (ExxonMobil Corporation, 2011). The shale oil attainment project in Argentina is just another one in the slew of shale well locations ExxonMobil is tapping into. More accumulation of this type of natural gas can only continue to help Exxons health and financial stability. It is the most recent news release about the partnership between Rosneft and Exxon, which will probably have the most significant impact on its future earnings. Exxon is joining Russias state-run oil giant, Rosneft to invest 2.2 billion into tapping the oil under the ice at the Kara Sea in the Russian Arctic (Smith, 2011). This is a major deal that was supposed to go to British Petroleum (BP) for $16 billion, until the foibles of BP ruined the agreement and was even disbanded by the London court system on account of Rosnefts protest of the partnership. Soon after Rosneft won the suit, they teamed with Exxon and turned down offers from other oil companies such as Frances Total, Chevron, Royal Dutch Shell, and Norways Statoil (Smith, 2011). The Kara Sea could contain well over 100 billion barrels of oil, yet it was estimated costs of development would be $500 billion (Smith, 2011). Of course, the $500 billion dollars would come from ExxonMobils very large pockets. The operations are set to start in 2015 and the costs do not outweigh the benefits of the100 billion barrels of oil they are estimated to find. The large resources of the Kara Sea have remained untapped due to the conditions of the terrain in which the oil is located; without the latest technology, continuously being improved by ExxonMobils Research and Development department, the oil could not be extracted.

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Exxon has proven itself the leader in the race for technology that matches the demand of the energy enterprise. Exxon now has ties to a huge gain in Russia, but also plays in Brazil, Nigeria, Iraq, Canada, Africa, and Australia (Smith, 2011). It is also, of course, top of the charts among the U.S. natural gas producers. There is also a global energy demand rise that is not slowing down. Despite the recent economic weakness, global energy demand in 2030 is expected to be 35% higher than it was in 2005 (U.S Securities and Exchange Commission, 2011). Developing countries demand will increase 70 percent by 2030 (ExxonMobil, 2011). Exxon has been surveyed to be the most valuable public company, and it was not until this year that Apple replaced their top spot. It is no surprise to surmise that Exxons financial health is outstanding when in 2010 their earnings were $30.5 billion. Its return on capital employed was 22%, cash flow from operations and asset sales $51.7 billion, and capital and exploration expenditures of $32.2 billiona company record for the year (ExxonMobil, 2011). Approximately $125 billion was spent to advance new technologies and to grow the chemical business (ExxonMobil, 2011). These investments in new technologies are what spur the huge growth the company is experiencing because it allows Exxon to have the cutting-edge technology that other companies need in order to mine the wells. Its stock yields 2.4%, which is somewhat higher than the market average (ExxonMobil, 2011), (Moscovitz, 2011). The payout ratio is the most important metric used to determine a dividends sustainability, because a companys money is paid out in dividends when earnings are generated, and this ratio makes the index clear for the investor (Garrison, Noreen, & Brewer, 2010). Currently, the payout ratio is 25%, which is a modest ratio considering the massive growth and that the free cash flow for ExxonMobil is at 36% (Moscovitz, 2011), (ExxonMobil, 2011). The sales growth in just one year is 23.96% and 11.32% over a five-year period (ExxonMobil, 2011). These earnings are at a

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19.45% increase. Increases are always beneficial to companies and shareholders who have a debt to capital ratio of .05, which means virtually no debt (Speculator, 2011). The figures listed above, plus the payout ratio of 28.82 and the return on equity of 23.67, are strong indicators of a sturdy balance sheet that keeps getting stronger (ExxonMobil, 2011). The growth of Exxon, its superior financial status compared to its competitors, the teaming with other oil companies, its worldwide span, and its very large dividends are all very positive conditions for ExxonMobil and its shareholders. The growth is shown through the historical data of the financial statements analyzed here. The consistency which makes a solid foundation for a corporation and stakeholders is found in Exxons spending for the future. Earlier this year, Exxon found two more oil and one gas field in the Gulf of Mexico, which are among the largest in the region (Brewer, 2011), (Smith, 2011). Exxons continuous investments in exploration and technology are paying off in a billion ways. ExxonMobils stock currently sells for $79.8 per share and has a price stability of 100 out of 100 and 90 out of 100 in price growth persistence (Brewer, 2011). The companys size, consistency, and efficiency clearly surpass its peers. With a net profit margin of 8.9% in 2010, the industry average was well below at 5.6% (Brewer, 2011). With oil prices inflated, natural gas prices are depressed, and because Exxon exists in both markets, it is a safe bet they will continue to perform with the same trending gusto as they have in the last five years. Most of Exxons competitors are more focused on one or the other, either natural gas or oil. Therefore, ExxonMobil can continue to outshine not only within its industry, but it is also more radiant than all U.S. companies, in terms of profit earnings (Fortune 500, 2011).

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References Brewer, R. G. (2011, June 10). Using the Value Line Page: Exxon Mobil. Retrieved September 11, 2011, from Value Line: http://www.valueline.com/Stocks/Highlight.aspx?id=11047 ExxonMobil. (2011, June 26). 2010 Annual Report. Retrieved Septemeber 8, 2011, from ExxonMobil : http://ir.exxonmobil.com/phoenix.zhtml?c=115024&p=irol-reportsAnnual ExxonMobil Corporation. (2011, August 17). ExxonMobil Affiliates Sell Shares of Malaysian Downstream Businesses to San Miguel Corporation . Business Wire , p. http://www.businesswire.com/portal/site/exxonmobil/index.jsp?ndmViewId=news_view &ndmConfigId=1001106&newsId=20110817005755&newsLang=en. Fortune 500. (2011, May 10). Fortune 500. Retrieved September 9, 2011, from CNN Money: http://money.cnn.com/galleries/2011/fortune/1104/gallery.fortune500_most_profitable.fo rtune/index.html Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2010). Managerial Accounting. New York: McGraw-Hill/Irwin. Moscovitz, I. (2011, June 28). ExxonMobil: Dividend Dynamo or Blowup? Retrieved September 6, 2011, from The Motely Fool: To Educate, Amuse, and Enrich : http://www.fool.com/investing/general/2011/06/28/exxonmobil-dividend-dynamo-orblowup.aspx?source=isesitlnk0000001&mrr=1.00 Smith, D. L. (2011, September 2). Exxon Blows Past Its Big Oil Peers. Retrieved September 7, 2011, from The Motley Fool: To Educate, Amuse, and Enrich: http://www.fool.com/investing/general/2011/09/02/exxon-blows-past-its-big-oilpeers.aspx Speculator, I. (2011, August 23). Is Exxon the giant of the dividend world? Retrieved September 11, 2011, from Seeking Alpha: http://seekingalpha.com/article/289196-is-exxon-the-

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giant-of-the-dividend-world U.S Securities and Exchange Commission. (2011, February 25). Annual Report. SEC Accession No. 0000034088 . Washington, D.C., U.S.: U.S. Government.