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Unit 6: ExxonMobil Corporation’s Financial Performance Madison Mason GM506 Strategic Financial Analysis February 10, 2024 Dr. Dale Prondzinski

Exxon Mobil Corporation was founded in 1882 and has established itself as a global oil and gas company. The firm is split by departments of the company that are focused on different aspects of the production process. The segments within the firm are Upstream, Energy Products, Chemical Products, and Specialty Products segments (XOM Profile, 2024). Natural gas, crude oil, lubricants, waxes, and resins are all a part of the exploration and production process. Recently, Exxon is beginning to turn a focus on greener and more sustainable resources. International Expansion Exxon is already known as a multinational company (MNC) as it conducts business in many foreign locations. Still, there are many benefits for Exxon to continue to move into foreign markets and seek production contracts with foreign countries. Exxon should continue to expand internationally. One financial option for Exxon to use while entering new markets is the idea of a joint venture. Block et al. (2022) suggests that establishing a joint venture with a foreign partner or manufacturer can be helpful in entering new location. Exxon has already been collaborating with joint venture partners and has seen successful outcomes. Partners in Nigeria, such as the Nigeria National Petroleum Corporation, have joined forces with Exxon to create a reliable and globally competitive supply chain (Progress, 2016). Potential Locations for Expansion There are two locations that Exxon could expand business into in order to successfully expand operations. The first potential option is the country of Indonesia. Reviewing the exchange rate, Exxon could make use of the fact that the rate is in favor of U.S. dollars. The exchange rate is the relationship between the values of two currencies (Block et al., 2022). The current exchange rate is noted as 15,611.45 Indonesian rupiah to every one U.S. dollar

(Indonesian Rupiah, 2024). This indicates that the dollar is stronger than the rupiah and will go further with purchases and investments in the country. Another location that Exxon should review for expansion is the country of Guyana. Recently, Exxon announced plans to enter the country and focus on tapping into abundant resources (XOM to Exit, 2024). The Google Finance calculator reports the exchange rate is 208 Guyanese dollars for one U.S. dollar. Again, this favorable rate promotes investment in this county. Exxon would hold the advantage when purchasing in Guyana. The same quantity of goods and services could mean significantly fewer U.S. dollars required to purchase. Ajao (2023) suggests that a favorable exchange rate can ultimately guard against rising inflation and provide lower import costs. Exxon could benefit from these two concepts. Financial Ratios Review In reviewing the option for ExxonMobil to continue expansion, there are five ratios to analyze. The first is the price to earnings (P/E) ratio. The P/E ratio is 11.45. This was calculated using today’s share price of $101.77 and dividing it by the share price of the trailing twelve months identified as $8.89 (XOM Analysis, 2024). The next ratio to identify is the profit margin. Exxon’s profit margin is 10.45% which is calculated by dividing net income by total revenue. Exxon’s net income for 2023 was $3.6 billion while the total revenue was $344.6 billion (ExxonMobil, 2023). Return on assets (ROA) ratio can identify the profitability of a firm compared to tis total assets. Block et al. (2022) notes that this ratio can help determine how well a company uses assets to turn a profit. The ROA ratio is calculated by dividing net income by total assets. Exxon’s most recent quarterly ROA is 8.15%.

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The fourth ratio to consider is the current ratio. The current ratio is a liquidity ratio that identifies a firm’s ability to pay back short-term obligations. It is calculated by dividing total assets by total liabilities. Exxon’s current ratio is 1.42 as of December of 2023. Finally, the debt to total equity ratio is used to determine the feasibility of a firm paying back liabilities. It provides information on the amount of debt a firm holds compared to its assets. Exxon’s debt to equity ratio is 19.6%, calculated from a total debt of $41.6 billion and shareholder equity at $212 billion which is identified on the 2023 balance sheet. Financial Concepts to Support Expansion Another concept to consider that could benefit Exxon while it moves into more foreign markets is the possibility of tax deductible expenses. Block et al. (2022) notes that these deductions can help to save significant amounts of capital that may have previously been used to support higher costs. With the entrance into foreign markets, operating costs will initially increase and Exxon will need to purchase big ticket assets and facilities to support the new endeavors. However, the tax advantage Exxon could see might be helpful in offsetting the cost of these large purchases. On a net basis, these purchases could be significantly lower due to the deductions. Finally, expanding into additional foreign locations would be beneficial for Exxon in terms of gaining financial leverage. Financial leverage indicates the amount of debt used in the capital structure of a firm (Block et al., 2022). Exxon is in the oil and gas industry which can be categorized as a capital-intensive industry. It is relatively expensive to purchase, use and maintain the equipment and factories required to keep Exxon in business. By expanding into new locations and obtaining additional revenue, Exxon can increase the company’s earnings per share and ultimately increase its return on equity.

Conclusion

References Ajao, I. (2023). Long memory cointegration and dynamic connectedness of volatility in US dollar exchange rates. Quantitative Finance & Economics, 7(4), 1-19. www.doi.org/10.3934/QFE.2023031 Block, S., Hirt, G., & Danielsen, B. (2022). Foundations of Financial Management (18th ed.). McGraw-Hill ExxonMobil. (2023a, October 31). Balance sheet. Exxon Mobil Corporation. https://investor.exxonmobil.com/earnings/balance-sheet ExxonMobil. (2023b, October 31). Income statement. Exxon Mobil Corporation. https://investor.exxonmobil.com/earnings/income-statement Indonesian Rupiah to United States Dollar. (2024, February 11). Google Finance. Retrieved February 11, 2024 from www.google.com/finance/quote/IDR-USD? sa=X&ved=2ahUKEwjD2OjynaGEAxVULkQIHQlzAIkQmY0JegQIIRAv Progress Through Partnership. (2016, August 3). ExxonMobil Corporation. Retrieved February 11, 2024, from www.corporate.exxonmobil.com/-/media/global/files/newsroom/publications-and-reports/ progress-through-partnership-08032016.pdf XOM Analysis. (2024, February 4). Yahoo!. Retrieved February 10, 2024, from www.finance.yahoo.com/quote/XOM/analysis?p=XOM XOM Profile. (2024, February 4). Yahoo!. Retrieved February 10, 2024, from www.finance.yahoo.com/quote/XOM/profile?p=XOM

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XOM to Exit Equatorial Guinea & Focus on Guyana. (2024, February 9). Yahoo!. Retrieved February 11, 2024 from www.finance.yahoo.com/news/exxonmobil-xom-exit-equatorial- guinea-164000217.html

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