Assignment 7c...Financial Management Paper

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Kenyatta University *

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308

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Finance

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Nov 24, 2024

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9

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Report
1 Comparing Companies’ Financial Performance and Risks Student’s Name Institution Date
2 Executive Summary Companies perform differently in their market and face various financial risks that could affect their overall financial performance. For a company to be successful, it must maximize its revenue, net income, and reduce total expenses. It should also ensure payment to shareholders is sustained for as long as possible. This papers examines and compares financial performance and risks of five Fortune 500 companies, including Apple, Amazon, Walmart, Chevron, and Exxon Mobil. The report will assess these companies’ financial performance across the years (2020, 2021, and 2021), using data published in their Form 10K reports. These are among the top 10 companies in the 2023 Fortune 500 listing. Even though they operate in different industries, they do face almost similar financial risks, with fluctuation of the foreign exchange rate being the most significant risk. Based on the analysis, Exxon Mobil is one of the best performing companies given its high financial performance and fewer risks. Also, Chevron’s financial performance is also exemplary as it has tried to maintain a high revenue and net income growth rate and fewer financial risks. Amazon’s financial performance is not at its best, having recorded a negative net income in the year 2022.
3 Apple Financial Performance Apple, whose market cap is currently valued at $2.77 trillion has experienced successful performance over the years, recording significant financial growth and improvement in nearly all areas. As captured in Form 10-K 2022, Apple recorded consistent growth in its total revenue, from $274,515 million in 2020 to $394,328 in 2022 (Apple, Inc., 2022) In 2021, total revenue was $365,817. Similarly, net income grew significantly, posting $99,803 million in 2022, $94,680 million in 2021, and $ 57,411 million in 2020. Earnings per Share (EPS) for the last three years also improved markedly, from $3.28 in 2020 to $6.11 in 2022 (Apple, Inc., 2022) Total expenses increased from $208,227 million in 2020 to $274,891 million in 2022. In 2021, total expenses stood at $256,868 million. The stock price has also maintained a positive growth rate, increasing from $93 in 2020, 139 in 2021, to $153 in 2022. The dividend payout has also increased from $0.20 in 2020 to $0.22 in 2021, to $0.23 in 2022. Overall, Apple has been registering successful financial performance in the last three years, with positive growth in all six areas examined (Apple, Inc., 2022) Financial Risks As stated in Form 10-K 2022, Apple's major financial risks include the possibility of its net sales fluctuating because of the risks associated with the changes in the value of the US dollar relative to local currencies. The company expects gross sales and operating expenses to be adversely affected by the fluctuation of foreign currency-dominated sales. The company notes that the weakening of the foreign currencies relative to the US dollar affects the company’s foreign earnings, and forces the company to raise international pricing which affects (reduces)
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4 demand for the company’s products in foreign markets. Other risks include exposure to credit risks and fluctuation in the company’s value of its investment portfolio (Apple, Inc., 2022) Walmart Financial Performance Walmart, the largest single employer in the US, is an American multinational retailer operating across many global markets. The company has had a successful economic tenure over the years, growing into a dominant global retailer, operating in key markets across the globe. According to Form 10K for the fiscal year ending 31 st January 2022, Walmart's total revenue has increased consistently from $523,964 million in 2020, through $559,151 million in 2021, to $572,754 million in 2022 (Walmart, 2022). Net Income decreased from $14,881 million in 2020 to $13,510 million in 2021. In 2022, net income increased slightly to $13,673 million. Similarly, earnings per share (EPS) decreased from $5.19 in 2020 to $4.75 in 2021. However, it increased to $4.87 in 2022. Stock Price increased from $123 in 2020 to $136 in 2021 and then dropped to $135 in 2022. Total expenses have increased from $ $503,396 million in 2020, through $536,603 million in 2021, to $ 546,812 million in 2022. The dividend amount per share has only improved modestly, increasing from $0.53 in 2020, through $0.55 in 2021 to $0.56 in 2022 (quarterly dividend) (Walmart, 2022). Financial Risks The major risk affecting Walmart is the fluctuation of the foreign exchange rates against the US dollar. Walmart says such fluctuations are likely to materially affect its financial performance in foreign markets when the local currencies are losing strength against the US dollar. A failure to meet the stock market performance is likely to trigger the overall stock price to decline. Delays or failures to meet financial performance in areas such as consolidated net
5 sales, consolidated operating income, eCommerce growth rates, adjusted earnings per share, gross margin, and capital expenditure among others are likely to affect the company’s overall stock performance in the stock market. Amazon Financial Performance Amazon, the American Multinational e-commerce retailer has experienced significant growth since the day it was founded. It is a company that thrived with the invention of internet technology. Amazon’s total revenue has increased consistently from $386,064 million in 2020, through $469,983 million in 2021, to $513,983 million in 2022 (Amazon, Inc., 2022). Over the same period, the net income has fluctuated markedly. In 2020, Amazon posted a net income of $21,331 million. It increased to $33,364 million in 2021 and decreased sharply to $-2,722 million in 2022. The total expenses increased consistently from $363,165 million in 2020, $444,943 million in 2021, to $501,735 million in 2022. The earnings per share (EPS), increased from $2.09 in 2020 to $3.24 in 2021 and decreased to -$0.27. The negative earnings per share resulted from the negative net income in 2022. The average price for Amazon stocks had a fluctuating trend. For example, it increased from $133 in 2020 to $166 in 2021 before decreasing sharply to $125 in 2022 (Amazon, Inc., 2022). Financial Risks The financial risk discussed by Amazon in the Form 10K document relates to the foreign exchange risk. The company notes that its operations in foreign markets are exposed to problems of fluctuation in the foreign exchange, which impact operating results and could lead to either losses or gains. Amazon notes that it has increasingly been exposed to foreign exchange risks amid expansion to various foreign markets. The company holds cash equivalents and market
6 securities in foreign currencies such as Canadian Dollars, Euros, Japanese Yen, and British Pounds. When the US dollar strengthens against these currencies, the company may lose a significant amount of money once converted to the dollar and vice versa (Amazon Inc., 2022). Exxon Mobil Financial Performance The American multinational oil-drilling giant has had a promising financial performance in the last three years (2022-2020). In 2022, Exxon Mobil posted total revenue of $413,640 million up from $285,640 million in 2021 and $181,502 million in 2020 (Exxon Mobil, 2022). The low revenue in 2020 could be attributed to the effects of COVID-19 on the transport industry, which reduced demand for petroleum products. The net income more than doubled, increasing from $23,040 million in 2021 to $57,740 million in 2022 (Exxon Mobil, 2022). In 2020, Exxon posted a negative income figure of $-22,440 million. Earnings Per Share (EPS) increased from $-5.25 in 2020 through $5.39 in 2021 to $13.26 in 2022. The total expenses increased from $210,385 million in 2020, $254,406 million in 2021, to $335,927 million in 2022. Dividend payment to common shares increased from $3.55 per share in 2022 to $3.49 per share in 2021, and $3.48 per share in 2020. The average stock price of Exxon Mobil has consistently increased from $37 in 2020, $52 in 2021, to 87$ in 2022 (Exxon Mobil, 2022). Financial risks Exxon Mobil notes that its financial performance and business results are exposed to potential negative impacts associated with changes in interest rates, currency exchange rates, and inflation among other financial factors. Such fluctuation can reduce the overall earnings of the company. The weakening of foreign currencies against the US dollar is also a threat to foreign
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7 earnings, and the company may be forced to increase the prices of its products which may trigger demand for its product to decline relative to competitors. Chevron Financial Performance In the fiscal years 2022, 2021, and 2020 ending 31 st December, Chevron's total revenue grew from $94,692 million in 2020, through $162,465 million, to $246,252 million. The net income increased from -$5,543 million in 2020 to $15,625 million in 2021 and $35,465 million in 2022 (Chevron, 2022). The year 2020 negative performance was caused by business failure triggered by the effects of the COVID-19 pandemic. Earnings Per Share (EPS) increased from - $2.96 in 2020 to $8.14 in 2021 and $18.28 in 2022. There has been a significant bounce back from the effects of the pandemic. The total expenses stood at $102,145 million in 2020, $140,826 in 2021, and $196,578 million in 2022, year-over-year increment (Chevron, 2022). Stock prices have increased consistently from 2020 to 2022, increasing from $76 in 2020 to $95 in 2021 and $152 in 2022. The dividend level has improved in the past three years under consideration, increasing from $5.16 in 2020 to $5.3 in 2021 and $5.68 in 2022 (Chevron, 2022). Financial Risks Chevron as a global company faces financial risks that result from fluctuation in the foreign exchange rates. The strengthening of the U.S. dollar against local currencies where Chevron operates could result in significant financial losses when earnings are converted to U.S. dollars (Chevron, 2022). Compare and Summarize Of the five companies, Chevron had the highest revenue growth in 2022 compared to the 2021 figures. It posted a revenue growth of 51.57%, followed by Exxon Mobil at 44.83%,
8 Amazon at 9.4%, Apple at 7.79%, and Walmart at 2.43%. When it comes to the expense growth rate, Chevron had the highest expense growth rate at 39.59%, followed by Exxon Mobil at 32.04%, Amazon at 12.76%, Apple at 7. 02%, and Walmart at 1.9%. In the year 2022, Exxon Mobil’s net income grew the highest, at 141.93%, followed by Chevron at 126.98%, Walmart at 14.58%, Apple at 5.41%, and Amazon at -108.16%. While all the companies had nearly similar risks, Apple disclosed the highest number of risks, followed by Walmart, and Amazon. Exxon Mobil and Chevron had fewer risks. The main risk that seemed serious and disclosed by nearly the five companies has to do with the fluctuation of the exchange rate. Since all companies operate in diverse global markets, they feared how their financial returns would be affected by weakening local currencies against the U.S. dollar. As such, this is a significant risk that future investors should think about when making investment decisions. From where I sit, Exxon Mobil seems to be performing the best and has the best chances of winning long-term with the least amount of risk. Currently, Exxon Mobil’s revenue growth and net income are significantly high while it has tried to keep expenses low. Besides, the company has the fewest financial risk factors that it has disclosed in its 2022 Form 10-K. On the contrary, the company that has the greatest challenge given the financial performance and risks is Amazon. In 2022, Amazon registered a negative net income (loss). Its net income decreased by over 100% compared to the 2021 figures. It also disclosed a significant number of risks, including foreign exchange rate fluctuations, which could affect the value of its s cash equivalents and market securities held in foreign currencies.
9 References Amazon, Inc. (2022, December 31). Amazon Form 10-K 2022. U.S. Securities and Exchange Commission . https://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/d2fde7ee-05f7- 419d-9ce8-186de4c96e25.pdf Apple, Inc. (2022, September 24). Apple Form 10-K 2022. U.S. Securities and Exchange Commission . https://s2.q4cdn.com/470004039/files/doc_financials/2022/q4/_10-K- 2022-(As-Filed).pdf Chevron. (2022). Annual Report 2022 . https://www.chevron.com/-/media/chevron/annual- report/2022/documents/2022-Annual-Report.pdf Exxon Mobil. (2022, December 31). Exxon Mobil Form 10-K 2022. U.S. Securities Exchange Commission . https://ir.exxonmobil.com/static-files/d74ed1e0-cb0a-4c8f-8a58- af673056d6bc Walmart. (2022, January 31). Walmart Form 10-K 2022. U.S. Securities and Exchange Commission . https://s201.q4cdn.com/262069030/files/doc_financials/2023/ar/Walmart- 10K-Reports-Optimized.pdf Walmart. (2022, January 31). Walmart Form 10-K 2022. U.S. Securities and Exchange Commission . 403 Forbidden. https://s201.q4cdn.com/262069030/files/doc_financials/2022/ar/WMT-FY2022-Annual- Report.pdf
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