Exxon-Mobil and Shell Financial Performance Paper
Exxon-Mobil and Shell are two companies that occupy leading positions in the oil and gas industry. In actuality, the two companies are among the largest companies operating in this market. It is important to underline that Exxon-Mobil and Shell operates worldwide and nowadays they widely represented in many countries of the world. At the same time, oil and gas industry, where the companies operate, is considered to be not very perspective because of the scarcity of natural resources, notably oil and gas but, nevertheless, in recent years both companies demonstrate positive trends and their positions in the market remain unchanged and, what is more, they tend to gradually increase their share of the market to the extent that in the future it is even possible to speak about Exxon-Mobil and Shell as two major players in the oil and gas market of the entire world.
However, it is hardly possible to objectively assess the current position of Exxon-Mobil or Shell and their perspectives without a profound analysis of their current financial performance and the trends they demonstrate. On analyzing these components, it will be possible to definitely compare and contrast the achievements of Exxon-Mobil and Shell and discuss their perspectives in relation to each other and their future in the oil and gas industry at large.
Speaking about the current financial position of Exxon-Mobil and Shell, it should be said that both companies are in a stable position and they have demonstrated certain growth in recent years. At the same time, it is worthy of mention that the position of Shell seems to be a bit deteriorated in recent years and the growth is not so significant as it used to be in the past.
Nevertheless, Shell still remains among the leaders and its leading position in the market seems to be unarguable. In this respect, it should be said that the market capacity of the company is assessed as almost 245 billion dollars, while the enterprise value constitutes 251,17 billion dollars (Shell. Annual Report 2006). Obviously, these figures perfectly illustrate the strength of the current position of the company in the market. In such a situation, even certain slow down in the quarterly revenue growth, which constituted -3.3%, seems to be not very disturbing (Shell. Annual Report 2006). In fact, the company’s financial performance does not make any reasonable signs that could indicate at the approaching crisis or financial problems of the company.
Furthermore, it should be said that the company’s revenue constituted 316,36 billion dollars. As a result, the revenue per share of Shell constituted 99,44 dollars. Also, it should be said that the net income of Shell the last year constituted 25.83 billion dollars (Shell. Annual Report 2006). Obviously, this is quite a substantial figure that is higher by 7% compared to the previous year. The current ratio of the company constitutes 1.153.
At the same time, it is worth noting that the total cash of Shell is 11.18 billion dollars while its debt is 17,37 billion dollars (Shell. Annual Report 2006). Its debt/equity ratio constitutes 0.165. Speaking about the current cash flow statement of the company, it should be said that, at the present moment, the operating cash flow of Shell is about 35 billion dollars, while its levered free cash flow constitutes 15.13 billion dollars.
Also, it should be said that the shareholders of the company can feel that Shell takes care about their dividends. In this respect, it is worthy of mention that the last year the annual dividend rate was 2.88, while in the previous year it constituted 2.63 (Shell. Annual Report 2006). Finally, it should be said that the company’s management is quite effective. To put it more precisely, speaking about the management effectiveness, it is necessary to underline that the last year return on assets constituted 11.47% while the previous year it was 10.95%. Moreover, the last year return on equity constituted 25.75%, while the previous year it was 23.5%. At the same time, the profit margin remains relatively high and at the present moment profit margin constitutes 8.16% and operating margin 11.47% (Shell. Annual Report 2006).
As for Exxon-Mobil it should be said that the company basically demonstrates positive results in its financial performance. To put it more precisely, within the last two years the company’s sales and operating revenues keep growing and constituted 358.955 million dollars in 2005 while the last year this figure has reached 365.467 million dollars. Obviously, such a growth is quite a positive achievement, especially if one takes into consideration the fact that the company Exxon-Mobil was formed just in 1999 and within less than a decade it demonstrated a steady trend to growth.
Furthermore, it should be said that the net income of the company has also increased significantly. To put it more precisely, in 2005 the net income of Exxon-Mobil constituted 36,130 million dollars while the last year it has increased to 39,500 million dollars. In fact, such a growth in the net incomes is also a serious achievement of the company.
In such a situation, it seems to be quite natural that the share price of Exxon-Mobil also increased significantly and basically it is possible to correlate the growth of the company’s revenues and its net income to the growth of its share price. In this respect, it should be said that by the end of 2006, the share price of the company constituted 76.63 dollars, while in 2005 it was only 56.12 dollars. Obviously, the growth of the share price of the company is even more significant than the growth of its revenues and net income.
Furthermore, it should be said that the cash dividends of Exxon-Mobil shareholders constituted 7,638 million of dollars in 2006, that is higher than the cash dividends in 2005 which were just 7,185 million of dollars.
Also, it is worthy of mention that the cash flow from operations and asset sales in 2006 decreased compared to the previous year. To put it more precisely, in 2006, the cash flow from operations and asset sales constituted 52,366 million dollars, while, in 2005, it was 54,174 million dollars Furthermore, the net income per share in 2006 constituted 6,68 that is higher compared to 2005 when it was only 5,76 (Exxon-Mobil. Annual Report 2006).
Obviously, both companies basically demonstrate positive trends in their financial development. At the same time, it is worthy of mention that Exxon-Mobil demonstrates a stable trend to growth that is evident from its basic financial results, including revenues and their growth. It should be said that, at the present moment, the company tends to the enlargement and further growth. In this respect, it is necessary to underline that in 1999 Exxon merged with Mobil and formed the new company that united the potential and power of both companies.
The recent financial results perfectly demonstrate the advantages and benefits the united company has received from this merger. Obviously, this merger played the key role in the strategic development of the company since it really opened new opportunities to the company. To put it more precisely, it position in the market ahs grown stronger, its potential has also increased dramatically. In fact, the current leading position of Exxon-Mobil in the market is to a significant extent determined by the merger and the unification of the two companies which nowadays represent a solid and very successful organization.
Furthermore, it is important to emphasize that Exxon-Mobil tend to increase its presence in new regions where it has never operated before. In this respect, the merger of Exxon and Mobil was quite a natural step in the diversification of the sources of oil and gas and the spread of the company’s presence in new regions rich in these natural resources. It should be said that the company pays a lot of attention to the discovery of new sources of oil and gas and invests substantial sums of money in the new projects (Bender and Cannoy-Bender 1999).
Speaking about Shell, it is necessary to point out that, at the present moment, this is a private company but, in recent years, Shell repeatedly demonstrated an intention to transform into a public company and this is probably the strongest trend that defines the current development and financial results of the company. It is not a secret that the change of the status and the position of the company from private into public could be highly beneficial from purely financial point of view. In other words, the company tends to become public in order to increase its financial benefits since it is supposed that s such a shift will improve the position of the company in the market, increase its effectiveness and productivity and its performance at large and it will also attract the interest of investors to the shares of the company.
The additional investments seem to be quite useful to the company since there is a disturbing trend to the growth of the gap between the total cash and total debt. The latter substantially surpass the former that naturally creates certain tension and makes it possible to speak about potential problems Shell may face in the future. In this respect, the recent decrease of the quarterly revenue growth which constituted -3.3% is another evidence of approaching financial problems of Shell. However, these problems are rather hypothetical than real and, in actuality, the financial position of the company remains quite good.
Exxon-Mobil and Shell: performance and trends
Judging from the financial analysis and current trends in both companies, Exxon-Mobil and Shell, it is possible to estimate that both companies are the leaders of the industry they operate in. To put it more precisely, their leadership in the oil and gas industry is unarguable. At the same time, both companies tend to expansion targeting at the new markets and new regions where they can exploit natural resources, i.e. oil and gas.
In this respect, it is worthy of mention that Exxon-Mobil uses the strategy of mergers to achieve this goal, while Shell still attempts to use its own potential and, at the moment, refuses to form any sort of alliances which could potentially threat to the company’s independence and its current structure and organization. Furthermore, it should be said that, similarly to Exxon-Mobil, Shell also pays also pays a lot of attention to the development of new oil fields and searches for new sources where it could exploit the natural resources. However, it should be said that the current idea of transformation of Shell into a public company may lead to certain slow down in its development and financial performance since it will inevitably lead to some reconstruction and reorganization of the company. In this respect, it should be said that Exxon-Mobil does not have such a disturbing trend and, instead, at the moment, it a stable structure and good organization and there is no serious changes in the plans of the company’s management. However, the merger of Exxon and Mobil in 1999 may be viewed as a change that, in a way, may be viewed as a similar to the idea of Shell to get transformed into a public company, though the latter idea seems to be even more radical than a merger.
Thus, taking into account all above mentioned, it is possible to conclude that, at the present moment, Exxon-Mobil and Shell are in a similar position. Both companies are the leaders of the industry they are operating in, both companies operates worldwide and target at the further expansion in the international markets. On the other hand, the current position of Exxon-Mobil, its financial performance and trends seem to be more preferable compared to Shell which has worse financial results and some disturbing trends. In this respect, it is possible to presuppose that, to a significant extent, such a difference is determined by the expectations of the coming-up changes within Shell, while Exxon-Mobil has already overcome its major structural and organizational changes since 1999. this is why Exxon-=Mobil may be viewed as a more perspective company, at least in short terms.
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