Posted: August 29th, 2022

Company management

Aside from profitability, it is also interesting to know whether the company management is efficient. To measure the latter, this paper uses return on assets (ROA). The company’s ROA of 19. 24% for the latest twelve months is still higher than industry average of 13. 25%. Even using ROA five-year average, the rate of 17. 52% for the company is very much above the industry average of 13. 39% While ROA may indicate profitability measure , the same may also tell how efficient management the company had in terms of profits in relation assets employed in business.
ROE on the other hand measures how much management compensates resources invested by stockholders. By comparing the two ratios, it appears that Exxon Mobile is both profitable and efficient than industry. The obvious profitability and efficiency of the company is further proved by the company’s net operating margin and net profit margin. The resulting operating profit margins for the last five years averaged at 16. 61% as against the industry average of 15.
87%. Operating margin represents the margin after deducting cost of sales or services and operating expenses. The ratios mean that the management of Exxon Mobil is doing well in management of its business with the participation of its motivated employees in delivering value to customers. To get to net profit margin, the operating margin requires some values to be added or deducted still such as interest income, interest expense and other non-operating items.

The resulting net profit margin could ether increase or decrease the net operating margin. If there is increase, it would mean that the company is having additional income from non-operating activities but if decreased, it would mean that it is spending some costs like interest expenses in having to finance some borrowing for the company. The net margin of the company for the latest twelve month period was posted at 9. 47% as against industry average of 9. 01%.
If the rate is compared the operating profit margin, it could be found that net profit margin is lower. This means that the company needed to spend other expenses to finance some of its borrowing. If further means that it is using other people’s money while improving profitability for stockholders. No wonder the company had very high return on equity as earlier analyzed. The profitability ratios such as return to equity, operating profit margin and net profit margin show the capacity of the company from a historical perspective.
Between believing whether past profitability and liquidity would continue, it is more logical to believe that the company could repeat what happened in the past and that is a plus factor in influencing the prices of its stock as a final barometer on how the company is expected to benefits its stockholders. Liquidity is the ability to meet a company’s currently maturing obligations. It is measured using the current ratio and the quick asset ratio. In the case of the Exxon Mobil the following information in Table 2 below summarizes some of the information.
Computing current ratio uses current assets to be divided to current liabilities while quick assets ratio is almost the same except that the inventory and prepaid expenses are being removed from the current assets to have a new numerator but the denominator is the same. Quick assets therefore normally include cash, marketable securities, and accounts receivable and the use of quick asset ratio is very much relevant for one intending to have higher form of measuring liquidity. In such case, one would prefer quick asset ratio to that of the current ratio.
As applied now to Exxon Mobil, its computed current ratio is 1. 47 as against industry average of 1. 38. Quick ratio of the company on the other was reflected at 1. 23 as against industry average of 1. 04. Both ratios are above 1. 0 and exceed the industry average indicating very liquid position. The company’s very liquid position is further supported by its very higher interest coverage at 51. 16 times as against industry average of 16. 03 times. The company is at least three times more prepared to meet its obligations to its creditors for interest expenses compared with competitors is very evident.

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