Risk/Debt

Exxon Mobil Corp.'s debt-to-equity ratio (Quarterly) declined from Q1 2016 to Q2 2016 and

from Q2 2016 to Q3 2016, but then improved in Q4 2016 with a number of .26.

Accounting Analysis
Summary of Key Policies

The Consolidated Financial Statements include the accounts of subsidiaries the Corporation

controls. They also include the Corporation’s share of the undivided interest in certain

upstream assets, liabilities, revenues and expenses.

Amounts representing the Corporation’s interest in entities that it does not control, but over

which it exercises significant influence, are included in “Investments, advances and long-term

receivables”. The Corporation’s share of the net income of these companies is included in the

Consolidated Statement of Income caption “Income from equity affiliates”.

Majority ownership is normally the indicator of control that is the basis on which subsidiaries

are consolidated. However, certain factors may indicate that a majority-owned investment is

not controlled and therefore should be accounted for using the equity method of accounting.

These factors occur where the minority shareholders are granted by law or by contract

substantive participating rights. These include the right to approve operating policies, expense

budgets, financing and investment plans, and management compensation and succession plans.

Evidence of loss in value that might indicate impairment of investments in companies

accounted for on the equity method is assessed to determine if such evidence represents a loss

in value of the Corporation’s investment that is other than temporary. Examples of key

indicators include a history of operating losses, negative earnings and cash flow outlook,

significant downward revisions to oil and gas reserves, and the financial condition and

prospects for the investee’s business segment or geographic region. If evidence of another than

temporary loss in fair value below carrying amount is determined, impairment is recognized. In

the absence of market prices for the investment, discounted cash flows are used to assess fair

value.

The Corporation’s share of the cumulative foreign exchange translation adjustment for equity

method investments is reported in Accumulated Other Comprehensive Income.

Quality of Disclosure
The financial statements produced by Exxon Mobil displayed insignificant differences in

presentation – both aesthetically, and in the information presented, relative to peer companies

such as BP and Chevron. This reflects the company’s adherence to the “blue chip” benchmark
(standard) set by those occupying large portions of the market, and as such can be considered

best practice.

The company’s 2016 annual report is easy to understand, providing clear and detailed insights

into their current operational and financial position. Management’s perspective in regards to

annual performance and visionary plans going forward are also succinctly summarized.

Further, Exxon Mobil has dedicated over a large proportion of the annual report to “Notes to

the Consolidated Financial Report”. This section summarizes significant accounting policies –

including methods used to calculate asset values, interpretations of new accounting standards

and disclosure of key management personnel in regards to income and internal holdings.

Beneish Model Calculation

The Beneish Model is a mathematical model that uses financial ratios and eight variables to

identify whether a company has manipulated its earnings. The variables are constructed from

the data in the company's financial statements. Once calculated, the eight variables are

combined together to achieve an M-Score for the company. An M-Score of less than -2.22

suggests that the company has a lower likelihood of manipulation, while an M-Score of greater

than -2.22 signals that the company has a higher likelihood of manipulation (Kahn, 2015). When

running the Beneish earnings manipulation model, Exxon’s y value totals up to -2.3448. When

inputting the y value into the excel formula to calculate for the probability of manipulation the

score for Exxon equals .0095. This indicates that there is less than a 1% chance that Exxon is

manipulating its financial information. The results from the calculation are shown below.
The formula is:

M = -4.84 + 0.92 (DSRI) + 0.528 (GMI) + 0.404 (AQI) + 0.892 (SGI) + 0.115 (DEPI) – 0.172 (SGAI) –

0.327 (LVGI) + 4.679 (TATA)

Beneish Earnings Manipulation Model - for Exxon

=-4.84+0.92*(1.2777)+0.528*(1.0428)+0.404*(1.0981)+0.892*(.8424)+0.115*(.8278)-

0.172*(1.1179)-0.327*(1.0563)+4.67*(.0035)
Financial Analysis – Multiyear Analysis/Comparisons
Profit Margins
Profit margin indicates how much the firm is able to keep in profits for every dollar of sales that
it generates. It is influenced by the management of revenues and expenses. In 2013,
McDonald’s managed its revenues and expenses more efficiently than both YUM Brands and
the industry. McDonald’s profit margin of 20% indicated that it earned approximately 20 cents
for every dollar it generated in sales, which is considerably higher than YUM Brands’ profit
margin of 8% and the industry average of 11%. Further, McDonald’s has been able to maintain
stable operating profit margins over the last 5 years with profit margins of 20%, 21%, 20%, 20%,
and 20% in 2009, 2010, 2011, 2012, and 2013, respectively.
Growth in sales and reduction in costs drive increases in profit margins. Annual sales growth for
McDonald’s has fluctuated in the last five years. Sales decreased by 3% in 2009 and increased
by 6%, 12%, 2%, and 2% in 2010, 2011, 2012, and 2013 respectively. In 2013, sales revenue for
McDonald’s increased by 2%, while YUM Brands’ sales for that same year decreased by 4%.
In terms of cost, McDonald’s appears to have a more efficient cost structure than YUM Brands.
McDonald’s has focused on driving operating efficiencies and leveraging its scale and supply
chain infrastructure to manage costs (McDonald's, 2013). For example, McDonald’s COGS as a
percentage of sales was 55%, 55% and 56% in 2011, 2012 and 2013 respectively, and averaged
55% over the last 6 years. This resulted in a gross margin of 45% in 2011, 2012 and 2013 for
McDonald’s. Further, SG
A as a percentage of sales was 9%, 9% and 8% in 2011, 2012 and 2013 respectively, resulting in
a profit margin of 20% in 2011, 2012 and 2013. YUM Brands’ COGS as a percentage of sales
were higher at 67%, 68% and 67% in 2011, 2012 and 2013 respectively, and averaged
approximately 68% over the last 6 years. YUM Brands’ SGA costs were also higher than that of
McDonald’s, which in turn yielded smaller profit margins than McDonald’s. Thus, the underlying
factor that continues to drive McDonald’s profit margins is its cost management. When a
company efficiently manages its costs relative to sales, it increases its profit margins.