Fin201

Section:02
Session: Autumn ‘20

Introduction to Finance
Ratio Analysis
Faculty: Ms. Zaima Ahmed

Group Members:

Abdullah Al-Akib - 1930885 (Royal Dutch Shell PLC)

Tahmid Bin Zaman - 1910097 (Exxon Mobil Corporation)

Samiul Islam - 1930409 (Chevron Corporation)

Ayesha Akter - 1731666 (British Petroleum PLC)

Nasif Khan Oni - 1510840 (ConocoPhillips)Executive Summary and

Company Overview

The report was prepared in order to analyze the ratios of 5 companies in the

Energy industry for 2019 and 2020 fiscal years. They are of different sizes. Some are new,

some are old. Even though all of them are franchises, some of them are worldwide

while some are based just in the US and CA. The 5 companies are:

Royal Dutch Shell

Headquarters: The Hague, Netherlands

Operations: has operations in over 70 countries, produces around 3.7 million barrels
of oil equivalent per day and has 44,000 service stations worldwide

Founding date: February 1907

Royal Dutch Shell, commonly known as Shell, is a British–Dutch multinational oil and gas company
headquartered in The Hague, Netherlands and incorporated in the United Kingdom as a public
limited company (PLC).It is one of the oil and gas "supermajors" and the fifth-largest company in the
world measured by 2020 revenues (and the largest based in Europe).In the 2020 Forbes Global
2000, Royal Dutch Shell was ranked as the 21st-largest public company in the world. Shell was first
in the 2013 Fortune Global 500 list of the world's largest companies; in that year its revenues were
equivalent to 84% of the Dutch national $556 billion GDP.

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 Ratios 2019 2018

Profit Margin 4.59% 6.01%

Return on Asset 3.92% 5.85%

Return on Equity 8.32% 11.53%

Receivables Turnover 7.45 times 8.77 times

Average Collection Period 48 days 41 days

Inventory Turnover 14.33 times 18.39 times

Fixed Asset Turnover 1.11 times 1.29 times

Total Asset Turnover 0.85 times 0.97 times

Current Ratio 1.16 times 1.25 times

Quick Ratio 0.86 times 0.98 times

Debt to Total Assets 52.89% 49.26%

Times Interest Earned 7.64% 14.32%

Fixed Charge Coverage 6.43%

10.71%

Exxon Mobil Corporation

Headquarters: Irving, Texas

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Operations: Exxon Mobil Corporation, doing business as ExxonMobil, is an American
multinational oil and gas corporation headquartered in Irving, Texas.
Founding date: November 30, 1999
Exxon Mobil Corporation, doing business as ExxonMobil, is an American multinational oil and gas
corporation headquartered in Irving, Texas. It is the largest direct descendant of John D.
Rockefeller's Standard Oil,and was formed on November 30, 1999 by the merger of Exxon (formerly
the Standard Oil Company of New Jersey) and Mobil (formerly the Standard Oil Company of New
York). ExxonMobil's primary brands are Exxon, Mobil, Esso, and ExxonMobil Chemical.ExxonMobil
is incorporated in New Jersey

Ratios 2019 2018

Profit Margin 5.61% 7.46%

Return on Asset 3.95% 6.20%

Return on Equity 7.21% 10.50%

Receivables Turnover 12.11 times 14.22 times

Average Collection Period 30 days 25 days

Inventory Turnover 13.79 times 14.73 times

Fixed Asset Turnover 0.82 times 0.94 times

Total Asset Turnover 0.70 times 0.81 times

Current Ratio 0.78 times 0.84 times

Quick Ratio 0.49 times 0.51 times

Debt to Total Assets 19.32% 10.91%

Times Interest Earned 30.80 times 48.96 times

Fixed Charge Coverage 7.28 times

12.48 times

Chevron Corporation

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Headquarters: San Ramon, California, United States
Operations:With more than 16,000 wells in operation, Chevron is one of the largest net
daily oil-equivalent producers in California.
Founding date: September 10, 1879
Chevron Corporation is an American multinational energy corporation. One of the successor
companies of Standard Oil, it is headquartered in San Ramon, California, and active in more
than 180 countries. Chevron is engaged in every aspect of the oil, natural gas, including
hydrocarbon exploration and production; refining, marketing and transport; chemicals
manufacturing and sales; and power generation. Chevron is one of the world's largest
companies; as of March 2020, it ranked fifteenth in the Fortune 500 with a yearly revenue of
$146.5 billion and market valuation of $136 billion. In the 2020 Forbes Global 2000, Chevron
was ranked as the 61st -largest public company in the world. It was also one of the Seven
Sisters that dominated the global petroleum industry from the mid-1940s to the 1970s.
Chevron is incorporated in California.

Ratios 2019 2018

Profit Margin 2.09% 9.32%

Return on Asset 1.23% 5.84%

Return on Equity 2.01% 9.52%

Receivables Turnover 10.49 times 10.56 times

Average Collection Period 35 days 35 days

Inventory Turnover 23.91 times 27.86 times

Fixed Asset Turnover 0.93 times 0.94 times

Total Asset Turnover 0.59 times 0.63 times

Current Ratio 1.07 times 1.25 times

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 Quick Ratio 0.85 times 1.04 times

Debt to Total Assets 0.11 % 0.14%

Times Interest Earned 7.94 times 28.51 times

Fixed Charge Coverage 7.94 times

28.51 times

British Petroleum Company

Headquarters: London, United Kingdom

Operations:BP operates in 70 countries worldwide.
Founding date: April 14, 1909

BP plc (formerly The British Petroleum Company plc and BP Amoco plc) is a British
multinational oil and gas company headquartered in London, England. It is one of the world's
seven oil and gas "supermajors". It is a vertically integrated company operating in all areas of
the oil and gas industry, including exploration and production, refining, distribution and
marketing, power generation and trading. It also has renewable energy interests in biofuels,
wind power, smart grid and solar technology.

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 Ratios 2019 2018

Profit Margin 1.45% 3.14%

Return on Asset 1.36% 3.33%

Return on Equity 2.59% 6.04%

Receivables Turnover 13.89 times 14.33 times

Average Collection Period 26 days 25 days

Inventory Turnover 13.33 times 16.61 times

Fixed Asset Turnover 1.31 times 1.42 times

Total Asset Turnover 0.94 times 1.06 times

Current Ratio 1.12 times 1.05 times

Quick Ratio 0.83 times 0.78 times

Debt to Total Assets 26.24% 23.32%

Times Interest Earned 5.55 times 8.22 times

Fixed Charge Coverage 3.79 times

9.41 times

ConocoPhillips

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Headquarters: Houston, Texas, United States
Operations:Naturally, the technology, the machinery, etc., it has but all been replaced –
yet, The Bradford Oil Refinery, which still employs nearly 300 Bradfordians, remains
the oldest functioning petroleum refinery in the world.
Founding date: 1875
ConocoPhillips is a multinational corporation engaged in hydrocarbon exploration. It is based in the
Energy Corridor district of Houston, Texas.As of December 31, 2019, the company had proved
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reserves of 5,262 million barrels of oil equivalent (3.219×10 GJ), of which 50% was petroleum,
37% was natural gas, 8% was natural gas liquids and 5% was bitumen.The company is ranked 93rd
on the Fortune 500. In the 2020 Forbes Global 2000, ConocoPhillips was ranked as the 201st
-largest public company in the world.The company was ranked as the 14th most polluting company
in the world by The Guardian in 2019. It is responsible for 0.91% of global industrial greenhouse gas
emissions from 1988 to 2015.

Ratios 2019 2018

Profit Margin 4.60% 7.70%

Return on Asset 2.10% 3.80%

Return on Equity 3.80% 6.04%

Inventory Turnover 31.7 times 34.49 times

Fixed Asset Turnover 6.4 times 1.2 times

Total Asset Turnover 0.46 times 1.01 times

Current Ratio 0.47 times 1.79 times

Quick Ratio 0.44 times 1.6 times

Debt to Total Assets 20.90% 21.2%

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 Times Interest Earned 12.24 times 14.57 times

Fixed Charge Coverage 13.24 times

14.57 times

Profitability Ratios:
Profit Margin
Profit margin is the most common indicator of a firm’s performance. Net
profit margin is a ratio that expresses a company’s profits as a
percentage of the total amount of money it earns from the sale of goods
and services.

Exxon is the winner here. Because it is more stable and has the highest
profit margin in 2019.

Return on Assets
Return on assets (ROA) is an indicator of how profitable a company is
relative to its total assets. ROA gives a manager, investor, or analyst an
idea as to how efficient a company's management is at using its assets
to generate earnings. Return on assets is displayed as a percentage.

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Return on assets is a profitability ratio that provides how much profit a
company is able to generate from its assets. In other words, return on
assets (ROA) measures how efficient a company's management is in
generating earnings from their economic resources or assets on their
balance sheet.

Here, Exxon wins both of the years. It has the highest ROA on both 2018
and 2019 among the five companies.

Return on Equity
The Return on Equity ratio essentially measures the rate of return that
the owners of common stock of a company receive on their
shareholdings. Return on equity signifies how good the company is in
generating returns on the investment it received from its
shareholder.
Also referred to as “return on net assets”, return on equity (ROE) is a
measurement of how effectively a business uses equity – or the money
contributed by its stockholders and cumulative retained profits – to
produce income.

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In this ratio Royal Dutch Shell PLC wins both of the year. It has higher
return on stocks/equities in 2018 and 2019 among five of them.

Investors’ Remark: It would be better to invest in Royal Dutch

Shell PLC. Because it has a higher return rate on investment of
shareholders. Investors always should go for the companies which have
Return on Equity more than the others. Royal Dutch Shell PLC beats the
other four in both 2018 and 2019.

Asset Utilization Ratios:

Receivable Turnover
Accounts receivable turnover is the number of times per year that a business
collects its average accounts receivable. The ratio is used to evaluate the ability
of a company to efficiently issue credit to its customers and collect funds from
them in a timely manner. A high turnover ratio indicates a combination of a
conservative credit policy and an aggressive collections department, as well as a
number of high-quality customers. A low turnover ratio represents an opportunity
to collect excessively old accounts receivable that are unnecessarily tying up
working capital.

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According to the graph we can see that BP PLC has the highest receivables
turnover ratio that means the company's collection of accounts receivable is
efficient and that the company has a high proportion of quality customers that pay
their debts quickly. On the other hand Royal Dutch Shell PLC has the lowest
receivables turnover ratio which means the company has a poor collection
process, bad credit policies, or customers that are not financially viable or
creditworthy.

Average Collection Period

The average collection period is calculated by dividing the average balance of
accounts receivable by total net credit sales for the period and multiplying the
quotient by the number of days in the period. A lower average collection period is
generally more favorable than a higher average collection period. A low average
collection period indicates the organization collects payments faster. There is a
downside to this, though, as it may indicate its credit terms are too strict.
Customers may seek suppliers or service providers with more lenient payment
terms.

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According to the above graph we can see that Exxon has the lowest average
collection period. Which means Exxon is getting their payments more often than
the four other companies. Also having a low average collection period ensures
more cash flow in Exxon’s business.

Suppliers’ Remark: It will be more buyable if suppliers approach BP

PLC. Because it has less average collection period and more receivable turnover
in both 2018 and 2019 among the other companies. So the company would be
able to give the payment more frequently as they are getting regular collection
with this short average period.

Debt Utilization Ratios:

Debt to Total Asset
Debt to total assets ratio is an indicator of a company’s financial leverage. It
defines the total amount of debt relative to assets owned by a company.
Using this metric, an analyst can compare one company’s leverage with
that of other companies in the same industry. This information can reflect
how financially stable a company is.

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Chevron is the winner here because it has the lowest percentage of debt to
total assets. Hence, Chevron is the most financially stable company in this
aspect.

Times Interest Earned

Times Interest Earned signifies how many times a company can pay their
financing costs using their current level of Profits before Interest and Taxes.
The more this figure is, the safer the business is.

Exxon is the winner here because it has the highest number whereas This
means that Exxon can pay their financing cost the highest number of times
in the before Interest and Taxes.

Fixed Charge Coverage

The fixed-charge coverage ratio (FCCR) shows how well a company's
earnings can be used to cover its fixed charges such as rent, utilities, and
debt payments. Banks look at this ratio before giving loans because fixed

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charges have to be paid, regardless of production levels. A company with a
high ability to pay fixed charges has lower chances of default.

Conoco has the highest fixed-charge rate with BP PLC the lowest amount.
This means that they have to be a financially stable company as they pay
off their payables very easily and rather quickly.

Banks Remark: After analysing the above ratios, Exxon is the most
financially stable company out of the rest. This will lead the banks to get
back their loan with interest at a faster rate thus increasing the interest
earned for the bank. While this will boost the revenue of the bank, it will
also be profitable for the bank. Therefore, Exxon is the most suitable one to
give a loan from the bank.

Conclusion

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 Best for
investment
on the basis
of 2018 and
2019 fiscal
years

Best for the

supplier to
supply raw
material on
the basis of
2018 and
2019 fiscal
year

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 Best for the
banks to
give loan on
the basis of
2018 and
2019 fiscal
year

REFERENCES

Yahoo Finance Links:

https://finance.yahoo.com/quote/XOM/financials?p=XOM
https://finance.yahoo.com/quote/CVX/financials?p=CVX
https://finance.yahoo.com/quote/BP/financials?p=BP

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https://finance.yahoo.com/quote/RDS-B/financials?p=RDS-
B
https://finance.yahoo.com/quote/COP/financials?p=COP

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