Industry Averages and Financial Ratios Paper Essay

Industry averages and monetary symmetry reports determine the financial health of an organization. Solvent, efficiency, and profitability are compared by key financial indicators and ratios that stride several companies at heart the same industry. The publically traded company chosen by Team A is ExxonMobil. The largest publicly traded international oil and gas company in the world. ExxonMobil makes products that drive modern transportation, power cities, lubricate industry, and picture petrochemical building blocks that lead to thousands of consumer goods (ExxonMobil, 2013-2015). In this paper, Team A will analyze the industry statics and financial ratios of ExxonMobil. critically adopt lean principles to create a more efficient ashes. Discuss what a Just-In-Time inventory dodge would have if adopted. Compare the ratios for ExxonMobil with the appropriate industry ratios shown in the D&B Report. correct Code of miscellaneaThe Standard Classification Code (SIC) was created in 1937 as four digit codes the government assigns to all U.S. companies to supporter identify the primary establishment. These codes were developed to promote the presentation, gathering, and digest of data. It also helps simplify comparability and uniformity of the collection of statistical data, which are done by federal government agencies, private organizations, and state agencies. Each SIC that is assigned has a meaning. The SIC system arrays the economy into 11 divisions, that are dual-lane into 83 2-digit major groups, that are further subdivided into 416 3-digit industry groups, and finally disaggregated into 1,005 4-digit industries. The primary SIC code is determined by the highest tax department within the company that prior year (Siccode.com, 2015). The SIC for ExxonMobil is 2911 Petroleum Refining(U. S. Department of Labor, n. d.).ExxonMobil size up SystemsExxon bustling operates on the LIFO inventory system method for their air. LIFO, meaning last in, first ou t, is an inventory system in which goods that are produced last are social occasiond first. LIFO is a very common accounting system method that many an(prenominal) gas and oil industry owners have used over duration. Most companies use the LIFO inventory system for tax purposes when cost are raising, hence gas and oil prices. In the event that Exxon Mobile switched to the vindicatory in time inventory, its possible that Exxon Mobile could come up short on their inventory. Just in time inventory is used to reduce cost by only purchasing inventory when needed. Since gas and oil is such a huge necessity for consumers, the just time inventory method would not be beneficial to Exxon Mobile ( origination Analysis on Net, 2015). refer Financial dimensions for ExxonMobilAccording to Farlex (2015), financial ratios are defined as a financial analysis equation in which certain financial statement items are divided by one another to bust their logical interrelationships. Financial rati os can be classified to reveal movements in profitability, solvency, and efficiency ratios. Solvency ratios measure a companys ability to pay its debt and other obligations. Profitability ratios exhibit the manner in which a business has fulfilled its operational point of view. Efficiency ratios are normally utilized to examine how a business internally uses its assets and liabilities (Investopedia, 2015). The cart be mortified acknowledges some key financial ratio for each of the precedent mentioned categories for ExxonMobil. All of these ratios have been computed and derived from annual information for the 2010- 2011 fiscal years.Exxon Mobils Performance Comparison to Industry AveragesThe chivvy & Bradstreet Key Business Ratios data set for 2911 Refining Petroleum had a sample of 24 in 2010 and a sample of 31 in 2011 to help compare Exxons ratios to its competitors. This data set is divided into three categories, this paper compares only three ratios for each category Solvency R atios Quick Ratio, Current Ratio, and Current Liabilities to Inventory Ratio Efficiency Ratios aggregation Period Ratio, Assets to Sales Ratio, and Accounts Payable to Sales Ratio Profitability Ratios recidivate on Sales Ratio, Return on Assets, and Return on Net Worth.Solvency Ratios AnalysisThe quick ratio for Exxon in 2010 and 2011 are 0.64 times, which falls between the median and discredit endure of the industry averages on the D & B chart for both years. This shows that ExxonMobil Corporation to be among the average in its industry, therefore it will be a less risky investment. The period ratio in 2010 and 2011 is 0.94 times, in which 2010 falls in the lower range and 2011 falls between the median and lower range of the industry averages. This explains that in 2010 and 2011 Exxon only had $0.94 in current assets to cover every dollar of current liabilities. The current liabilities to inventory ratio illustrates how much a company depends on its inventory to help pay its debt. As the above chart shows, Exxons current liabilities to inventory ratio for 2010 is 482.68% and for 2011 is 515.87%, which falls on the lower range of industry averages on the D & B chart. This reveals that Exxon does not have to depend on its inventory to help pay its debts. (Creditmanagementworld.com, 2006-2015).Efficiency Ratios AnalysisCollection period ratio is used in analyzing how fast a business can increase its coin supplies. Exxons collection period ratio for 2010 is 28.24 days and 2011 is 26.60 days. When comparing this ratio to the industry averages on the D & B chart, Exxon falls between the median and lower ranges. This informs potential investors that Exxon is able to collect on its receivables within 30 days of its initial receipt. The assets to sales ratio for Exxon in 2010 is 0.82 and 0.71 in 2011. This ratio is very low compared to the industry averages, which in term means that Exxon is selling more than it can safely fulfill by its assets. The accounts pa yable to sales ratio for Exxon is 0.91 in 2010 and 0.79 in 2011. These two ratios fall in the hurrying range of the D & B chart, this is bad for Exxon because it states that Exxon might be using its suppliers to help fund the operations during this time period (Creditmanagementworld.com, 2006-2015).Profitability Ratio AnalysisThe hold on sales (Profit Margin) ratio in 2010 is 13.82% and in 2011 is 15.06%, for Exxon. This ratio when compared to its industry averages lies in the upper range on the D & B chart. This determines that Exxon is better lively to handle any downtrends brought upon by adverse conditions. Exxons return on assets (ROA) ratio for 2010 is 11.37% and 12.96% in 2011. It falls on the upper range of the D & B chart. This illustrates that Exxon is ran very well and has a strong return on its assets. Exxons return on net worth for 2010 is 23.67% and for 2011 is 27.26%. This simply means that Exxon has made a profit on its investment for these two years. Through this analysis we find that Exxon stays close to the upper percentage ratios, when compared to the industry averages. This ratio makes ExxonMobil Corporation an ideal investing opportunity (Creditmanagementworld.com, 2006-2015).ConclusionDuring these two years, many companies were still feeling the effects of the economic recession. This can possibly explain why some of Exxons ratios are on the lower range of its industry averages. As potential investor, this team feels that the financial health of ExxonMobil Corporation in 2010 and 2011 is within the range of the industry averages. Despite what these ratio determine, Exxon is a viable business entity with great potential forinvesting.ReferencesBusiness Dictionary. (2015). Financial Ratios. Retrieved from http//www.businessdictionary.com/definition/financial-ratios.html Creditmanagementworld.com. (2006-2015). Business Financial Analysis Using Ratios. Retrieved from http//www.creditmanagementworld.com/analysis/analysis04.html Dun & Bradst reet. (n.d.). Key Business Ratios. Retrieved from http//www.mergentkbr.com.ezproxy.apollolibrary.com/index.php/reports/industry ExxonMobil. (2013-2015). About Us. Retrieved from http//corporate.exxonmobil.com/en/company/about- us/history/overview Farlex. (2013-2015). Solvency Ratios. Retrieved from http//financial-dictionary.thefreedictionary.com/Solvency+Ratio Google Finance. (2015). ExxonMobil Corporation Annual Financial Statements. Retrieved from https//www.google.com/finance?q=NYSEXOM&fstype=ii Investopedia. (2015). Efficiency Ratios. Retrieved from http//www.investopedia.com/terms/e/efficiencyratio.asp Stock Analysis on Net. (2015). Retrieved from http//www.stock-analysis-on.net/NYSE/Company/Exxon-Mobil-Corp/Analysis/Inventory U. S. Department of Labor. (n. d.). 2911 Petroleum Refining. Retrieved from https//www.osha.gov/pls/imis/sic_manual.display?id=627&tab= comment Worldwide Business Dictionary. (2015). What is a SIC Code?. Retrieved from http//siccode.com/en/pages/what-is- a-sic-code