2

In analyzing balance sheet of ExxonMobile, based off of Yahoo Finance report, we run into the following figures for the year:

Current Assets: 51,647,000 Total Liabilities: 175,592,000

Now Current Assets - Total Liabilities is deep negative.

When such is the case, how can ExxonMobile receive AAA+ rating from Standard & Poor?

What element am I missing here?

  • 1
    Why are you ignoring "Total Assets," "Current Liabilities" and cash flow here? – JB King Sep 10 '15 at 19:39
  • 1. My total Liabilities include current liabilities and long term debt. 2. Fixed assets are too susceptible to depreciation and not easy to liquidate. 3, I dont know much about cash flow. I thought Current Assets include all cash assets. But I come from Grahams way of analyzing things in security analysis. I am not very used to these new concepts. – Ace Sep 10 '15 at 19:46
  • 1
    I'd be careful of what picture you are building as this could make most people look rather bad on a balance sheet of taking all the debt but just the cash on hand and ignoring any long-term investments which is part of what you are doing here. – JB King Sep 10 '15 at 19:52
  • My thinking is that if long investments are good, it would naturally reflect itself in terms of good current assets. Is that plausible? – Ace Sep 10 '15 at 19:59
  • Not likely. How would a long term investment show up in the "current assets"? Remember what you said about fixed assets here. – JB King Sep 10 '15 at 20:22
11

You are reading the balance sheet wrong.

Everything Joe says is completely correct, but more fundamentally you have missed out on a huge pile of assets. "Current assets" is only short term assets. You have omitted more than $300B in long-term assets, primarily plant and equipment.

The balance sheet explicitly says:

Net tangible Assets (i.e. surplus of assets over liabilities) $174B

  • I left out Tangible assets since those of oil companies are not as salable or liquid as say regular real estate and of course marketable securities. – Ace Sep 10 '15 at 23:15
  • 6
    "Not as liquid as securities" does not mean "worth nothing". – DJClayworth Sep 10 '15 at 23:20
  • 1
    You may be interested to know that there is a market in used oil rigs – DJClayworth Sep 11 '15 at 3:23
  • If over depressive business environment leads to bankruptcy/liquidation of giants like Exxon Mobile, then the oil sector would be in such bad shape that what you said above may not be true anymore. – Ace Sep 12 '15 at 5:51
  • 1
    Bankruptcy and liquidation of giants like Exxon implies that no-one is putting gasoline in their cars, oil in their engines or home furnaces. If so, the amount you might receive for your Exxon shares will be the least of your worries. Remember, gasoline and oil are used to transport food from farm to market. – chili555 Sep 12 '15 at 19:31
7

Exxon Mobil is one of the most profitable corporations in the world. Their annual earnings are typically in the $10s of billions of dollars. They have revenues in the hundreds of billions of dollars per year. They also return $10+ billion dollars to their stockholders each year in dividends and stock purchases. That's with $300bn market capitalization - meaning they return 3% of their total market cap each year to their shareholders, aside from any movement in the stock itself.

On the other hand, their total current liabilities are around $175bn. That's what, six months' revenue? Who'd you rather lend to, Exxon, or ... anyone else? AAPL and GOOG maybe better risks, but not by much. Almost every other company on the planet is a more dangerous risk.

Judging them solely by Assets is silly - they don't exactly sit on the oil they extract. They take it out of the ground and sell it to people.

  • My only problem, the way I see is that if its liquidated right now, this instant, there is nothing left for stock holders in terms of current assets? (I should be cautious while making the above statement). – Ace Sep 10 '15 at 19:56
  • Regardless of that I really am coming from point of view of stockholder. Since its all a zero sum game, does this picture suggest that what is good deal for bond holders is a raw deal for stock holder? – Ace Sep 10 '15 at 19:58
  • 4
    Why on earth would they liquidate Exxon right now? Why would that matter? And why do you consider stocks a zero sum game? I don't think that's true at all. – Joe Sep 10 '15 at 19:59
  • 2
    From a 'risk' point of view, the lenders look at cash flow primarily. Exxon has revenues of $300bn annually. There's no risk of a sudden default whatsoever. The Green party could win both houses and the Presidency in the US next year and Exxon would still be a safe bet to pay off its debts. – Joe Sep 10 '15 at 20:01
  • 4
    What you're finding out is that you have to take context into account in analyzing a stock. That, and a solid understanding of an industry. – Joe Sep 10 '15 at 20:18
2

Even assuming you were reading the balance sheet correctly it means nothing.

What banks mostly care about is cash flow. Do they have enough extra money to make the payments on whatever they borrow?

I have never had a credit card company ask me about assets--they don't care. They care about income with which to pay the credit card bill.

Have a solid record of paying your bills and enough income to pay back what you are trying to borrow and you'll have an excellent credit rating no matter what your net worth. Whether you are one person or a megacorporation makes no difference.

1

I believe you are missing knowledge of how to conduct a ratio analysis.

Understanding liquidity ratios, specifically the quick or acid-test ratio will be of interest and help your understanding.

http://www.investopedia.com/terms/a/acidtest.asp

Help with conducting a ratio analysis. http://www.demonstratingvalue.org/resources/financial-ratio-analysis

Finally, after working through the definitions, this website will be of use.

https://www.stock-analysis-on.net/NYSE/Company/Exxon-Mobil-Corp/Ratios/Liquidity

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.