In comparing two companies that manufacture one of the most demanded products on the planet, Chevron and Exxon Mobil are the two companies are at the top of the oil and gas industry and are responsible for most of the gas and oil that is sold throughout the United States. Each company is highly profitable and are able to turn their product quickly and continue to supply the country with an almost endless supply of gasoline and oil. A breakdown of each company’s liquidity, solvency, and profitability are the only ways to determine which company is exceeded the other. In looking at the liquidity of Exxon Mobil, the current ratio would need to be taken into account. According to the textbook, Accounting Tools for Business Decision
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According to the Account Tools for Business Decision Making textbook, solvency is a company’s ability to pay interest as it becomes due and to be able to pay any debts as they mature. The best way to test a company’s solvency would be through their debt to asset ratio which looks at the total liabilities divided by the total assets. In the case of Exxon Mobil, their debt to asset ratio was 23%. As far as this number is concerned, they have a riskier solvency level than Chevron whose solvency level was reported at 20.2%. In the case of solvency, it is better for a company to have a lower percentage as it shows that their liabilities to not ultimate outweigh their assets and make it more difficult to the company to survive for longer periods of …show more content…
This breaks down to mean that for every share of common stock, Exxon Mobil earns a net income of $3.85 per stock and Chevron only earns $2.46 per stock. In looking at these numbers alone, it would seem that Exxon Mobil is in a greater profit position, however, as mentioned above this is not a fair comparison because the amounts and number of shares for each company could be drastically different which would cause a major shift in the ratio. The earnings per share is found by taking the net income, minus preferred dividends, and dividing that by the average common shares outstanding. If one company has a lot more average shares outstanding, it will drastically reduce the earnings per share ratio. One of the more accurate forms of profitability would be to look at the company’s profit margin. The profit margin takes a look at the relationship between each dollar of sales and the net income. In finding the profit margin, you are able to find how much of each dollar made attributes to the net income. For Exxon Mobil, they recorded a profit margin of 39.32% in 2015 while Chevron recorded a profit margin of 31.77% This is a more accurate way of comparing the two companies profitability where in this case, Chevron would be the more profitable company between in the
According to the Account Tools for Business Decision Making textbook, solvency is a company’s ability to pay interest as it becomes due and to be able to pay any debts as they mature. The best way to test a company’s solvency would be through their debt to asset ratio which looks at the total liabilities divided by the total assets. In the case of Exxon Mobil, their debt to asset ratio was 23%. As far as this number is concerned, they have a riskier solvency level than Chevron whose solvency level was reported at 20.2%. In the case of solvency, it is better for a company to have a lower percentage as it shows that their liabilities to not ultimate outweigh their assets and make it more difficult to the company to survive for longer periods of …show more content…
This breaks down to mean that for every share of common stock, Exxon Mobil earns a net income of $3.85 per stock and Chevron only earns $2.46 per stock. In looking at these numbers alone, it would seem that Exxon Mobil is in a greater profit position, however, as mentioned above this is not a fair comparison because the amounts and number of shares for each company could be drastically different which would cause a major shift in the ratio. The earnings per share is found by taking the net income, minus preferred dividends, and dividing that by the average common shares outstanding. If one company has a lot more average shares outstanding, it will drastically reduce the earnings per share ratio. One of the more accurate forms of profitability would be to look at the company’s profit margin. The profit margin takes a look at the relationship between each dollar of sales and the net income. In finding the profit margin, you are able to find how much of each dollar made attributes to the net income. For Exxon Mobil, they recorded a profit margin of 39.32% in 2015 while Chevron recorded a profit margin of 31.77% This is a more accurate way of comparing the two companies profitability where in this case, Chevron would be the more profitable company between in the