The company’s debt-equity ratio is way below the industrial average for both recent financial years
Tina Memsic
Jun 23, 2021 at 10:55 PM
Exxon Mobil FY 2018 and FY2019
Debt-Equity-Ratio
Debt-Equity-Ratio = Debt/Equity
2018
= $147,670,000,000/$198,525,000,000
=0.74
2019
=$163,660,000,000/$198,938,000,000
=0.82
Times Interest Earned Ratio
Times Interest Earned Ratio = EBIT/Total Interest Expense
2018
=$20,886,000,000/$766,000,000
=27.27
2019
=$31,719,000,000/$830,000,000
=38.22
The company’s debt-equity ratio is way below the industrial average for both recent financial years (Myšková & Hájek, 2017). The debt-equity ratio for the Gas Station Industry in the United States is 3.9 and 3.6 in 2018 and 2019, respectively. Exxon Mobil’s debt-equity ratio is 0.74 and 0.82 in 2018 and 2019, respectively. However, the ratio increased slightly because the debt increased by a higher margin than the equity from 201 to 2019 (Exxon Mobil, 2020). This debt-equity ratio is a good indication from the company because it uses less support from the creditors to finance its investments. The company is financially stable such that it does not have to rely on creditors’ financing to run its activities and operations heavily.
The Time Interest Earned Ratio refers to the ability of a company to finance its debts. The higher the ratio, the better, and the lower the ratio, the worse (Myšková & Hájek, 2017). The Time Interest Earned Ratio for Exxon Mobil is 27.72 and 38.82 in 2018 and 2019, respectively. The Time Interest Earned Ratio increased because the EBIT increased with a higher margin than the total expense from 2018 to 2019 (Exxon Mobil, 2020). The ratio is excellent because it is higher than the industry average, which is 2.3 and 1.8 in 2018 and 2019, respectively. As a lender, financing would be credited to Exxon Mobil because the ratios show its high ability to pay back the debt.
References
Exxon Mobil. (2020). Annual Reports. Retrieved September 17, 2020, from https://corporate.exxonmobil.com/investors/annual-report
Myšková, R., & Hájek, P. (2017). Comprehensive assessment of firm financial performance using financial ratios and linguistic analysis of annual reports. Journal of International Studies, volume 10, issue: 4.
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