Due Week 8 Writing Assignment 1: Exxon Versus Chevron
Assignment 1: Exxon versus Chevron
Due Week 8
According to the textbook, the income statement measures the success of a company's operations for a given period. The income statement is important to investors and creditors, because it determines the profitability, investment value, and creditworthiness of a company. Specifically, the income statement helps investors and creditors predict the amounts, timing, and uncertainty of future cash. Income statement preparers can make such informed predictions by analyzing a company's financial statements, calculating the price-earnings ratio, and reviewing notes to the financial statements on the income statement.
In order to complete this assignment, use the Internet to research and review financial statements for Exxon and Chevron for the years 2012 and 2013.
Write a five to six (5-6) page paper in which you:
Compare and contrast the limitations and usefulness of the single-step income statement and the multi-step income statement.
Analyze the gross profit, operating profits, and net income of both Exxon and Chevron for 2012 and 2013. Of the two (2) companies, speculate on the main reasons why one (1) company may have been more profitable than the other company.
Compute each company's price-earnings (P / E) ratio and price-to-sales ratio (PSR). Identify primary estimates or assumptions that could result in overstated earnings, and use the ratio data to compare the quality of each company's earnings.
Review notes to both Exxon's and Chevron's financial statements. Next, identify at least two (2) notes pertaining to the income statement, and explain the main way in which the notes in question could influence your decision to invest in each of the companies. Provide a rationale to justify your decision.
Use at least three (3) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
Include a cover page containing the title of the assignment, the student's name, the professor's name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
Analyze the functions and the main sections of the four (4) primary financial accounting statements: the income statement, the statement of retained earnings, the balance sheet, and the statement of cash flows.
Prepare the main sections of the four (4) primary financial accounting statements: the income statement, the statement of retained earnings, the balance sheet, and the statement of cash flows.
Use technology and information resources to research issues in intermediate accounting
Write clearly and concisely about intermediate accounting using proper writing mechanics.
Exxon and Chevron
Name:
Institution:
Date:
Income Statements
Introduction
Income statement usually gives the information of financial operation of a company within a specified period. Besides, it reveals the fundamental ratios for an enterprise that benefits the investors. The specific rations give the inner operations of a business that makes investors decide on concrete decisions concerning the industry. Therefore, research reveals financial comparisons for both Exxon Mobil and Chevron enterprises.
Background
Exxon Mobil and Chevron Inc deal in the energy sectors with their current ranking at second and fourth respectively in USA (Fortune Magazine, 2007). As at 2006, the two companies traded at the New York Stock Exchange (NYSE) to collect more than $ 500 billion in their combined revenues. Therefore, financial analysis of the two companies requires both ratio and trend analyses over a period coupled with the long-term performance and situations of the enterprises as well as their performances in future (Memphis, 2010).
1 Comparison and Contrast of the Limitation and Usefulness of the Single-Step Income Statement and the Multi-Step Income Statement
Single-step income statement gives the net profit or loss in a single equation. Such financial statements are essential in the presentation of financial income to the investors who are interested in the outcome. The statement is usually not separated from the income and expenses. Besides, they are information is short and consume less time (Chevron & Howie, 2012). However, the single-step income statement does not give detailed information during the assessment of financial conditions of an enterprise. On the other hand, the multi-step income statement provides explicit statement such as the various sources of income and expenses. The detailed and overall financial assessment of a company relies on the multi-step income statement. However, the tabulation and compilation of the report is time-consuming and correcting the numerous errors in the account is difficult (Memphis, 2010).
2 Analyze of gross profit, operating profits and net income of both Exxon and Chevron for 2012 and 2013. Separately, speculate on the main reasons why one company is profitable than the other.
Exxon Mobil
Exxon Mobil Net Profit Margin
Dec. 31, 2013
Dec. 31, 2012.
Dec 31, 2011
Financial information ($ in Millions)
Net income for Exxon
32, 580
44,880
41,060
Sales and operating revenue
420, 836
453, 123
467, 029
Ratio
Net margin profit
7.7%
9.9%
8.8%
Net profit margin for Chevron
9.7%
11.4%
11.0%
Net Profit Margin, sector
6.7%
7.4%
7.6%
Net Profit margin, Industry
6.9%
7.4%
7.5%
Calculation for the year 2013:
Net profit margin = 100 × Net income attributed to Exxon Mobil ÷ Sale and other operating revenues = (100 × 32,580) ÷ 420, 836 = 7.7%
Calculation for the year 2012:
= (100 × 44, 880) ÷ 453,123= 9.9%
Exxon Mobil Operating Margin
Dec. 31, 2013
Dec. 31, 2012.<...
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