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Investment Analysis in Petroleum Industry

EXECUTIVE SUMMARY

Investment analysis and decision making in the petroleum industry defined in this report. Evaluation of market and capital structure is analysed between same segment organisations. United Kingdom is manufacturing only 1.1 percent international oil supply in the world. This sector has highly profitability in nature and it is a key economic contributor in UK as well as in any country.

LITERATURE REVIEW

According to Chandra, 2017, Oil and gas industry is a one of the most important sector form any country thus provide high profitability as well as economical growth to the nation. Tullow and Exxon-Mobil both are established firm in US. According to current market scenario for Tullow investor has currently hold their position due to continuously decline in its share price. At February 2018, the company reported annual loss of -0.02 per share and they have grow with +7.58% form 2016 to 2018. Tullow can not distributed their profits in the form of dividend with their shar

The company have total investment of 5,415.3 million dollar and it divided into two part listed 5,414.3 million dollar and unlisted 1million dollar in 2017 which are low 7,398 million dollar form last year 2016. Some other investment is debtors 12.3 million dollar and dues form subsidiaries 2,124.0 million dollar and overall 2,136.3 in 2017 which are high 14,31.4 million dollar form last year 2016. Tullow has 3,445 million dollar borrowings in 2017 that are less 4,4680 million dollar form 2016.

Exxon-Mobil is a large organisation which are run their business in all over the world. The company anticipates their capital investment in the year of 2017 is 22 billion dollar it is higher 16% form last year 2016. Firm assets and exploration expenses is 25 billion dollar annually. Enterprise has invest their money in more then 5,500 wells in bakken and permian with 10% higher rate of return at 40 dollar per barrel.

As per Reilly and Brown, 2011, Management of an organisation used short cycle investment strategies  which are help to generate positive cash flow. Almost one third from all investment has provide higher return on their finance. ExxonMobil has receive annual growth of approx 20%. Firm has also invest their finance in long term project which are provide higher value production at Canada, Guyana, UAE etc. For example, in Guyana organisation discover world class redeemable resources in excess of 1 billion oil barrel, this business is expected by 2020 that is less then five year of initial discovery. ExxonMible has work on around 27 new projects which are run the various country.

As per the point of view Giel and Issa, 2011, All investment may support upstream volumes which are forecasted 4 million to 4.4 million oil equivalent per barrel till the year of 2020. Management of an organisation develop strategies in order to achieve financial  goals and objectives in an effective manner in limited period of time. Firm has several opportunities related to investment at market place and administration develop plan to analysis growth possibility in same kind of  industries in order to gain higher profitability as well as market share. Thus provide positive impact on organisation performance and employees productivity in long period of time. ExxonMobil share holder may start frustrated due to slow growth of the company as compare to others at market place. Current capital market environment is a bullish in nature so that share holder sell their share at high price at call option and purchase form low prices at put option. 

This sector help to increase employment opportunities for 302,000 person employed in the year of 2016. On an average UK people consume 1,000 barrel oil on daily basis form  2004 to 2016. In this period consumption of oil has not fluctuated so much in 2004 intake is 1766 barrel and in 2016 is a 1597 barrel. Form 2016 consumption of lipid is contentiously reduce till 2014 and then increase. Through oil, UK has gain around £73 billion profits by global trade.  Tullow as well as Exxon-Mobil both are run their business in oil and gas industries. Exxon-Mobil is a seventh largest traded firm by their market capitalisation and they has ninth rank in global level.

RESEARCH METHODOLOGIES

2.1Variables and their measurement

Various kind of variables many affect business market position like equity ratio and its changes movement with market fluctuation, management decision on analysis and its trends on financing for ExxonMobil, profit and loss statement, current as well as quick ratio or many more.  

2.1.1 Measure of these variable

Equity ratio: Debt or equity ratio has calculated by dividing total liabilities with its total stockholder equity. Through this ratio person are able to know firm financial leverage status. It shows that who much amount of fund are using by organisation in their assets which are related to shareholders values at market place (Bullard and Straka, Briston, 2017). By comparing of equity ratio person is receive two important financial concept sustainability as well as solvency which shows how much amount are invested by owners as compare to equity value.

                                    Debt to equity ratio= Total Liabilities/ Total Equity

Company name

Standard ratio

2014

2015

2016

2017

Tullow

02:01:00

1.85

1.25

1.33

1.05

Exxon-Mobil

02:01:00

1.39

1.8

1.97

1.79

 

Balance sheet: It is a financial statements which are shows current position of the company at market place (Zhuo-hua,Wen-nan and Zong-yi, 2015). That provide information related to total assets, liabilities and capital of business in a specific point of time and it also explain that what firm can earn and what they spent to generate particular income.

There is a total assets and liabilities are defined in  below in respect of 2013 to 2017. this is one of the essential aspect in terms of evaluating the performance of organisation.

Tullow/ Year

2014

2015

2016

2017

Total assets (M$)

5184

8987.3

8836.1

7557.9

Total Liability (M$)

1684.29

4999.1

5050

6062

  As per above analysis it is seen that the total assets  of 5184 for the year 2014, 8987.3 for 2016 and 7557.9 for the year 2017. It is observed that there was an increment seen in the year 2015. fluctuations can be seen for subsiding years. Fluctuations also seen in respect of total liabilities. It is seen that the total liabilities for the year 2014, 4999.1 for the year 2015, 5050 for the year 2016 and 6062 for the year. It is seen that there is  huge difference was seen in respect of liabilities. Total liabilities get decreased by 4378 in 2014. this is one of the essential aspect in terms of increment aspect in liabilities.

ExxonMobil/ Year

2014

2015

2016

2017

Total assets (M$)

349493

336758

330314

348691

Total Liability (M$)

168429

159948

156484

154191

 

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There is an analysis also done, which indicates towards following information such as 168429 for the year 2014, 159948 for the year 2015, 156484 for the year ended 2016 and 154191 for 2017. there is no any big difference between total liabilities.

Horizontal analysis

There is a table presented above, which defined the total assets and the total liabilities from 2014 to 2017. as per analysis of total assets it is seen that the value total assets were recorded as 346808 for the year 2013, 349493 for the year 2014, 336758 for the year 2015, 330314 for the year 2016 and 3478691 for the year 2017. it is seen that the organisation's total assets did not fluctuate for with in last five years.

Vertical analysis

There is an analysis also done, which indicates towards following information such as 168429 for the year 2014, 159948 for the year 2015, 156484 for the year ended 2016 and 154191 for 2017. there is no any big difference between total liabilities.

Cash flow statement

It is a statements if cash inflow and outflow for the company. Thus shows change in financial accounting as well as income which affect cash as well as cash equivalents (Bierman and Smidt, 2012). Thus are explain what amount of fund are used by which department like operations, research and development, investment activities and many more.

Tullow/ year

2014

2015

2016

2017

Cash use in operation

1482

1351

513

1223

Cash use in financial activities

808

746

399

-928

Cash flow from investing activity

-2328

-252

-967

-296

Remaining cash at the year end

303

356

282

284

As per above given information in table in respect of cash inflows and outflows following figures come in existence. It is seen that the cash flow from operation activities was recorded as  1482 for the year 2014, 1351 for the year 2015, 513 for the year 2016 and 1223 for the year 2017. it is observed that the organisation's cash flow operations are in positive situation.

Cash flow from investing activity present following information such as -2287.5 for the year ended 2013, -2328 for the year 2014, -252 for the year 2015, -967 for the year 2016 and -296 for the year 2017.

Cash flow form financing activity defines following information. It is recorded as  808 for the year 2014, 746 for the year 2015 , 399 for the year 2017. at the end of financial year cash was recorded as 303 for the year 2014, 356 for the year 2015, 282 for the year 2016 and 284 for the year 2017. 

ExxonMobil/ year

2014

2015

2016

2017

Cash use in operation

45116

30344

22082

36066

Cash flow form investing

-26975

-23824

-12403

-15730

Cash use in financial activities

-17888

-7037

-9293

-15130

Cash at the end of period

4616

3705

3657

3177

There is a cash flow statement of last five year s are presented in above table which indicates towards following information. Cash flow operations 45116 for the year 2014, 30344 for the year 2015, 22082 for the year 2016 and 36066 for the year 2017. cash flow from operation shows positive image.

Cash flow form investing activity shows following information such as cash flow from investing activity was recorded as -26975 in 2014, -23824 in 2015, -12403 in 2016 and -15730 in 2017.

Cash flow form financing activity was recorded as  -17888 for 2014, -7037 for 2015, -9293 for 2016 and -15130 for 2017.

Cash was recorded in the end of year was as follows such as: 4616 in 2014, 3705 for the year 2015, 3657 in 2016 and 3657 in 2017.

Equity change movement

            Change in equity of Tullow Oil PLC TLW

Stockholders' Equity

2014

2015

2016

2017

Common Stock

147000

147200

147500

208200

Retained Earnings

2305800

1336400

778000

607500

Treasury Stock

936800

1061500

685300

563500

Capital Surplus

606400

609800

619300

1326800

Other Stockholder Equity

936800

1061500

685300

563500

Total Stockholder Equity

3996000

3154900

2230100

2706000

As per analysis of change in equity of Tullow oil Plc there are following results come across such as total stockholder's equity was recorded as 3996000 for the year 2014, 3154900 for the year 2015, 2230100 for the year 2016 and 2706000 for the year 2017.

Change in equity of Exxon Mobil Corp

Stockholders' Equity

2014

2015

2016

2017

Common Stock

147000

147200

147500

208200

Retained Earnings

2305800

1336400

778000

607500

Treasury Stock

936800

1061500

685300

563500

Capital Surplus

606400

609800

619300

1326800

Other Stockholder Equity

936800

1061500

685300

563500

Total Stockholder Equity

3996000

3154900

2230100

2706000

Management decision on analysis:

In case of both the company's financial position, it has been analyse that Exxon mobil is more comfortable position as compare to Tullow Oil plc. The overall results are more favourable or better in terms of liquidity, profitability and efficiency ratio. The investors need to make investments in Exxon Mobil to get more valuable amount of return in coming time.

Trend analysis on corporate & financing for Exxon,

 

Profit and loss

            Income statement of Tullow Oil PLC TLW

Particulars

2014

2015

2016

2017

Gross profit

1096000

591000

547000

81500

Operating income

-2047000

-1297000

-908000

-299000

Net profit

-1556000

-1035000

-600000

-190000

Income statement of Exxon Mobil Corp

Particulars

2014

2015

2016

2017

Gross profit

1096000

591000

547000

81500

Operating income

-2047000

-1297000

-908000

-299000

Net profit

-1556000

-1035000

-600000

-190000

Proxy statement to the shareholders: 

Particulars

2014

2015

2016

2017

Gross profit

97932

69697

59953

73027

Operating income

51630

21966

7969

18674

Net profit

32520

16150

7840

19710

RATIO

Financial ratios of those two companies

Tullow Oil PLC

Profitability

2014-12

2015-12

2016-12

2017-12

Net Margin %

-70.3

-64.41

-44.11

-10.06

Asset Turnover (Average)

0.19

0.14

0.12

0.17

Return on Assets %

-13.57

-9.09

-5.42

-1.74

Financial Leverage (Average)

2.86

3.6

4.84

4.08

Return on Equity %

-33.39

-28.94

-22.28

-7.68

Return on Invested Capital %

-18.86

-11.25

-5.63

0.14

Interest Coverage

-9.02

-4.17

-1.96

0.12

Liquidity ratio

2014-12

2015-12

2016-12

2017-12

Current Ratio

1.56

1.16

1.49

1.71

Quick Ratio

0.3

0.65

0.59

0.77

Financial Leverage

2.86

3.6

4.84

4.08

 

 

 

 

 

Efficiency

2014-12

2015-12

2016-12

2017-12

Inventory Turnover

6.7

8.23

6.2

6.61

Fixed Assets Turnover

0.45

0.32

0.26

0.35

Asset Turnover

0.19

0.14

0.12

0.17

 

Exxon Mobil Corp

Profitability

2014-12

2015-12

2016-12

2017-12

Net Margin %

8.25

6.22

3.59

8.31

Asset Turnover (Average)

1.13

0.76

0.66

0.7

Return on Assets %

9.34

4.71

2.35

5.81

Financial Leverage (Average)

2

1.97

1.97

1.86

Return on Equity %

18.67

9.36

4.64

11.1

Return on Invested Capital %

16.34

7.93

3.94

9.21

Interest Coverage

181.52

71.63

18.59

32.07

 

 

 

 

 

Liquidity/Financial Health

2014-12

2015-12

2016-12

2017-12

Current Ratio

0.82

0.79

0.87

0.82

Quick Ratio

0.5

0.44

0.53

0.5

Financial Leverage

2

1.97

1.97

1.86

Debt/Equity

0.07

0.12

0.17

0.13

 

 

 

 

 

Efficiency

2014-12

2015-12

2016-12

2017-12

Receivables Turnover

17.7

16.33

14.93

12.71

Inventory Turnover

18.05

11.53

10.13

10.24

Fixed Assets Turnover

1.59

1.03

0.88

0.95

Asset Turnover

1.13

0.76

0.66

0.7

RECOMMENDATION

Interpretation of Tullow Oil Plc

According to the above calculated various financial ratios, it has been found that profitability position of Tullow Oil Plc is not able to generate sufficient amount of profit in last couple of year. As there net margin in 2014 is positive and then after start declining in further year. It is use to measure overall profitability which is the way to analyse a companies total performance. It is simply helps to analyse the capacity to earn maximum profit during the time. Assets turnover ratio this seems to be efficiency ratio that is use to measure a company ability to incur total sales from their assets in order to make comparison on average total sales.  Fixed asset turnover ratios of Tullow oil company is more effective as they are having the ability to generate valuable amount for an organisation in more quick time. Liquidity position is used to determine current or short term obligations of an organisation to meet out their total payment of outstanding debts kept during an accounting period of time. They are able to generate more specific rate of amount in order to pay off their short term requirements of capital. The return they are getting from total investments are taken into consideration because they are fluctuation in coming year. The financial leverage of Tullow company is sufficient enough to meet their all sorts of obligation and it is more favourable for the investors to make future investment decision. The overall condition of company sufficiently effective for the making upcoming planning decision to get more reliable results in near future.

Interpretation of Exxon Mobil

From the above ratios, it has been analyse that profitability position of Exxon mobil is more effective and positive in respect to their net margin percentage. As it is increase in every year with constant rate. In 2017, 8.31% which is much higher in accordance with all previous time outcomes. The return they are getting from assets is providing adverse outcomes for the company out of their total sales done during the respective period of time. In case of high level of obligation which can artificially boost the company internal position. The overall return they are able to get is showing maximum ability to generate profit for the company during the time. In accordance with ROCE, which is use to make better management of capital invested during the time. In case of large percentage of ROCE, the chance of chunk of gains can be invested back into the company in respect to create certain interest to their shareholder. Liquidity position of the Exxon mobil is much low as per the ideal ratio of 2:1 parameters. In case of quick ratios they are in balance position to generate cash flow for the company for the purpose of making payment of short term obligation. The efficient position is more favourable as they are able to earn maximum return on their overall investments.

CONCLUSION

From this particular project report, it has been articulated that investment analysis decision is need to done by making proper evaluation of essential financial reports of the companies. There is an analysis done in respect of identifying best company in terms if investing company. Analysis of financial statements of two leading organisation done and best organisation for investing opted in this context.

REFERENCES

  • Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
  • Reilly, F. K. and Brown, K. C., 2011. Investment analysis and portfolio management. Cengage Learning.
  • Giel, B. K. and Issa, R. R., 2011. Return on investment analysis of using building information modeling in construction. Journal of Computing in Civil Engineering. 27(5). pp.511-521.
  • Bullard, S. H. and Straka, T. J., 2011. Basic concepts in forest valuation and investment analysis. Clemson University.
  • Briston, R. J., 2017. The stock exchange and investment analysis (Vol. 3). Routledge.
  • Bierman Jr, H. and Smidt, S., 2012. The capital budgeting decision: economic analysis of investment projects. Routledge.
  • Zhuo-hua, Z.H.O.U., Wen-nan, C.H.E.N. and Zong-yi, Z.H.A.N.G., 2015. Application of cluster analysis in stock investment.
  • Marglin, S. A., 2014. Public Investment Criteria (Routledge Revivals): Benefit-Cost Analysis for Planned Economic Growth. Routledge.
  • Rentizelas, A. A., Tolis, A. I. and Tatsiopoulos, I. P., 2014. Optimisation and investment analysis of two biomass-to-heat supply chain structures. Biosystems engineering. 120. pp.81-91.
  • Costantini, P., 2011. Cash return on capital invested: ten years of investment analysis with the CROCI economic profit model. Butterworth-Heinemann.
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