Why should not invest in Exxon – A comparative Analysis

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Comparative analysis: Analysing the ratio of one with the other in the industry provides for better understanding about the performance of the company in market. An investor has to make a comparative analysis before making any investment decision. In this case, the direct competitor of Exxon is Chevron, ratios is being computed for the recent four quarters which is being used for comparative analysis. Current ratio: This is an essential ratio which discloses about the liquidity position of a company. It is determined by dividing the current assets and current liabilities of the company. In this case, the Exxon’s current ratio is decreasing which indicates about the decreasing liquidity of the company. Current ratio of Chevron is far ahead than Exxon. This ratio is fluctuating for Chevron, but the fluctuation is minor and not drastic. Exxon ratios are fluctuating within 1.0 to 0.84, whereas Chevron ratio is always greater than 1.50. This clearly indicates that Chevron is in better position in meeting its obligations when compared to Exxon. If this decline continues for Exxon then there are chances where the company cannot meet up its short-term obligations and lead to financial distress. Quick ratio: It is another indicator of liquidity which is determined by subtracting inventory from the current assets and dividing by current liabilities. Inventories are less liquid asset, so it is eliminated in determining this ratio. This ratio is already very less and every quarter it is decreasing which indicates about the poor financial health of the company. But in case of Chevron this ratio is far ahead and fluctuates between 1.35 to 1.46, whereas Exxon values are fluctuating within the range of 0.79 and 0.61. Chevron liquidity positi... ... middle of paper ... ...disclosing positive signal to the investor. In this case, the profitability, turnover and return to the investors are less and this is the industrial trend. In this situation, an investor has to look into the liquidity ratio and into the debt ratio. When the profit earning capacity of the company is lesser in the industry, those company should not prefer to have higher debt as this will drain their entire liquidity and will add more pressure to the company. This will increase the chances of bankruptcy and financial distress costs too. In this regard Exxon has very poor liquidity and higher debt which is adding more risk on investment. In this case, Chevron will be preferred over Exxon because, Chevron provides for similar return to investors but at lower risk, where as risk is higher in Exxon with lower return. Thus, Exxon should not be chosen for making investment.

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