Question

Class: ACCT-301

WEEK 3: RATIO ANALYSIS AND LIBRARY RESEARCH TASK

isit the Yahoo web site and click the link to Finance. Enter the letters "XOM" into the Quote Lookup box, and this will display the latest stock price, related stock data, and links to the financial statements for Exxon-Mobil Corporation ("XOM" is the stock symbol for this company). Using the available data, indicate the EPS and P/E ratios. Next, digging deeper into the financials, perform a horizontal analysis spanning the latest three years of data, specifically showing the trends (change over time) for earnings, inventory, the company's cash position, and also indicate the trend for the gross profit ratio and profit margin ratio. In addition, perform a vertical analysis over all of the asset classes listed on the Balance Sheet (as a proportion of the Total Assets). Summarize all of your findings, and be sure to display all calculations you've made in the process. Also provide conclusions regarding your assessment of what your analysis indicates about the current state of Exxon-Mobil.

Professor's Question:

Please name and give the formula for one of the profitability ratios. Describe what this ratio can tell you.

Answer 1

One of the well known profitability ration is Return on Equity (ROE), which is looked upon by the investors of company. the ratio measures, how much return the company has generated on the owner's/ shareholder's fund. it is measured in terms of percentage. A 5% ROE indicates that $5 is generated for every $100 owned by the equity shareholder in the company. A higher ratio means a better performance by the company. ROE is used a benchmark by many investors while investing in share markets.

Return on Equity = Profit after Tax / Average Equity shareholder's funds

Shareholder's fund = Share capital + Retained Earnings + Share premium + Other reserves for equity shareholders

or, alternatively

Shareholders fund = Total Assets - Total liabilities.

Average Equity shareholders fund = (Amount at the beginning of year + Amount at the end of year) /2