Exxon Mobil Corporation (NYSE:XOM): Financial Strength Analysis - Simply Wall St

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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Exxon Mobil Corporation (NYSE:XOM). With a market valuation of US$305b, XOM is a safe haven in times of market uncertainty due to its strong balance sheet. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for XOM to determine is solvency and liquidity and whether the stock is a sound investment.

See our latest analysis for Exxon Mobil

Does XOM Produce Much Cash Relative To Its Debt?

Over the past year, XOM has ramped up its debt from US$41b to US$44b , which includes long-term debt. With this rise in debt, XOM currently has US$4.6b remaining in cash and short-term investments , ready to be used for running the business. On top of this, XOM has produced US$36b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 81%, signalling that XOM’s current level of operating cash is high enough to cover debt.

Can XOM pay its short-term liabilities?

Looking at XOM’s US$67b in current liabilities, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.77x. The current ratio is calculated by dividing current assets by current liabilities.

Can XOM service its debt comfortably?

With debt at 22% of equity, XOM may be thought of as appropriately levered. XOM is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether XOM is able to meet its debt obligations by looking at the net interest coverage ratio. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For XOM, the ratio of 26.06x suggests that interest is amply covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes XOM and other large-cap investments thought to be safe.

Next Steps:

XOM’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. However, its lack of liquidity raises questions over current asset management practices for the large-cap. This is only a rough assessment of financial health, and I’m sure XOM has company-specific issues impacting its capital structure decisions. You should continue to research Exxon Mobil to get a more holistic view of the stock by looking at:

Future Outlook: What are well-informed industry analysts predicting for XOM’s future growth? Take a look at our free research report of analyst consensus for XOM’s outlook.
Valuation: What is XOM worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether XOM is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

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2019-05-30 18:56:42Z
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