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OBTAINING THE ANNUAL REPORT

Obtain the most recent annual reports of two U.S. corporations which are Fortune 500 companies and are traded on a national stock exchange (NYSE, NASDAQ). You will obtain two annual reports so that you will have an alternate if you are unable to use your first choice.

 

The easiest way to obtain annual reports is to download them from the company Web site. A useful resource is . This site provides links to the Web sites of Fortune 500 companies. To obtain an already printed copy of the annual report, if time permits, contact the company’s Investor Relations department.

Do not select a public utility, financial institution or brokerage firm, insurance company, co-operative or government entity. In addition, please note that summary annual reports are not acceptable.

OTHER USEFUL SOURCES ARE:

• The Public Register’s Annual Report Service () (800-4-ANNUAL)

•

• finance.

1. Choosing a company

Choose companies in which you are interested. Perhaps the company has been featured in the news lately. Perhaps you own stock in the company. Perhaps you would like to own stock in the company. If you want to look at a list of possibilities, find a copy of the April issue of Fortune magazine which lists the Fortune 500 or try

2. Download your annual report and answer the following questions.

Names of companies chosen: (Remember that you will conduct a thorough analysis of one of the companies. Please list the companies in the order of your preference.)

Exxon Mobil Corporation (XOM) 

Company Fortune 500 Rank Number 1



Why did you select these particular companies?

As it is number 1, therefore I wanted to analyze the best companies among all.

OVERVIEW OF ANNUAL REPORT

This assignment will provide both an overview of the annual report of your chosen company and a table of contents to help you complete future assignments more efficiently.

 

Name of company chosen: Exxon Mobil

Balance sheet date December 31, 2011

 

1. REVIEW THE ANNUAL REPORT THAT YOU HAVE RECEIVED. IT WILL CONTAIN

SEVERAL SECTIONS (not necessarily in this order):

1. a. THE CHAIRMAN’S LETTER. This letter provides the chairman’s overview of the past year and developments which will affect the next year. Page(s) 47-52

1. b. MANAGEMENT DISCUSSION AND ANALYSIS. This section discusses operating results, industries in which the company operates, financing and investing activities, significant events, trends and developments. Page 33

It describes that all information except balance sheet which is based on historical bases, have been shown after incorporated necessary risk related to market.

1. c. THE FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS.

This section contains the balance sheet (also called statement of financial position), income statement, statement of cash flows and statement of stockholders’ equity. The accompanying notes, as indicated at the bottom of each of the above statements, are an integral part of the financial statements. The financial statements cannot be understood without reference to the notes.

The financial statements and accompanying notes will be the focus of your Annual Report Project

Balance Sheet Page 65

Income Statement Page 64

Statement of Cash Flows Page 66

Statement of Stockholders’ Equity Page 67

Notes to the financial statements:

Summary of significant accounting policies: Note #1 Page 70

Inventories: Note #3 Page72

Plant assets: Note #8 Page74

Long-term debt: Note #13 Page 78

Income taxes: Note #18 Page101

Commitments and contingencies: Note #15 Page88

1. d. MANAGEMENT REPORT ON INTERNAL CONTROL: Page34

1. e. THE INDEPENDENT AUDITOR’S REPORT:

Report on internal control: page63

Report on the financial statements: page 63

2. REVIEW THE MANAGEMENT AND AUDITOR’S REPORTS.

Locate the management report(s) page 62

and the independent auditor’s report(s). Page(s) 63

Answer the following questions.

a) Who is responsible for the preparation and integrity of the financial statements?

The management is responsible for this activity, specially the CEO, the Principal Financial Officer and the Principal Accounting Officer of the company. The fact is verified by the external auditor that the management has fulfilled its obligation or not.

b) Does the company maintain a system of internal controls? Why?

Yes company maintains internal control system as required by concerned authority and the fact has also been verified by the external auditor. All these facts can be found out in management report over internal control on page 62 and report by independent auditor on page 63

c) What is the name of the independent public accountant (auditor)?

PricewaterhouseCoopers LLP

(Note: There are two independent auditor’s reports: (1) a report on internal control, and (2) a report on the financial statements. The following questions relate to the financial statement audit.)

d) According to the auditor’s report on the financial statements, what is the auditor’s responsibility?

To make sure that the financial statements present true and fair view of the financial position of the company and they are in conformity with generally accepted accounting principles or not.

e) According to the audit report, what is an audit?

Audit is to make sure that the financial statements are in conformity with law; the management has adopted internal control to make sure that it follows the standard or procedure set by concern authority.

f) Summarize the auditor’s opinion.

As per auditors report the company management has fulfilled its responsibility by presenting the financial statement in conformity with GAAP. It has been also verified by the auditor that company has maintained effective internal control in all material aspect as required by COSO. However, it has also been told in the report that due to inherent limitation of internal control certain material misstatement cannot be verified. The inability of evaluation of future projection has also been shown in the report.

PART 3

RATIO ANALYSIS

On a separate piece of paper calculate the following ratios by showing your work and then discussing their meaning.

Liquidity:

1. Current ratio

1. Current cash debt coverage ratio

1. Days in inventory

1. Average collection period

Receivables turnover ratio =

Average collection period =

Solvency:

1. Debt to total assets ratio =

1. Times interest earned ratio =

Profitability

1. Profit margin ratio =

1. Return on common stockholders’ equity ratio =

 

|Ratio Analysis |2011 |2010 |  |

|. Current ratio |0.94 |0.94 |times |

| Current cash debt coverage ratio |0.71 |0.77 |times |

| Days in inventory |14 |15 |days |

| Average collection period |30 |32 |days |

| Debt to total assets ratio |0.51 |0.50 |times |

|Times interest earned ratio |297.59 |205.47 |times |

|Profit margin ratio |9.04% |8.48% |  |

|Return on common stockholders’ equity ratio |26.26% |20.56% |  |

According to the nature of business the company has less current assets then current liabilities in both year which is indicated by both year current ratio which is less than 1, however there is no big change in the liquidity of the company in 2011 as compared to 2010, which is evident from the slight change in current cash debt coverage ratio, days in inventory and days in account receivable.

The solvency ratio suggests that company has not increased the debt financing significantly in the year 2011 as compared to 2010, but the change in times interest earned ratio is positive and very significant which is due to high profit margin and low interest expense in the year 2011 as compared to 2010.

Profitability ratios have improved in the year 2011, especially the return on equity which shows an increase of around 6%, however the profit margin has not increased significantly, but change in return on equity is due to efficient utilization of equity in the year 2011 as compared to 2010.

 

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