Part I of this two part business analysis for Chevron covered the SWOT analysis where strengths, weaknesses, opportunities, and trends were uncovered. That information was converted to statements of relevancy, which allowed the material to be understood by a broader scope of individuals that might not be savvy with deciphering a SWOT analysis. To continue the examination of Chevron and make a complete analysis worthy of making investment decisions, some criteria still needs to be assessed.
Acquiring the most recent income statement, balance sheet, and cash flow statement is necessary for a complete evaluation of financial health. Experienced investors would suggest comparing the findings to similar corporations to create a reference point, but the ultimate measure of corporate financial health will be derived from health metrics, especially if performance sustainability is an issue (Richard Dobbs, 2005). Business Environment
Chevron is a global energy company with significant business activities in 35 countries throughout the world. Earnings, both current and future, are largely dependent on upstream transactions and projects, which are centered on exploration and production. Downstream, the price of crude oil (by the barrel) is dictating the availability of revenue since the downstream aspect of Chevron’s overall business plan is reliant on the refining process, transportation, and corporate marketing. Operating expenses and capital expenditures are being affected by inflation throughout the world. Chevron feels the pinch un-proportionately upstream.
When inflation and the fraternal twins, “regulatory and political” environment get together a party ensues, yet no one is invited. It is this type soiree that results in disposing of assets that do not supplement the company's growth and acquiring those that compliment. Managing the upstream sector can be tricky because of the overwhelming abundance of external factors affecting prices
of crude and natural gas including; the rise and fall of need based on economics, industry stockpiles, the Organization of Petroleum Exporting Countries (OPEC) forcing quotas, mother nature’s scorn, and interruptions in supply caused by political and civil unrest. Operating expenses incurred from capital and exploratory expenditures can escalate at any time, more often than not caused by severe weather or rebel risings. The downstream segment, which includes gasoline, diesel, jet fuel, lubricants, fuel oil and feedstocks (raw petroleum) for chemical manufacturing, has its revenue tied-up in whatever margins the refining and marketing of products can muster.
Margins become volatile because of the uncontrollable supply-and-demand shifts, which are initiated by disruptions in the weather, political minds, and greed on behalf of some middle-eastern countries. Transportation costs and refining efficiency also add to the profitability factor. The West Coast of North America, the U.S. Gulf Coast, Latin America, Asia, sub-Saharan Africa and the United Kingdom are the company's most significant marketing areas.
Chevron manages or has ownership investments in refineries in each of these regions except Latin America. Margins were higher in 2007 than in 2006 statistically across the board except for those in the United States where several unplanned non-producing episodes plagued the top three refineries (Business Environment and Outlook, 2009). Financial analysis
In 2011, Chevron’s upstream business attainedachieved world-class safety performance in terms of the time-offdays-away-from-work metric. Financial operations were strong, with net income increasingmounting to $24.8 billion, chieflyprimarily due to higher crude oil attainmentsrealizations. Production of 2.673 million oil-equivalent barrels per day was 3 percent smallerlower than net oil-equivalent production in 2010.
This decrease was largelyprimarily due to normal field declines, maintenance-related interruptiondowntime and the influenceimpact of higher prices on entitlement volumes. The start-up and forging ahead ramp-up of several major capital projects such as– the Perdido project in the U.S. Gulf of Mexico, the additionexpansion at the Athabasca Oil Sands Project in Canada, the Frade Field in Brazil, and the Platong II natural gas ventureproject in Thailand altogether, moderately– as well as acquisitions in the Marcellus Shale partially offset the dropdecrease in net production from 2010.
Without including the acquisition of Atlas Energy, Inc., upstreamUpstream capital and exploratory expenditures still rose to $25.9 billion for 2011. For, which excludes the acquisition of Atlas Energy, Inc. In 2012, the upstream capital budget is $28.5 billion: 10 percent for exploration endeavorsactivities, 60 percent for major capital venturesprojects and 30 percent for continued development of the corebase business (Supplement to the Annual Report, 2012). Chevron is ranked third on the Fortune 500 list for 2011 right behind Exxon (ranked number two) and just ahead of ConocoPhillips (Fortune 500; Petroleum Refining, 2011).
Exxon Mobil Company is classified as the largest of all the vertically integrated oil companies that focuses in oil production. Moreover, the company is also the largest publicly trading corporation around the globe by revenue and market cap. The total earnings of the company in 2010 were 30.5 billion dollars compared to that of Chevron, whose earnings were 19 billion, and ConocoPhillips, 2.10 billion. Exxon Mobil continues to be the leader among the top three oil producers; Exxon, Chevron, and ConocoPhillips.
Exxon consistently diversifies its revenues through expanding natural gas resources by acquisitions of oil sands and primarily in shale deposits (Company Monitor 2011). In taking a look at the income statement the first observation was the steady increase in total revenue from 2009 to 2011. Amazingly, the net income attributable to the Chevron Corporation increased two-and-a-half times from 2009 to 2011. It was the balance sheet, though, that provided a clearer picture of company health. Total assets grew from 2010 to 2011 from essentially the acquisition of property, plants, and equipment by $26,000,000.Long-term debt decreased and short-term debt increased.
The cash-flow statement showed a considerable amount of cash as compared to the previous years and brings-up the curiosity as to what may be planned for such a large sum of money. The financial statements provide the information necessary for management to calculate several ratios of interest. The ratio analysis is most important part of the fundamental analysis process.