Methods of Working Capital Optimization of Global Petroleum Companies Before and After Economic Crisis on the Example of ExxonMobil and Chevron

Considering the Oil Field Services, there are a lot of factors, which has a great influence on the requirements of working capital. For example, clients' demand of discounts, better payment terms such as lower advances and higher level of provided services. On the other hand, the oilfield service companies are under the pressure of aggressive price competition, extraneous supply chain responsibilities due to outsource of the most of the company's services, strained regulations and other factors. The risky nature of this segment comes from the operating model, which represented by the contracts with fixed prices or the basis with shared risk. The additional risks, which could occur are such as cost inflation; labor problems; relationships with suppliers and more other new challenges.

The environment of economic crisis is a period, at which such source of cash as working capital becomes especially crucial. The Global Petroleum industry feel the need of cash because of two main reasons: firstly, to support industry itself; secondly, to make investments for the future. Working capital is a core source to fulfil the gap in the such important resource as cash. (Robert Smid, 2015)

During the economic crisis for Global Petroleum companies cash is essential. The huge decrease in oil prices caused unprofitability of most of the projects and debt of the companies became very expensive. Wise working capital management could help to free more cash in order to overcome the uncertainty times.

At this time managers focus on the revenue growth very attentive, so they cannot see another obvious method how to create value - working capital optimization. Companies with effective working management can generate even more cash in the conditions of the downturn, when cash is limited by the decrease in sales and lack of access to any external funds.

Despite the fact that companies face a problem with the liquidity issues, they should refocus on the working capital and get benefits from that. Short-term liquidity issues can be solved via optimization of the receivables and payables or through the reducing the amount of the inventories. Company who has a strong balance sheet, but demand on their goods is decreasing, can reduce inventories in order to maintain the same working capital ratios. Companies with a strong performance can strengthen their positions and attack their competitors with a weak position by the reason of crisis.

In the environment of economic crisis, companies are able to manage their working capital very effectively to overcome the crisis and improve their positions. It is very important to understand the difference between solvency and bankruptcy, and how to acquire instead of being acquired.

The first look should be taken at the inventory (Patrick Buchmann, 2009). When the business environment is healthy, the sales are growing and causing the increase in stock. The environment of economic crisis is riskier. Usually the sales show the decreasing tendency, as a result, companies have excessive inventory, which appear in all of the phases of production and the costs start to grow surprisingly. Because of that, it is very important to understand the beginning of the recession and focus on the inventory management, for instance, on the reducing of the stocks.

To begin with, the growth of the any type of inventory should stop (buffer stocks etc.) All of the deliveries and future orders should slow down. The supply of inventories should correlate with the demand of finished goods. Moreover, it is necessary to analyze the amount of raw materials and rebalance them, and then double-check work-in-progress.

Furthermore, company can reduce its buffer stock to release additional amounts of cash. In the period of recession, it is not obligatory to maintain huge amounts there. For this purpose, inventory managers should keep in touch with the changes in the demand. To decrease the excessive stock, there is an opportunity to look on the other markets and sell the products, which require the excess inventory.

Secondly, the management of account receivables should be improved as well, and changed to the conditions of the downturn. In the environment of economic crisis, it is a good source of getting cash, but receivables should be managed wisely. It is important to understand, that not only your company has to work in the crisis conditions, the downturn affects your customers too. Because of that, it is necessary to create different approaches to each client. For instance, the clients with healthy business would pay in advance, but they could ask for the better pricing policy. At the same time clients with worse position would be ready to pay even more in exchange for prolongation of payments. The effective risk management in the environment of economic turbulence would help to survive.

Finally, the usage of accounts payable also changes in the environment of economic crisis. When economy is stable, all of the payments are made according to the contracts with the best-negotiated conditions. With the beginning of the downturn, accounts payable become one of the lowest sources of funds. It is an opportunity to save cash via not paying the suppliers earlier, also it is important to negotiate about longer terms of payments or some discount in exchange for bigger purchases.

For the better understanding the core methods of working capital optimization during the economic crisis are combined in the table 2.

It is worth to mention that according to the PWC report (Robert Smid, 2015) during the economic crisis Oil Field Services companies balance their working capital better than Exploration and Production companies by the reason of purchasing power and comfortable payment conditions as it is represented by the high level of days sales outstanding. Moreover, oil field services companies are able to re-negotiate their contracts with Exploration & Production companies for the purpose of decrease in their supply chain costs.

At last, it is necessary to analyze the methods of working capital optimization, which are reliable to use in the period after the economic crisis. When the oil prices become more stable, the Global Petroleum companies are able to recover their capital expenditures.

According to the PwC report “Navigating uncertainty: PwC's annual global working capital study” (Daniel Windaus, 2018) the most of the companies in order to overcome the economic crisis manage their cash flows with the cut of investments. In the long perspective, it could lead to the problems of growth in response to the situation that companies would be under-invested. In this conditions it is essential to optimize working capital and deliver the funds for future investments.

Table 2 - Main methods of working capital optimization in response to segments of Global Petroleum Industry during the economic crisis

Segments	Methods
	Account receivables management	Inventory management	Account Payables Management
Exploration and Production	Clearing of intercompany account receivables.	Material requirements for build-up.	Changes in payment terms with drilling contractors from Oil Field Services.
Independent Refining and Marketing	Franchise customer terms; improvement of trading receivables.	Optimization of networks; minimum production with required amount of inventory.	Improvement of service contracts; match in provided services and invoices.
Oil Field Services	Timely rendering of accounts.	Wise management of spare parts.	Better agreements with sub-contractors in payment terms.

Source: Compiled by the author based on PwC report “Bridging the Gap 2015 Annual Global Working Capital Survey of the Oil & Gas sector”

The leading performers of the Global Petroleum industry could quickly revive after the economic crisis with the help of account payables management through establishing better payment terms with their suppliers. Also, it is important to collaborate with each partner, improve risk management policies and globalize the procurement department. (Dale Nijoka A. B., 2011)

After the economic crisis, the better performance of working capital could be caused by higher days payables outstanding and at the same time lower days inventory outstanding. The reason for those results was the positive trend of stronger oil prices, regardless the volatility in gas prices.

Generally, there is always an exposure between instability in oil prices and cash conversion cycle, which corresponds the performance of working capital. Another essential factor is development of capital spending, which mean that companies learnt how to adapt quickly to the new changes on the market with the help of speeding up or slowing down different projects.

Table 3 - The core methods of working capital optimization in response to segments of Global Petroleum industry after economic crisis

Segment	Method
Exploration and Production	Account payables management, including increase in capital spending and foresight of near future growth; decline in receivables.
Independent Refining and Marketing	Wise compilation of inventories; effective use of the position in value chain of the industry.
Oil Field Services	Decreased inventories; increased period of accounts receivables due to demand of better payment terms from customers, which causes failure to accomplish their own obligations and increase in days payables outstanding.

Source: Compiled by the author based on Ernst & Young report “Cash in the barrel: working capital management in the oil and gas industry 2011”

As it was mentioned before, the working capital performance could differ from company to company within the industry in dependence on the segment. Also, the effective methods of working capital optimization after the crisis vary from segment to another segment (table 3).

To sum up, Working Capital is an investment in the current business by the purpose of maintaining the current business activities via financing account receivables, inventories and cash with help of account payables. Recent studies show that negative working capital is useful and efficient, because it is getting cheaper to maintain current assets, but at the same time, it is carrying risks. Moreover, in the environment of economic turbulence, when cost of resources increases, by the same risks.



2. Analytical research of working capital optimization in the global petroleum industry

2.1 The global petroleum industry overview

According to the ExxonMobil's report (Exxon Mobil Corporation, 2017), the growth in population is expected, for example, in middle class from 3 billion people to approximate 5 billion people or even more. The result of it - increase in demand of energy resources.

Regarding the natural gas, its' role would expand incredibly, because this resource would have to cover not only a huge variety of needs, but also help to replace such energy resource as carbon-intensive source. Moreover, it is expected that in average of growth in use of natural gas would refer for electricity generation. Taking into account the period between 2016 and 2040, it is expected around forty percent growth, the share of this natural resource would change from twenty-three to twenty six percent in world's energy supply (figure 1).

Figure 1 - World demand of natural gas, %

Source: Exxon Mobil Corporation “2018 Outlook for Energy: A view to 2040”

Despite the fact that more and more electric cars appear on the market, it would not reflect intensively on the liquid fuels. Nevertheless, oil would remain the leading source of world's energy because of increase in demand from commercial transportation. Chemical industry would also help oil to keep its' leading position.

Considering the commercial transportation, the demand growth is expected near thirty percent during the period from 2016 to 2040. The largest growth in volume would be shown by heave-duty vehicle sector, but in percentage the biggest growth would be in aviation (figure 2). At the same time, electric car industry would lead to a peak in use of liquid fuels and then the decrease would come instantly.

Figure 2 - Transportation energy demand growth, million oil-equivalent barrels per day

Source: Exxon Mobil Corporation “2018 Outlook for Energy: A view to 2040”

In order to meet demand, the supple of energy resources should be appropriate. According to the ExxonMobil's report, oil remains the largest source of world's energy. Natural gas would not only help to provide the electricity needs, but also support the growing industrial demand. These two energy sources would represent in average fifty five percent of energy supply up to 2040.

With reference to Deloitte report (Dickson, 2018), there are five main trends, which could be observed in near future:

Value to investors could be shown by returns and profitability. Last year, 2018, indicates the recovery in oil prices, which is a positive tendency. The problem is to understand how to convert it into stable profitability. Also, it is important to continue introduce new technologies in order to acquire higher productivity of capital use.

Importance of infrastructure. Nowadays there is a trend of growth in production of gas, which means that it is necessary to provide sufficient quantity of pipelines to move products and storage to keep them. Otherwise, the maintenance costs would increase rapidly because of different delays in delivery and other reasons.

Natural gas is still taken into consideration. Despite the fact that the oil sector is in the limelight, the natural gas shows an increase as a part of the sources of power generation and needs investments in order to grow the supply.

Sustainability imperatives. The recent years the players of Global petroleum industry show the sustainability in their performance. One way or another, the trend of climate change and growth in customers' awareness that it is essential to take care of environment make the oil and gas companies to move to less harmful products and invest in development of low-carbon energy.

Digitalization in value chain. The trend of usage of modern technologies shows great results at this point in time. It is a tremendous potential to add new value. A lot of companies try to implement robotics, new analytics, block chains for the purpose of growing the efficiency and productivity of production operations.

In accordance with PwC report (Giorgio Biscardini, 2018) the Global Petroleum industry continues to recover. The oil prices are rehabilitated. Nevertheless, the International Energy Agency (IEA) forecasted the expectation of supply crunch in 2016. Recently the biggest payers of market confirmed that possibility. The reason for that is the increase in demand which could not be matched by supply, because of decrease in investments during the economic crisis. Some of the Global Petroleum companies could be struggled to manage this situation (figure 3).

Figure 3 - Growth in world oil supply and demand, million barrels per day

Source: IEA Oil Market Report, December 2017

Regarding the short-term perspective, companies should focus on the new technologies in order to improve their productivity. In the long-term perspective, companies should focus on their portfolio and make it profitable with a view to confront the breakeven prices.

Another positive tendency is represented by exploration, which shows the growth for the first time after the period of the economic crisis. For example, ExxonMobil began exploration of offshore in Mauritania, British Petroleum and its partners started to explore Cote D'Ivoire's offshore.

However, supply related problems are still in the mind. First of all, the new discoveries are at the lowest level since the 1950s (figure 4). The decline would continue to grow. For instance, in 2017 the number of discovered liquids, including crude oil and natural gas, was three and a half billion of barrels. This quantity of liquids could meet not more than ten per cent of expecting demand. The reason for that is not excessive, all the biggest and perspective fields are already in exploration.

Figure 4 - Global volumes in new oil and gas discoveries, millions of barrels

Source: Rystad Energy; Strategy and research

Another problem on the market is impossibility of quick increase in spending on exploration because of the oil price drop in the begging of economic crisis. Generally, the decrease of spending composed approximately sixty percent.

The third problem is the opposition between the industry and supply. The existing oil fields show the decrease in production and at the same time the increase of spending on the discovery of new fields is not sufficient enough to cover the gap. In some countries, it stems from the political issues. For example, at the end of 2017 OPEC's spare capacity was half-full (2,1 million barrels per day instead of 4 million barrels per day, which were in 2010).

The forth challenge has presence as the deferred maintenance, which means that some companies cut their costs with the help of some noncritical expenses. The last but not least issue introduced as a gap between the needed capabilities and the existing ones. For example, during the crisis there was a trend to decrease the workforce in order to cut the costs, but nowadays it resulted as the lack of new skilled workforce.

Finally, it is worth to mention the growing popularity of non-carbon or at least less-carbon world, which is already represented by electric cars. The electrification process of transportation is going to be continued and, as a result, it would cause the decaying of oil demand by the beginning of 2030th (BP Energy Economics, 2018).

Figure 5 - World energy consumption, million tones oil equivalent

Source: BP Statistical review of World Energy, 2018

According to the world energy resources report (2016), the world's leading fuel continues to be oil. In the global energy consumption 32,9% refers to oil. Emerging economies take the biggest part in the total consumption - 58,1% and continue growing. For instance, India showed 5.2% growth, while Chinese level of growth went down to 1,5 %, European Union showed rare increase - 1,6%, US and Japan had a decrease in consumption correspondingly -0,9% and -1,2%. The level of consumption in Japan reached its lowest rate since 1991 (World Energy Council, 2016).

Generally, global energy consumption in 2017 showed strong growth mostly with help of natural gas. This year the consumption had 2,2% growth, which is higher than 10 - year average level - 1,7%. (BP, June, 2018)

Regarding the Global consumption of oil, the growth was 1,8% or in other worlds 1,7 million barrels per day. 2017 was the third year in a row, during which oil consumption continued to grow (figure 6). Mostly the demand growth was caused by the importers with increase from Europe 0,3 million barrels per day, the US 0,2 million barrels per day and China 0,5 million barrels per day.

Figure 6 - Consumption on oil market in 2016 and 2017, annual change millions of barrels per day

Source: BP Statistical review of World Energy, 2018

In 2016 OPEC and 10 non-OPEC countries (also known as the Vienna group) started to cut their oil production according to their promise in order to speed up the inventory adjustments. As a result of the mentioned action, the supply showed the growth in 2017. The production increased by 0,6 million barrel per day, which is second year result below the average (figure 7). Because of the cuts of Vienna group the other countries, who are not the participants, showed the growth 1,5 million barrels per day with the US at the head.

Taking into account the actions taken over demand and supply, prices went down in the first half of 2017, because the inventories were still full. After the start of the Vienna's group action the inventories began to go down, correspondingly the prices went up. At the end of 2017 the price of Brent Barrel composed 66$ per barrel. In the average the price was 54$ per barrel showing the first annual growth after 2012.

Figure 7 - Demand on oil market in 2016 and 2017, annual change millions of barrels per day

Source: BP Statistical review of World Energy, 2018

Considering the natural gas, the consumption growth was 3 percent and it was the fastest increase for the first time since 2010. China (15,1%), the Middle East (Iran 6,8%) and Europe had the largest influence on consumption growth. The production showed 4 percent growth, which doubled the average rate of growth for the last ten years. The highest increase in production was in Russia (8,2%) and Iran (10,5%), also influence on growth of supply was made by Australia (18%) and China (8,5%).

Nowadays the Seven Sisters (ExxonMobil, Chevron, BP and Royal Dutch Shell) had some changes in its structure, because the original cast produce around 10% of total oil and gas and control only 3% of the world's reserves. The “New Seven Sisters” are the following (World Energy Council, 2016):

Petrobras (Brazil);

Petronas (Malaysia);

Saudi Aramco (Saudi Arabia, largest oil company in the world);

NIOC (Iran);

Gazprom (Russia);

CNPC (China);

PDVSA (Venezuela).

In 1949, The Seven Sisters had a control over 88% of oil trade worldwide, but for now, everything changed. National Oil Companies (NOCs) are growing in size and their influence mostly by the reason of re-nationalism. For instance, Russia re-nationalized oil assets in 2003 in case of Yukos, Venezuela made ExxonMobil and ConocoPhilips leave the market with all their investments left in June 2007, and others.

2.2 Case study of ExxonMobil Corporation

To begin with, it is important to understand what is the company, which would be in the following study. ExxonMobil is a company with a long history, which took over 135 years. In its roots, company was a regional seller of a kerosene in United States of America; nowadays it is a widely known petrochemical enterprise. Exxon, Esso, Mobil are the familiar brands, which associates with the company in people's minds.

In 1859 in Tutisville, Pennsylvania, there was the first successful oil well, drilled by Colonel Edwin Drake and Uncle Billy Smith. That fact caused an oil boom. Later in 1870, Rockefeller founded The Standard Oil Company (Ohio), which became the largest firm in the world with the refining opportunities within one company. The company started to grow; the Standard fuel came into use of different famous investigators, for example during the first flight of the Wright brothers.

In 1911, Standard oil was split into 34 independent companies by the reason of U. S. Supreme court decision. In 1920, company started to produce the first commercial petrochemical. In 6 years, the brand Esso was introduced for the purpose of the new blend of oil. During the years, company's researches discovered new oil fields, artificial rubber, manufactured iso-octane to produce special 100-octane gasoline for airplanes, introduced motor oil applicable for every season use, invented 3-D seismic technology, which was a revolution in oil and gas search industry.

In 1966, the Vacuum Oil Corporation celebrated 100 years of existence and became Mobil Oil Corporation. Later in 1972, shareholders of Standard Oil Company agreed with a new name of a company - Exxon Corporation. Finally, in 1999 both companies decided to join in with each other and created Exxon Mobil Corporation in order to be an effective global competitor.

Currently, ExxonMobil shows a very strong performance with care about safety and the environment. The company develops its world-class energy portfolio with the long-term view on the industry opportunities. In 2017, company demonstrated strong orientation on the long-term valuable strategies.

ExxonMobil has a huge resource base and wide technology portfolio, because of that company invests in all of its segments: Upstream, Downstream and Chemicals. As a result, company reduces the risks, which refers to different changes in the commodity prices. The investment decisions have in its basis the long-term business overview.

According to the world data and the recent ExxonMobil's report (Exxon Mobil Corporation, 2017), there is a prediction, that the total population will grow up to 9 billion people by 2040. That means that energy consumption would increase correspondingly for about 20-25 percent. The main energy source will continue to be oil by the expectations. The corporation considers that there is an opportunity to increase oil and gas resource base both from new discoveries and from already discovered reserve fields.

In 2017 company showed the fewest-ever number of injuries within the company. That means that from year to year company improve the level of safety on their production. Safety is not only the word for the company, it is one of the core values.

During the mentioned year ExxonMobil showed good financial results and it was the 35th year in a row, which provided the increase in shareholders' dividends. Company earned 19,7 billion dollars; their cash flow from operations composed 33,2 billion dollars; return on average capital employed ratio was 9%. (Exxon Mobil Corporation, 2018)

Company stays in-step with the times and invest in new developments and technology. It is expected that each invested dollar would bring value of five dollars. Indeed, ExxonMobil spent more than 35 years on research about climate-related issues and would not stop doing that.

Throughout the world there are 70 thousands of people employed and 19 thousands of them are scientists and engineers.

ExxonMobil focus extensively on the integration of all the company businesses. They do all their best to use each element of the crude oil. With the help of the technologies it is likely to get as much as it is possible out of everything company processes. Having all the operations on the value chain helps to react immediately on the changes in customers' demand. Moreover, about 50 percent of Downstream earning comes not only from lubricants, but from the integration of lubricants and chemicals.

As far as all the businesses work together (Upstream, Downstream, Chemicals), it is easy to share the knowledge and technologies between them in order to create additional value. The purpose of that is to make better decisions based on the full information, operations would be more efficient, and the whole company would become flexible to react on changes in the global market conditions.

On everyday basis company improve operations and implement new innovation decisions in purpose to compose the high-quality asset portfolio. As a result, company maximize returns from all of the businesses - Upstream, Downstream and Chemicals. It is possible to get all the most and the best from each opportunity because of the persistent focus on the business excellence.

Regarding the world class portfolio, ExxonMobil has different projects from each type of business with high-quality across the world. For example, the Upstream is presented in 38 countries, including exploration, development, marketing and production projects. Downstream is acknowledged as the largest lubricants business throughout the world. Refining and lubricant production is presented in 25 countries. ExxonMobil's chemical business is the most profitable in the world and presented in 16 countries.

Upstream. ExxonMobil represents a wide portfolio of exploration, which helps to maintain a good company performance and maximize the shareholder's value. Upstream includes global exploration, research and development, production, marketing activities, which refers to oil and gas. In 2017 Upstream earned 13,4 billion dollars, which composed more than 20 percent growth for the first time since 2010. Current major projects increased daily production for more than 200 thousand barrels. Moreover, company started to explore approximately new 53 million acres.

Over the year, the recourse base increased of 9,8 billion oil-equivalent barrels because of efficient recent acquisitions. For the next years, company has in the plan to expand the business and start exploration and development in Brazil, increase the projects in Mozambique and Papua New Guinea, also the growth is expected from the project in the U.S. Permian Basin.

Downstream. It is a business, which is represented as the biggest refiner and producer of lubricants in the world. Company has 22 refineries, 17 of which include special equipment as a competitive advantage over the other players on the market in order to produce lubricants and chemical products with high quality. The manufacturing capacity of the lubricant base stock is 126 thousand barrels every day.

The integrated model of the business helps to lower the costs of production and get benefits from converting the feedstocks into the fuels and lubricants. The products of the company are well-known throughout the world as the following brands: Exxon, Esso, Mobil, Mobil 1.

Regarding the strategies of Downstream, it is worth to mention that company keeps their operational high quality, provides all the best products and services, maximizes the value from integration and implementation of new technologies.

During 2017, that business line brought 5,6 billion dollars of earnings and return on capital employed composed 25 percent. The sales of synthetic lubricants showed the increase of 130 percent. Moreover, there were 2 new entrances to the market, the first one in Mexico and the other one in Indonesia, which were represented by branded sales. The next year company expects to increase production with 100 thousands of barrels per day with the help of new projects. Specifically, one billion of dollars would be generated by U.S. Permian because of the full integration of company's value chain.

Considering the business environment, it is worth to mention that with the help of commercial transportation it is expected 30 percent increase in fuel demand. At the same time increase in diesel consumption is expected even more than 30 percent. The developing countries would be the reason of that growth. Moreover, they would offset the decline in consumption of fuels in developed counties.

The demand on lubricants also has a tendency to grow, mostly because of Asian consumers. Moreover, it is expected that demand would outpace the supply recently.

Chemical. It is considered that the ExxonMobil's chemical business is the most successful throughout the world. Company permanently invest in new technologies and it helps to capitalize more and more on chemical demand, which is increasing across the globe. In order to meet the growing demand from Asia, company made a decision to expand their facilities in Singapore. Other investments come to U.S. Gulf Coast for the purpose to develop steam crackers. Generally, ExxonMobil has in its' focus the profitable high-performance product portfolio.

The feedstock comes to the business from the Upstream and Downstream because of the high integration. Nevertheless, company also uses the feedstock which comes from the global third parties, because the production is located around the world and it is strategically convenient. Using the economy of scale, chemical business easily cut the costs.

The main strategies of company are outlined as follows: existing businesses must be strong; unique competitive advantage must be used properly; all the businesses should follow the strong leadership.

In 2017 chemical business earned 4,5 billion dollars, 3,8 billion dollars were invested in special businesses, return on capital employed ratio composed 16 percent. Product sales showed a result of 6,8 million tonnes. The capacity of new polyethylene production in Texas (Mont Belvieu) consisted 1,3 million tonnes.

Up to 2025 the company is going to increase the amount of their facilities and open 13 additional production areas in order to get the growth of 10 million tonnes per day and expand the technology portfolio. Moreover, one of the focuses of the company is to double the sales of the high-quality products by 2025.

Regarding the business environment, one of the main results is that demand on chemical products grew by 50 percent since 2000. Further growth rate is expected to be in average 4 percent every year. Most part of increased demand would come from Asia.

It is commonly known that ExxonMobil is one of the top five companies, which operates in the global petroleum industry. Nevertheless, the economic crisis caused by changes in the oil prices affected even this large corporation. The company performance was maintained at the effective level throughout the years, but it is important to understand what has changed by the reason of the economic crisis. Working capital is a good indicator of the company's financial position. Moreover, it would be better to analyze the company performance in the perspective of three periods: before economic crisis, during the economic crisis and after economic crisis.

To forecast the possibility of the future company earning, it is essential to analyze the suitable information, which is available in the financial statements such as consolidated balance sheet, statement of cash flows, statement of income. There are several analytical tools, which could be represented as different ratios and cash flow analysis, which help to understand the financial strengths and weaknesses of the company in order to increase the efficiency of operations and improve the company performance.

To begin with, it is indispensable to collect primary data from financial statements; then to make calculations of various ratios, which are appropriate and belong to the topic of the research; finally, to analyze all of them and draw conclusions. The study would cover three different periods of economic environment:

Before economic crisis (from 2011 to 2014);

During economic crisis (from 2014 to 2016);

After economic crisis (from 2016 to 2017).

As the basis of economic crisis, it would be taken situation of oil price decline, which took place starting from June 2014 to the end of February 2016.



Table 4 - Calculation of total current assets for the gross working capital analysis, millions of dollars

Years/ Particulars	Stock	Trade Receivables	Cash and Bank Balances	Loans and Advances	Other Current Assets	Total Current Assets	Quick Assets (CA - Stock)
2011	15024	38642	12664	34333	6229	72963	57939
2012	14542	34987	9582	34718	5008	64460	49918
2013	16135	33152	4644	36328	5108	59308	43173
2014	16678	28009	4616	35239	3565	52910	36232
2015	16245	19875	3705	34245	2798	42623	26378
2016	15080	21394	3657	35102	1285	41416	26336
2017	16992	25597	3177	39160	1368	47134	30142
2013/ 2011	A	1111	-5490	-8020	1995	-1121	-13655	-14766
	%	7,39	-14,21	-63,33	5,81	-18,00	-18,71	-25,49
2015/ 2014	A	-433	-8134	-911	-994	-767	-10287	-9854
	%	-2,60	-29,04	-19,74	-2,82	-21,51	-19,44	-27,20
2017/ 2016	A	1912	4203	-480	4058	83	5718	3806
	%	12,68	19,65	-13,13	11,56	6,46	13,81	14,45

Source: Compiled by the author based on ExxonMobil Summary annual reports, years: 2011-2017

Considering the stock, there is a positive tendency in the periods before and after economic crisis. The number of inventories increased for 7,39% (or 1111 million dollars) and 12,68 (or 1912 million dollars) correspondingly before and after economic crisis. During the economic crisis, it is obvious that situation was vice versa and company was decreasing their inventories (table 4). Based on this it could be concluded that during the crisis company started to optimize working capital with help of inventory management and it was the reason to decrease the excessive stock.

Trade receivables were declining starting from 2011 until the end of economic crisis. The period after economic crisis led to increase in trade receivables. Considering the cash and bank balances there is a negative trend from 2011 to 2017, which means that company tries to find the optimum level of cash and continue to manage cash balances. Regarding the quick assets and other current assets, there is a trend of decline, which began in 2011 and ended in 2016. After the economic crisis, these particulars started to grow. Therefore, it can be concluded that the corporation manage its cash, trade receivables and inventories efficiently during and after economic crisis in order to recover and improve its performance.

Regarding the total assets or put the other way round Gross Working Capital (GWC), the decline before economic crisis was considerably fast and in total it composed 31547 million dollars. At the end of economic crisis, the decrease in gross working capital slowed down and in 2017 (after economic crisis) it started to grow and was 47134 million dollars at the beginning of 2018.

It is easier to understand the dynamics of different current assets on the diagram (figure 8). The biggest changes are obvious in trade receivables and cash with bank balances. Inventories did not change a lot during the period from 2011 to 2017.

The analysis of the different ratios (table 5) shows the financial situation of the business in more details. Consequently, cash turnover ratio reached its highest valuation at the end of the period before economic crisis, which means that company worked effectively before 2014 and in 2013 ExxonMobil went through its cash cycle 90 times. With the beginning of the economic crisis ratio started to decrease and stopped only in 2016. After that the speed of cash cycle started to accelerate.



Figure 8 - Levels of various current assets of ExxonMobil during the period 2011-2017, millions of dollars

Source: Compiled by the author based on ExxonMobil Summary annual reports, years: 2011-2017

Inventory turnover ratio also showed a decreasing tendency, which correlated with decline in sales. After the crisis ratio was three times less than it was at its peak in 2012. Regarding the period of economic crisis, the decrease in inventory turnover was obvious, because company tried to maintain its working capital proportionally in order not to have additional costs. After the crisis ExxonMobil started to recover from and improve their sales.

Gross Working Capital turnover ratio had a growing tendency before an economic crisis and ratio showed an increase by 0,7. At the beginning of the crisis GWC turnover reached 7,45 in its valuation. Before the crisis company managed its gross working capital efficiently and improved its performance from year to year, also it could be concluded that ExxonMobil used short-term assets and liabilities in order to support its sales. With the beginning of the crisis the situation changed and even in 2017 company still has a decrease in gross working capital ratio.



Table 5 - Calculation of ratios for the analysis of working capital, millions of dollars

Years\Particulars	Quick assets	Annual sales income	Operating expenses	Cash turnover ratio	Inventory turnover ratio	Debtor turnover ratio	GWC Turnover Ratio	Operating expenses /GWC
2011	57939	467029	308645	36,88	17,74	12,59	6,40	4,23
2012	49918	451509	302943	47,12	18,12	13,74	7,00	4,70
2013	43173	420836	292462	90,62	15,13	13,22	7,10	4,93
2014	36232	394105	280666	85,38	13,55	14,71	7,45	5,30
2015	26378	259488	191558	70,04	8,00	13,53	6,09	4,49
2016	26336	218608	171531	59,78	6,91	10,57	5,28	4,14
2017	30142	237162	196759	74,65	7,55	9,55	5,03	4,17
2013/ 2011	-14766	-46193	-16183	53,74	-2,61	0,63	0,70	0,70
2015/ 2014	-9854	-134617	-89108	-15,34	-5,55	-1,18	-1,36	-0,81
2017/ 2016	3806	18554	25228	14,87	0,64	-1,02	-0,25	0,03

Source: Compiled by the author based on ExxonMobil Summary annual reports, years: 2011-2017

Further step is to analyze the net working capital, which could be explained as a difference between current assets and current liabilities (table 6). Before the economic crisis, at the beginning of studying period net working capital started to grow and became positive (321 million dollars in 2012), despite the fact that both current assets and current liabilities were decreasing. Net working capital was positive because of the lower speed of decrease in current assets than in current liabilities. The next year net working capital again dropped to the negative valuation (-12416 on 2013). Current assets continued to go down, while the was a growth in liabilities.



Table 6 - Calculation of Net working capital before, during and after the economic crisis, millions of dollars

Before economic crisis
Particulars	2011	2012	NWC Change
1. Current assets	72963	64460	Decrease
2. Current liabilities	77505	64139	Decrease
Net working capital	-4542	321	Increase
Particulars	2012	2013	NWC Change
1. Current assets	64460	59308	Decrease
2. Current liabilities	64139	71724	Increase
Net working capital	321	-12416	Decrease
Particulars	2013	2014	NWC Change
1. Current assets	59308	52910	Decrease
2. Current liabilities	71724	64633	Decrease
Net working capital	-12416	-11723	Increase
During economic crisis
Particulars	2014	2015	NWC Change
1. Current assets	52910	42623	Decrease
2. Current liabilities	64633	53976	Decrease
Net working capital	-11723	-11353	Increase
Particulars	2015	2016	NWC Change
1. Current assets	42623	41416	Decrease
2. Current liabilities	53976	47638	Decrease
Net working capital	-11353	-6222	Increase
After economic crisis
Particulars	2016	2017	NWC Change
1. Current assets	41416	47134	Increase
2. Current liabilities	47638	57771	Increase
Net working capital	-6222	-10637	Decrease

Source: Compiled by the author based on ExxonMobil Summary annual reports, years: 2011-2017

The diagram below shows the dynamics in changes of Net Working Capital, current assets and current liabilities. In 2012 current assets and current liabilities were nearly equal that is why the valuation of Net Working capital is close to zero.

Last year of period before the economic crisis was a start of positive tendency in growth of working capital, that means that company started to use intensively the methods of working capital optimization. Nevertheless, current assets and current liabilities started to go down.

Only in 2017 ExxonMobil raised current assets and current liabilities, but the speed of increase in liabilities was faster and, as a result, net working capital again dropped down. For clarity, it is better to look at changes in current assets, current liabilities and net working capital on the diagram (figure 9).

Figure 9 - The changes in Working capital before, during and after the economic crisis, millions of dollars

Source: Compiled by the author based on ExxonMobil Summary annual reports, years: 2011-2017

Going forward, it is essential to understand which part of working capital had the largest influence on changes during the studying periods (figure 10). On the diagram below it is evident that the biggest changes happened in account payables. The decreasing tendency started before the crisis, then it is continued during the crisis and stopped after the crisis, when the period of recovery began and in 2017 account payables increased. It could be concluded, that starting with 2011 company's ability to maintain the operating processes was going down.

Figure 10 - ExxonMobil's net working capital and its structure, millions of dollars

Source: Compiled by the author based on ExxonMobil Summary annual reports, years: 2011-2017

In the meantime, account receivables also show the decrease, but the speed of that was lower than in account payables. The reason for that was a decline in the whole business. The largest drop in 2015 refers to the environment of economic crisis, when sales went down rapidly, during the next two years, company expended some effort to improve sales and account receivables started to grow.

Regarding the inventory, there was an oscillation during the studying period. Before the crisis company started to grow the inventories, despite the decrease in 2012. When the economic crisis started, the inventories went down correspondingly. At last, after the economic crisis there is again a growing tendency in the inventories, which correlates with the increase in sales.

Before the crisis company reduced its cash in order to find the optimum level of them. With the beginning of economic crisis, the decrease in cash slowed down, but after the economic crisis it was continued.

The next step is to analyze different ratios in order to understand how efficiently ExxonMobil manages its working capital (table 7).

Table 7 - Calculation of ratios for working capital management analysis, millions of dollars

Particulars	2011	2012	2013	2014	2015	2016	2017
Current ratio	0,94	1,01	0,83	0,82	0,79	0,87	0,82
Quick ratio	0,75	0,78	0,60	0,56	0,49	0,55	0,52
Cash ratio	0,16	0,15	0,06	0,07	0,07	0,08	0,05
Sales/Current liabilities	6,03	7,04	5,87	6,10	4,81	4,59	4,11
NWCTR (sales/NWC)	-102,82	1406,57	-33,89	-33,62	-22,86	-35,13	-22,30
Operating expenses ratio	1,51	1,49	1,44	1,40	1,35	1,27	1,21
Purchase/Operating expenses	0,86	0,87	0,83	0,81	0,68	0,61	0,65
Sales/Purchases	1,75	1,71	1,72	1,74	2,00	2,10	1,85
Operating expenses/NWC	-67,95	943,75	-23,56	-23,94	-16,87	-27,57	-18,50

Source: Compiled by the author based on ExxonMobil Summary annual reports, years: 2011-2017

Before the economic crisis current ratio was fluctuating around 1, which means that company was able to cover all short-term obligations at the same time. The year before and during economic crisis ratio dropped down and in average was about 0,8. Despite the decrease, the ratio is quite stable. After the crisis, current ratio started to grow, but in 2017 there was a decline again.

Quick ratio is more concrete than current ratio, because it excludes inventory and other assets, which are more difficult to turn into cash. Correspondingly, this ratio is lower than current ratio and shows the same tendency during the studying period. Cash ratio shows the company ability to pay all the short-term liabilities with the most liquid asset - cash. In 2012 cash ratio was 0,16, which means that company was able to pay only 16% of the short-term liabilities, by 2017 the ratio became 0,07. It could be concluded that company has a strategy of having low cash reserves.

The proportion between purchases and trade payables was increasing before the economic crisis and until the end of crisis, in 2016 there was a peak (8,54) and after that the dynamic became negative and in 2017 the indicator was 7,24. Correspondence between sales and current liabilities fluctuates during the studying period, in general there is a decrease from 6,03 in 2011 to 4,11 in 2017.

Regarding the working capital turnover ratio, it could not be a clear conclusion, because company uses negative working capital during the whole period except 2012.

Interrelation between sales and purchases was quite stable before the economic crisis (in average 1,73), after the crisis the level of sales increased and correspondence was around 2.

The last, but one of the most important analysis of working capital management is cash conversion cycle (table 8).

Table 8 - Cash conversion cycle of ExxonMobil

Years\Particulars	2011	2012	2013	2014	2015	2016	2017
Inventory turnover	17,74	18,12	15,13	13,55	8,00	6,91	7,55
Receivables turnover	12,59	13,90	14,67	17,37	24,47	22,74	19,00
Payables turnover	4,67	5,20	5,08	5,35	4,01	3,34	3,48
Days sales in inventory, days	21	20	24	27	46	53	48
Days sales in receivables, days	29	26	25	21	15	16	19

Подобные документы

• Capital market

  Capital Structure Definition. Trade-off theory explanation to determine the capital structure. Common factors having most impact on firm’s capital structure in retail sector. Analysis the influence they have on the listed firm’s debt-equity ratio.
  
  курсовая работа [144,4 K], добавлен 16.07.2016
  

• The Global Money Markets and Money Management

  The General Economic Conditions for the Use of Money. Money and Money Substitutes. The Global Money Markets. US Money Market. Money Management. Cash Management for Finance Managers. The activity of financial institutions in the money market involves.
  
  реферат [20,9 K], добавлен 01.12.2006
  

• Taxation of natural persons in Switzerland

  The Swiss tax system. Individual Income Tax. Income from capital gains. Procedure for taxation of income from capital gains. Distribution of shares in the capital. Tax at the source. The persons crossing the border. Lump-sum taxation. The gift tax.
  
  реферат [14,1 K], добавлен 21.06.2013
  

• Theory of Finance

  Fisher Separation Theorem. Consumption Vs. Investment. Utility Analysis. Indifference Curves. The satisfaction levels. Indifference Curves and Trade Off between Present and Future Consumptions. Marginal Rate of Substitution. Capital Market Line.
  
  презентация [1,5 M], добавлен 22.06.2015
  

• Foreign Direct Investment in Kyrgyzstan

  The economic benefits to the recipient countries by providing capital, foreign exchange. The question of potential causality between foreign debt and domestic savings in the context of the Kyrgyz Republic. The problem of tracking new private businesses.
  
  реферат [26,7 K], добавлен 28.01.2014
  

• Foreign investments in Russian economy

  Strategy of foreign capital regulation in Russia. Russian position in the world market of investments. Problems of foreign investments attraction. Types of measures for attraction of investments. Main aspects of foreign investments attraction policy.
  
  реферат [20,8 K], добавлен 16.05.2011
  

• To investigate a credit channel of monetary policy transmission

  Study credit channel using clustering and test the difference in mean portfolio returns. The calculated debt-to-capital, interest coverage, current ratio, payables turnover ratio. Analysis of stock market behavior. Comparison of portfolios’ performances.
  
  курсовая работа [1,5 M], добавлен 23.10.2016
  

• Specificity exchange market

  Types and functions exchange. Conjuncture of exchange market in theory. The concept of the exchange. Types of Exchanges and Exchange operations. The concept of market conditions, goals, and methods of analysis. Stages of market research product markets.
  
  курсовая работа [43,3 K], добавлен 08.02.2014
  

• Управление текущими затратами

  Понятие и сущность управления затратами. Классификация затрат на производство. Характеристика предприятия, задачи анализа. Анализ себестоимости, исчисленной по переменным затратам. Совершенствование управлением текущими затратами на ТОО "Capital Profit".
  
  дипломная работа [748,5 K], добавлен 29.06.2011
  

• Что такое Forex? Кто и как на нем зарабатывает

  Становление системы плавающих курсов на валютном рынке. Дилинги и брокеры в РФ. Стратегии управления активами на Forex. Риск-менеджмент как инструмент на финансовых рынках. Пример успешного управления активами и их диверсификации на примере TIM Capital.
  
  презентация [388,8 K], добавлен 22.05.2015
  

• Оценка акций методом САРМ (Capital assets price model)

  Составление портфеля ценных бумаг. Изменение стоимости портфеля, нахождение его фактической доходности. Оценка эффективности инвестиционного проекта с точки зрения владельца портфеля. Виды финансовых инструментов. Депозитные и сберегательные сертификаты.
  
  курсовая работа [47,2 K], добавлен 26.01.2015
  

• Dollarization of the economy in the Post-Soviet union countries

  Factors, the causes and consequences of dollarization for Post-Soviet Union countries. Methods of calculation of deposit interest rates. The estimated exchange rate coefficient encompasses two effects: dollar appreciation and foreign exchange operations.
  
  курсовая работа [669,0 K], добавлен 23.09.2016
  

• Off-budget funds - their place in a financial system

  Economic essence of off-budget funds, the reasons of their occurrence. Pension and insurance funds. National fund of the Republic of Kazakhstan. The analysis of directions and results of activity of off-budget funds. Off-budget funds of local controls.
  
  курсовая работа [29,4 K], добавлен 21.10.2013
  

• Улучшение показателей ликвидности предприятия ПАО Мегафон

  Методы и показатели оценки ликвидности. Разделение актива и пассива баланса по степени ликвидности. Абсолютные и относительные показатели ликвидности. Повышение ликвидности за счет автоматизации бюджетирования и с помощью продуктов Cash Management.
  
  дипломная работа [2,6 M], добавлен 26.06.2017
  

• Effects of deflation

  Causes and corresponding types of deflation. Money supply side deflation. Credit deflation, Scarcity of official money. Alternative causes and effects. The Austrian and keynesian school of economics. Historical examples: deflation in Ireland, Japan, USA.
  
  реферат [45,6 K], добавлен 13.12.2010
  

• Asset Management

  The primary goals and principles of asset management companies. The return of bank loans. Funds that are used as a working capital. Management perfection by material resources. Planning of purchases of necessary materials. Uses of modern warehouses.
  
  реферат [14,4 K], добавлен 13.05.2013
  

• Working capital

  The availability of sufficient working capital enterprises optimal structure - a prerequisite for normal functioning in a market economy. Company's current assets is one of the main objects of Financial Management submitted in cash and monetary system.
  
  реферат [53,3 K], добавлен 07.05.2011
  

• Economic Policy of the United Kingdom in the crisis of 2008-2010

  The global financial and economic crisis. Monetary and financial policy, undertaken UK during a crisis. Combination of aggressive expansionist monetary policy and decretive financial stimulus. Bank repeated capitalization. Support of domestic consumption.
  
  реферат [108,9 K], добавлен 29.06.2011
  

• Features of financial management in transnational companies

  The concept of transnational companies. Finding ways to improve production efficiency. International money and capital markets. The difference between Eurodollar deposits and ordinary deposit in the United States. The budget in multinational companies.
  
  курсовая работа [34,2 K], добавлен 13.04.2013
  

• Международные фондовые индексы

  История фондовых индексов и методы их расчета. Международные фондовые индексы: Morgan Stanley Capital International (MSCI); Dow Jones Global Indexes; FTSE All – World Index Series; FTSE Global Stock Market Sectors. Фондовые индексы США и России.
  
  курсовая работа [37,1 K], добавлен 31.05.2009
  

• главная
• рубрики
• по алфавиту
• вернуться в начало страницы
• вернуться к началу текста
• вернуться к подобным работам