Porters Five Forces Analysis

Assigned Company: ExxonMobil

Assume the role of an executive leader at the C-level. The cases will have the following structure:

1. Access the industry with Porter’s 5 forces analysis

2. Display and Graph the last three years Sales $, Gross Profit $, Net Profit $ Gross Margin %, and Debt to Equity Ratio. Analyze what you see and describe at least three reasons behind what drove these results. (see analysis clues of what effects ratios below)

Please use the attachment as guidance(example), and follow the instruction below.

Financial Calculation Format & Formulas

                                                   Example of Financial Trends

               * in billions of $ , except ratio

Year 1

Year 2

Year 3

% change yr 1-2

% change yr 2-3

Sales

$         10.0

$         12.0

$         14.0

20%

17%

Gross Profit

$           5.0

$           5.0

$           8.0

0%

60%

Net Profit*

$           2.0

$         (2.0)

$           4.0

-200%

300%

Gross margin

50%

42%

57%

-17%

37%

Dollars of Debt/Equity

Debt/Equity Ratio

2

1.5

1

-25%

-33%

* with negative numbers check formulas

Year over year percentage change = (Newest Year -Oldest Year)/Oldest Year *100

Example   Sales Year 1   Year 2

                                               $100                 $120

120-100 = 20/100 = .2 *100 = 20%

Ideas to think about what affects ratio trends (Tool #4)

Sales(Use sales as a benchmark for all income statement ratios)

Did the company raise the prices this year compared to the prior year?

Did the company add more stores? Where?

Did the company buy another company?

Did the company launch a new product or product line?

What product sales were growing in the company? And we’re some slowing or declining?

What markets are growing?

Did the company change their business model? an example is Netflix going from shipping and mailing DVDs to streaming.

Gross Profit

Did the company incur larger costs for its raw materials?

Did suppliers raise their prices?

Did the company increase inventory significantly?

Did the mix of products sold, have lower-margin products growing faster?

Net Profit

What did management do to spend significantly more or less in any expense category compared to the prior year?

Did salaries go up significantly? That may be a bad sign

Did advertising expenditures go up significantly? This could be good or investment in growth in the future.

Did depreciation expense grow significantly? This could be good as an indicator of investing in new plants equipment or buildings.

Was there any one-time write-offs that will not recur again?

Gross margin

Did the gross margin change significantly from year to year? If so why? Look to gross profit for a clue.

Debt to Equity ratio  (What is the industry standard?)

What change from year to year?

Did debt go up or down?  Less debt is generally good

Did the company increase Equity or decrease equity? more Equity is generally good.

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