Minicase 2 Amoco Corporation}
Amoco Corporation explores for and produces crude oil and natural gas; converts crude oil into petroleum products; transports, distributes, and markets petroleum products; and produces various plastic and foam products.
Amoco's 1995 balance sheet and income statement are reproduced on the following pages.

The following additional information is excerpted from Amoco's 1995 annual report:

\section*{AMOCO CORPORATION AND SUBSIDIARIES Excerpts from 1995 Annual Report}
Significant spending in 1996 includes construction of a liquefied natural gas plant in Trinidad and continuation of programs in Egypt and the North Sea. . . . It is expected that the 1996 capital and exploration expenditures budget will be financed primarily by funds generated internally.
In July 1994, Amoco announced that the organizational structure of the corporation was being changed. . . . As a result of the restructuring, more than 4,000 positions have been eliminated through year-end 1995. Additional positions will be eliminated in 1996 and 1997 as a result of the ongoing process redesign. . . .
Other income in 1995 included a gain of \(\$ 132\) million ( \(\$ 83\) million after tax) related to the sale of Amoco Motor Club.
The Internal Revenue Service (IRS) has challenged the application of certain foreign income taxes as credits against the corporation's U.S. taxes that otherwise would have been payable for the years 1980 through 1982. On June 18, 1992, the IRS issued a statutory Notice of Deficiency for additional taxes in the amount of \(\$ 466\) million, plus interest, relating to 1982. The corporation has filed a petition in the U.S. Tax Court contesting the IRS statutory Notice of Deficiency. Trial on the matter was held in April 1995, and a decision is expected in 1996.
\section*{Instructions}

(a) Evaluate Amoco by calculating and evaluating the current ratio, the debt to total assets ratio, and the profit margin ratio.

(b) From the information given in the case, describe the performance you would expect from Amoco for 1996. Be specific. For example, which ratio(s) would you expect to improve? Which events are likely to affect performance?

Transcribed Image Text:

AMOCO CORPORATION AND SUBSIDIARIES Consolidated Statement of Financial Position (Balance Sheet) December 31, 1995 (in millions) Assets Current assets Cash Marketable securities Accounts and notes receivable, net Inventories Prepaid expenses and income taxes Total current assets $ 182 1,212 3,332 1,041 723 6,490 Investments and other assets Investments and related advances Long-term receivables and other assets 654 655 1,309 Properties at cost, less accumulated depreciation 22,046 Total assets $29,845