Using your evaluation, determine which firm is better performing in terms of short-term financial management. For the firm that is not performing well, make the following recommendations for performance enhancement, supporting each with evidence:

Exxon vs Chevron

A. Indicate which forecasting tools should be used, and defend your claims using specific evidence.

B. Propose specific working capital and borrowing options that align to the firm's strategic objectives.

C. Propose specific financial products that align to the firm's strategic objectives.

D. Explain how your recommendations appropriately address each of your identified risks.

This paper will mention the evaluation of liquidity ratios between Exxon and Chevron. In addition, Exxon and Chevron's financial ratios such as activity ratios, including inventory turnover ratios, (financial leverage) debt ratios, profitability and market ratios. Lastly, this paper will discuss the strengths and weaknesses for Exxon and Chevron.

Liquidity Ratios

Liquidity ratios are significant to the financial metrics used to decide a borrower's ability to repay current debt obligations without the capital raising. The calculations that measures the Liquidity ratios are the current ratio, quick ratio, and cash ratio. Exxon's current ratio, quick ratio, and cash ratio in 2018 was .84, .51, and .05. Chevron liquidity ratios in 2018 were 1.25, 1.04, and .35. The industry average in 2018 was 1.08, .74, and .25. Chevron is superior than Exxon in every category. Also, Chevron was better than the industry average. Exxon did not do too well compared to the industry average in 2018. The industry average had a better current ratio, quick ratio, and cash ratio.

Financial Ratios

Activity ratio indicates how efficiently a company is leveraging assets on the balance sheet. Activity ratios also help forecasters measure how the firm controls inventory management. This is an important key to operational variability and general economic health. Exxon Inventory turnover ratio is 10.71. As for Chevron, the inventory ratio is 20.18. The industry average for the inventory turnover ratio is 9.4. Once again Chevron is superior when it came to the inventory turnover ratio. Although Exxon inventory ratio was not better than Chevron, Exxon exceeded the industry average which is good. Since Chevron has the highest inventory turnover ratio this means that Chevron has the better inventory control. Exxon debt to equity ratio is .81 and Chevron debt to equity ration is .64. When it comes to the debt to equity ratio Exxon does have more compared to Chevron but in this case that is not good. A higher debt to equity ratio means that Exxon has a heavier debt load. As for the debt ratio, Exxon has .43 and Chevron has .39. This is good for both companies. If the debt ratio was above 50% it would be trouble. Usually when a company has a debt ratio over 50%, the company could be in trouble with the creditors if they would abruptly ask for compensations. Profitability ratios are very important to the company. They give you an understanding to the business and help analyst get a sign of the right amount of the profits. Some profitability ratios are the gross margin, operating profit margin, Net profit margin, Return on Assets and Return on Equity. Exxon gross margin was .31 and Chevron was .28. The higher your gross margin, the more effective the company is at producing goods and services. As you can see, Exxon had the better gross margin. Exxon operating profit margin is 7.92, Chevron is 9.09 and the industry average is 9.47. Chevron had the better operating profit margin but both companies fall short to the industry average. Exxon's Net profit, Return on Equity, and Return on Asset was 7.46, 10.87, 6.02. Chevron's Net profit, Return on Equity, and the Return on Assets was 9.33, 9.59, and 5.84. The industry average was 8.41, 11.11, and 6.02. Exxon has the better Return on Equity and Return on Asset, but Exxon still is not better than the industry average. As for Chevron, the Net profit was superior than Exxon and the industry average. Market value ratios are very important to a business. market ratios help the investor and owner of business determine the health of company by matching metrics. Some Market ratios are the Price to earnings, Price to book value, and Price to sales. Exxon's price to earnings, price to book value, and price to sales was 16.15, 1.75, and 1.20. Chevron's price to earnings, price to book value, and price to sales was 15.30, 1.47, and 1.43. The industry average for the market ratios are 15.43, 1.71, and 1.29. Exxon exceeded every category but the price to sale. The price to earnings is very important because it gives forecasters a good important sign of what inventors are paying for the stock in relative to the business earnings. Both Exxon and Chevron are over the industry average for the price to book value. Usually values under 1 is considered a good Price to book value. Though, some value investors consider stocks under 3.0 good price to book value too. Lastly, Exxon price to sales was under the industry value and Chevron was over. A high price to sales ratio means that the market is eager to pay for each dollar of yearly sales. If the ratios are between one and two the business is considered good so, Exxon and Chevron are both in great shape when it comes to the price to sale.

Strengths and weaknesses

After analyzing both Exxon and Chevron there were a lot of Strengths and Weakness between the two companies. Some of Exxon Strengths were the Inventory Turnover. It exceeded the industry average which is very good. This shows that Exxon does not overspend on too much inventory and wastes resources. In addition, it shows Exxon can successfully sell the inventory it purchases. Another strength of Exxon was the debt ratio. A low debt ratio is extremely important to a company because it means it is a stable business with potential of longevity. Lastly, Exxon Return on Asset was a big strength. It was tied with the industry average. A good ROA shows that the company is more asset productive. Although Exxon had some strengths there were a lot of weaknesses. One of Exxon's weakness was the low cash ratio (.05) A good cash ratio is greater than one which means Exxon did not generate more cash in the period that needed to pay off its current liabilities. Another weakness of Exxon was the Net profit margin (7.46). Exxon Net profit margin was lower than the industry average which is not good. Since Exxon net profit margin is low this means that Exxon spent a large amount of revenue to maintain its total operation. In addition, it also means Exxon spent a large amount of money on cost of goods sold. Lastly, Exxon current ratio (.84) was bad and failed to surpass the industry average. Having a low current ratio shows that Exxon has difficulty meeting current obligations. One of Chevron strength is the current ratio. Chevron exceeded the Industry average which means they are in a better position to pay the creditors back. Another strength is the Net profit margin. Since the net profit margin is high this means each dollar generated by Chevron in revenue is real income. Lastly, Chevron inventory ratio was great. The inventory turnover ratio was 20.18 and exceeded the industry 9.4. Since the inventory is high it means Chevron receivables are collected rapidly, fixed assets are heavily used, and little extra inventory is kept on hand. Chevron did not have as many weaknesses as Exxon. Some of Chevron weaknesses are the Return of Equity and Return of Assets. Both ROE (9.59) and ROA (5.84) was under the industry average 11.11 (ROE) and 6.02 (ROA). Since Chevron ROE is low this means that the business is not very efficient at generating income. As for the ROA, it indicates that Chevron is not making a profit from the use of the assets. That is something that Chevron must improve fast. Both companies are doing a great job but there is always room for improving. Exxon is currently number five and Chevron is currently number 7 for most successful in the gas, oil, and energy industry.