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Financial Analysis For Managers

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Working capital is the blood life of every business. Cash flow's purpose is to generate profit. If a company is operating profitably then a surplus of cash should be generated. The more rapidly a business expands the more cash is needed for working capital and investments to keep the company growing. There are several elements within working capital such as payables, receivables, sales, inventory, equity and loans. These elements are no exception in the working capitals relationship within ExxonMobil and ChevronTexaco.

Looking at ExxonMobil's 2005 balance sheet it is obvious with this size of operation a large working capital is needed to generate a profit. ExxonMobil's components of working capital namely, inventory, account receivables, and account payables personify the number of resources it takes to run a successful business. With accounts receivable totaling $27,484,000 compared to its accounts payable/notes payable totaling $24,044,000 ExxonMobil gained $3,440,000 in working capital to operate their business from its already hefty cash flow of $28,671,000. Its inventory totals $9,321,000 were high compared to industry standards nearly doubling the totals of ChevronTexaco for 2005. This was probably planned knowing its value in the coming year of 2006 and the gains it made off of that inventory total which in turn helped create even more working capital for the coming year.

Examining ChevronTexaco's 2005 balance sheet you can see the same operating costs percentage wise just on a smaller scale. With accounts receivable totaling $17,184,000 and accounts payable/notes payable totaling 16,813,000 leaving a difference of $371,000 which is the complete opposite of ExxonMobil's gains. Interpreting this to a point would mean that ChevronTexaco is borrowing a great deal more money to run their company and paying loans back to fund their working capital.

Functions of Intermediaries and Financial Regulatory Bodies

As the old saying goes," It takes money to make money." ExxonMobil and Chevron are two of the top oil conglomerates in the America. Their business is worldwide and where do they acquire the needed capital to sustain vitality and stay competitive in the global market? This segment will discuss the functions of intermediaries and financial regulatory bodies.

The financial cycle of Exxon Mobil and Chevron can be described as the constant flowing river, which leads to a waterfall. It is a continuous cycle where the companies uses the investment money by selling company stocks and giving some back in form of dividends. This is where the role of the financial intermediaries comes to play. Financial intermediary is an organization that raises money from investors and provides financing for individuals, companies, and other organizations. (Brealey, Myers, & Marcus, 2003, Chapter 2 Page 11.) For ExxonMobil and Chevron, intermediaries are important sources of financing. Intermediaries use two vehicles to raise capital, mutual funds and pension plans. Mutual funds are a large pool of savings invested in a variety of portfolios. The company for employee retirement savings sets up pension funds. The other two important functions of the intermediary are it moves money around. It lends money to businesses and accepts cash as investments, which then is loaned to the companies. Intermediaries are also liquid where it has the ability to turn asset into cash with no troubles.

The financial regulatory bodies are the banks and the insurance companies. This is where money is generated by using other people's money. They have the "golden-bowl" where savings and investments are mixed in thus more money is generated. Chevron and ExxonMobil both have a close net business relationship with the banks because they help fund the financing of the companies and in return the banks benefit also because these two oil firms are strong trend setters in the financial economy.

Internal Controls

Internal control programs are an essential piece of the business world. Without them, a business could not possibly provide accurate and consistent reporting every period. Detailed programs on how to handle financial data and reporting are not new to big business, however; the effectiveness of the controls set in place are under much more scrutiny than in the past.

In both organizations' 2005 Annual reports, statements were made regarding standards performed to obtain "reasonable assurance" about whether effective internal control over

financial reporting was maintained in all material respects. In both Chevron Corporation's and ExxonMobil's report, PricewaterhouseCoopers LLP, who performed their audit, made statements about compliance



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