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Dividend Policies, Industry debt financing of Exxon and BP

Part 1:

Research at least one (2) firm who have been paying dividends.This information can be found on any reputable financial website.

The companies are Exxon (xom) and BP (bp). website: ttp://

1. Does this firm tend to be large?
2. More Mature?
3. More Profitable?
4. More Valuable? Explain.

Research firm's industry. Discuss differences and similarities between firm and industry.

Part 2:

Access the notes to the financials of the selected firm.

Look at how their most recent debt was financed and discuss how this method helped or hurt.

Research firm's industry.

Discuss differences and similarities between firm and industry debt financing.
Write an essay with your analysis, findings and recommendations to the class.
Support your analysis with relevant data.

Solution Preview

See attached files.

Exxon is a large corporation with operations all over the world in countries such as the United States, Canada, Europe, Africa, and the Middle East, the Asian Pacific, Russia/Caspian region and South America ( According to the company profile, Exxon, as of December 2009 operated 16,587 gross and 13,737 net operating wells. The corporation is involved in exploration, transportation and the sale of crude oil and natural gas. It also has involvement in the manufacture, transportation and sale of petroleum products.

The corporation is a mature company with well-organized operations, proven by the fact that it has been in business since 1870 and based in Irving Texas ( Exxon Corporation has evolved from a regional marketer of Kerosene in the U.S. to the largest publicly traded petroleum and petrochemical enterprise in the world (

Exxon ranks 8th most profitable company in its industry (major integrated oil and gas) compared to the top 48 corporations in this industry ( The intraday performance summary shows that Exxon is up by 0.23% compared with the industry performance summary down by 0.12%, as of March 28, 2011. It has a market capitalization (the measurement size of a company equal to the share price times the number of shares outstanding) of $403.5 billion. Exxon's quarterly revenue growth is ranked 13th and its long term growth is ranked (5 years or more) 10th out of the top 48 corporations in the industry. Exxon's gross profit in December 2010 was around $150 million and its net income was about $30 million during the same period. Its revenues are $342.6 billion a year and had a free cash flow of $16.92 billion. Exxon Corporation has a profit margin of 8.89% and its operating margin is 12.01% compared to the industry's profit margin of 6.10%.

Exxon's value {using some of the key statistics (valuation measures) provided on the yahoo finance website} is $410.72 billion, the market cap (intraday) is $416.01 billion, the price/sales is 1.21, the price/book is 2.84, the company value/revenue is 1/20 and the company value/EBITDA is 7.35 ( Exxon has a P/E of 13.41, annual EPS of 7.71, quarterly EPS of 1.86 and dividend and yield of 1.76 and 2.10%. It has a book value per share of $29.49. Exxon is more valuable than most companies in the industry's top 48 companies, according to its intrinsic value (a measure value of a company based on the company's future earnings).

The major integrated oil and gas industry value, according to the market capitalization is $19703.5 billion, and their price/book value is 2.06. The industry has a P/E of 14.7, net profit margin of 6.1%, price to free cash flow of -435.7, and a dividend yield of 3.0 %(

According to the notes to Exxon's financial statements, one of the last large debts was the acquisition and merger of XTO Energy Corporation. This debt was financed entirely on an equity based financing method. This method is a way of raising capital by issuing shares of stock in public offering ( Equity financing is the act of raising money for company's activities by selling common or preferred stock to individual or institutional investors ( In return for the money, shareholders receive ownership interest in the corporation (also known as share capital) ( The acquisition of XTO Energy Corporation by Exxon was considered one of the biggest in the last ten years because Exxon paid $41 billion for the corporation (this included $10 billion of XTO Energy's debt)( Exxon issued 0.7098 of share of common stock for each common share of XTO and it gave 25% premium to XTO stockholders. After the transaction, Exxon shares of stocks fell by 4.3% to close at $69.69, while XTO energy stock went up by 15 to close at $47.86 (according to the Dow Jones Industrial Average)( An equities research analyst at Zach's investment research stated that they would maintain a neutral recommendation for Exxon because it had a strong fourth quarter result after the transaction. The integration of XTO is acting as positive catalyst and Exxon has a solid credit profile and pristine balance sheet is the envy of the industry. The company is being active on the shares buyback front and is being reflected on the premium valuation (

The industry of major integrated oil and gas uses debt offerings, including secondary offerings and private placements, which became the leading way to finance activities in the oil and gas market (over $59 billion in 2009)( An equity offering, including IPOs secondary offerings and private placements, decreased from $28 billion in first quarter of 2009 to $16 billion in the second quarter of 2009. An analyst stated that leading oil and gas companies have been raising capital to fund their expansion and growth strategies. He also stated that Debt has been the preferred choice of companies as the interest rates are quite low and the equity markets are still recovering from the financial crisis. Private equity investments in the oil and gas industry registered a rapid increase in the second quarter of 2009, despite the global financial meltdown. Oil and gas companies raised over $440 million in equity financing, representing an increase of 198% over the first quarter of 2009.

The similarities between Exxon and the major integrated oil and gas industry both are ...

Solution Summary

The solution discusses dividend policies and industry debt financing of Exxon and BP.