Assessing a Companys Solvency for Long-Term Stability
The company’s long-term capacity
Solvency refers to the company’s long-term capacity to keep up it stability over the long term. Normally measured by the debt to equity ratio, with the formula of having the total debt of the company divided by its total equity, solvency should assure investors that the company will not just survive the short term but it must also have a long life to recover long term investments which takes years to produce the needed returns.
The debt to equity ratio of Exxon Mobil is 8.34 as against industry average of 26.77.
The solvency ratio of the company is almost 3 times less than the industry average and this means the value the company investments from stockholder is stronger for the company as against its competitors. This means that the competitors are about three times riskier than Exxon Mobil is. It is therefore an evidence of good capital structure for Exxon Mobil, as the company would be considered able to make further expansions in the future without falling to be as riskier than present competitors were.
It means, in simple terms, that the company is able to manage its long terms risk that its profitability was enough to provide funds not only to pay currently maturing obligations but even to provide good amount of dividends annually to investors if the company want to do so and even to make future expansion Market ratios will tell how well the stocks of the company are valued by the stockholders. As management tries to maximize the wealth of stockholders, there must be a way to measure the same.
The market ratios for the company
Some measures of attaining the objective is knowing how valuable are the stocks of the company in relation to its earnings and its book values of the company. The information summarizes the market ratios for the company as against is competitors in the industry. In terms of P/E ratio, the company is definitely better at 7.84 for the latest twelve month as against industry average of 6.49. Even using the low and high average of price-earnings ratios for the past five years, the company is ahead over other players in the industry.
These higher valuation ratios mean that investors would risk more in buying the company’s stocks than competitors. This is consistent because of the very solvent, liquid, and profitable condition of the company over its competitors in the industry. This is also consistent with analyst recommendation to hold and buy stocks of the Exxon Mobil, which means that prices could remain high or could be higher. Even the latest stock information from Wall Street journal, one could clearly see the increasing stock price of the company for the last 10 days.
One interesting question that must be answered for the company is whether the company satisfies the need for stockholder for their dividends. The response of Exxon Mobile is positive as indicated in the ratios. Latest dividend yield shows the company to be giving more to stockholders than competitors. It lower dividend yield based on five year average may be noticeable but the company must be balancing it moves to maintain better capital structure than competitors as show earlier in term of better debt to equity ratio.
Conclusion
Given the company’s very high profitability, management efficiency, liquidity and solvency, all reasons would go into the attractiveness of investing with the stocks of Exxon Mobil. The very high profitability efficiency will most probably maintain the good liquidity of the company and would keep the company stable even for much longer time than competitors. Given such past performance of the company and good financial condition, Exxon Mobil could be estimated with reasonable basis to have a good future, which will result to higher prices of its stock and thereby achieve wealth maximization for stockholders.
In short, its stock price could go up further making the company attractive to invest now by either buying now or holding present investment to be sold latter. This analysis is supported by the analyst recommendation to hold and/or but the stocks of the company since holding the investments is saying the prices would go up in the future and it is advisable to sell stockholdings latter. From the point of view of a would-be investor, buying now the stock of Exxon Mobil is very much encouraging as the chances of selling latter what would be bought now could make one richer or wealthier.
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