Chevron Corporation (Coursework Sample)

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Chevron Corporation
Company’s Background
Chevron Corporation is an oil and natural gas company based in America. The company has been into operation since the late 19th century; however, it has operated under different names in the past. Currently, Chevron operates in more than 180 countries and has its headquarter in San Ramon, California. The company conducts its operations through the downstream and upstream business segments. The downstream segments refine crude oil into various petroleum products. Upstream segment on the other hand carries out exploration and production of crude oil and natural gas. In addition, Chevron is involved in mining and production of power and production of energy services.
Risk Factors
Chevron faces both internal and external risk factors. The internal factors that currently affect the business include the fast technological advancements. Technology is fast changing in the production and distribution processes; thereby placing the firm’s current technology at the risk of becoming obsolescent. The firm also faces the risk of loss and destruction of property in some of its branches located in the hostile areas such as the Middle East. Externally, the business faces the risk of reduced clientele due to the constantly increasing entrants into the market.
Management Discussion
The management indicates that they had a solid financial performance for the year 2014. Chevron managed to obtain a 10.9% on capital employed. The company also managed to increase the amount of dividend payout; thus indicating an improved financial performance. Chevron further ranked position one among its peers on its upstream operations for the fifth time in a raw. Therefore, the management made a right comment concerning the financial performance for the year 2014. Despite, the relatively good financial performance, Chevron faced a number of challenges in 2014. First, the firm suffered a 50% drop in the prices of oil in the second half of the year; thus reducing the anticipated profit margin. Chevron further faced increased competition from the new entrants into the market in the year 2014.
Management Strategy
In order to realize constant improvement, Chevron has projected a 20% increase in production of oil which is more than the percentage projection by their competitors. The high projection will enable the firm to increase its supply to the markets than the competitors. The firm has also strategized to expand its operations to other areas such as Bangladesh and Nigeria. The intended expansion into the new markets will further enable the firm to capture more market and improve its sales revenue.
Ratio analysis
Profitability Ratios:
Profit margin ratio = net income ÷ net sales
Year 2014: 19,241 ÷ 192, 308 = 10%
Year 2013: 21,423 ÷ 211,665 = 10%
The profit margin ratios above indicate 10% for both the year 2014 and 2013. The ratio implies that the firm’s net income accounts for 10% of the net sales. Therefore, the ratio indicates a positive performance by the firm since it has a positive net profit even after deducting all the expenses.
Gross margin ratio = gross profit ÷ net sales
Year 2014: 55,538 ÷ 192, 308 = 29%
Year 2013: 60,833 ÷ 211,665 = 29%
The gross profit ratios show positive and consistent performance by the firm. The outcome is as a result of a maintained level of sales operations and profit margin. The ratio also implies that the firm has extra funds to cater for its other expenses.
Solvency Ratios
Debt ratio = total liabilities ÷ total assets
Year 2014: 109, 835 ÷ 266, 026 = 41%
Year 2013: 103, 326 ÷ 253,753 = 41%
The debt ratios indicate that the firm has more assets than the amount of liabilities. Chevron has invested most of its funds and only uses limited sources from third parties to finance its operations. Both the two years also show similar debt ratio which means tha...