Financial Analysis of Energy Sector Industry and Chevron Company (Research Paper Sample)

FIN 600: Advanced Financial Management
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Table of Contents TOC \o "1-3" \h \z \u Executive summary PAGEREF _Toc513732725 \h 3The Energy Sector Industry PAGEREF _Toc513732726 \h 3History of the energy sector PAGEREF _Toc513732727 \h 4Challenges in the energy sector PAGEREF _Toc513732728 \h 4Outlook of energy industry PAGEREF _Toc513732729 \h 5Current position of the industry PAGEREF _Toc513732730 \h 5Industry influences PAGEREF _Toc513732731 \h 6The Chevron Company PAGEREF _Toc513732732 \h 7Challenges facing the organization PAGEREF _Toc513732733 \h 7Time Trends and Peer Group Analysis PAGEREF _Toc513732734 \h 8Liquidity ratios PAGEREF _Toc513732735 \h 10Asset management ratios PAGEREF _Toc513732736 \h 12Debt management ratios PAGEREF _Toc513732737 \h 14Profitability ratios PAGEREF _Toc513732738 \h 15Market value ratios PAGEREF _Toc513732739 \h 17Free Cash Flow and Net Cash Flow PAGEREF _Toc513732740 \h 18Conclusion PAGEREF _Toc513732741 \h 19References PAGEREF _Toc513732742 \h 20
Executive summary
The energy sector forms a vital sector in the current society. It is however challenged with ever increasing demand for energy from the growing population and its impact on the environment. This paper analyzed Chevron Corp in the energy sector together with two peer companies in the sector (Royal Dutch Shell and Exxon Mobil). The analysis was based on five categories of ratios which are liquidity ratios, asset management ratios, debt management ratios, profitability ratios, and market value ratios. The results from the analysis showed that Chevron is operating better than the peers with its ratios above the industry average in most of the years of analysis.
The Energy Sector Industry
The energy sector majorly deals with oil mining and refinery. Major dealings by the sector include production of petrol, oil and gas energy which are commercially consumed as well as being used in households. These products form a basic need in the society because without energy, machinery and other engines cannot run to produce other products and services that sustain human life. It therefore helps in sustaining the industrial infrastructure and providing energy for the society for various uses 4. This industry thus becomes vital for analysis as it plays a key role in the sustenance of society.
History of the energy sector
Energy production and use has been a major force in the development of society as it has been in the forefront in assisting to control and adapt the society. The history of energy production and use can be dated back to the 15th century when simple energy production techniques were used to produce small quantities of energy for subsistence use such as warming or cooking simple food. However, in this periods there was also large scale production of energy in selected parts of the world that had developed and become industrialized in the period of industrial revolution. The major source of energy in such periods was coal energy. In the 17th century, the production and utilization of energy became commercial by a first remarkable source of energy which was the steam energy and was first used by a first commercial steam engine developed by Thomas Newcomen. With time, other sources of energy were discovered such as the wind and water energy production as well as oil refining into petrol, diesel and gas. The usage of this energy is widely evidenced in the production sector, the transport sector and the agricultural sector in running machinery 1. Proper management is necessary to ensure that the quality of living is enhanced as the sector plays an important role in human living.
Challenges in the energy sector
Despite the significant role that the energy sector plays in human life, it comes with challenges and is also challenged immensely. One of the challenges is that the industry products are largely depended on by humanity thus there is a lot of pressure on the demand for the products. It is a source of daily energy in industries and households thus needed every day. As the days goes, the demand for the products increases since more and more industries are coming up as well as other machinery that uses the products from the energy industry 8. Another challenge is the negative effect that the production of the products in this sector has brought on the environment. It has been greatly reported that the major source of environmental pollution comes from the production of energy. Climate changes such as global warming has been orchestrated by the production of energy though the emission of greenhouse gases and chemicals to water sources. The industry is thus required to mitigate the challenges it poses to the environment of which the most evident challenge is global warming 5.
Outlook of energy industry
Clear outlook of the energy sector can be found from the reports of the World Energy Outlook that is released annually by the International Energy Agency to give the state of energy production and requirements of energy. The report from the agency show that there is a significant growth in energy demand with the increasing set up of industries. It has been estimated by the agency that by the year 2035, the global energy demand would have increased by more than 33 percent than it is now 7. The report has also outlined areas of action for the production of sustainable energy with minimal impact on the environment. The areas include the aspects of production of universal energy, production of more green energy and avoidance of fossil fuels, an acting to mitigate the effects caused by the energy production such as the effects of climate change.
Current position of the industry
Scrutinizing the stock performance for the sector, it is evident that the performance shifts are very minimal. The annual changes are seen to be as low as 5 percent. The product prices for the energy products are also seen to be greatly dependent on the raw materials that are used to produce them. The trend and patter of performance is also seen to be constantly lagging with minimal increases at sometimes. Therefore, the current position of the industry can be said to be in the last stages of the cycle phase. This is characterized by the presence of minimal changes and constantly lagging growth rate for the industry 5.
Industry influences
Since the energy industry is so critical in supporting human living yet so challenging to human life,