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Submitted by holderfj on March 15, 2007
Category: Business
Words: 1142 | Pages: 5
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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
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