MPC financial analysis

Document Type:Research Paper

Subject Area:Finance

Document 1

The company buys refined entities and ethanol for retail. The refined products handled by the company include propane, distillates, heavy fuel oil, asphalt, and gasoline. The Speedway fragment wholesale transportation fuels and convenience products to retailers in the market. The Marathon Petroleum Corporation achieved financial performance in all the major fragments in the year 2017. The refining and marketing fragment demonstrated a significant increase in earnings while the Speedway and Midstream fragments transformed the annual finance report positively. MPC has a massive wholesale supply chain of gasoline and distillates to small retailers in the market platform. The most significant brands that favor the MPC competitive advantage are the Speedway and Marathon. Speedway facilitates the second most massive chain of supply consisting of 2,730 stores within twenty-one states (Marathon Petroleum Corporation, 2017).

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The Marathon brand is fundamentally a motor fuel brand composed of 5,500 retailers operational within nineteen states in the United States (Marathon Petroleum Corporation, 2017). The MPC distribution network enables maximization of values of sales at a lower operational cost. Financial ratios and common size financial statements are utilized to manage large companies’ financial analysis. The criterion of financial statement analysis used in this case is horizontal analysis. Horizontal analysis constitutes the comparison of the entities outcomes between two years, subtracting to get the difference and then computing the percentage (Sherman, 2015). The rate is obtained by computing the ratio of the difference between the years to the previous year value. The following is a discussion of the horizontal analysis of the MPC comparative balance sheet and income statements review as shown in Figure 1 and 2: The inventories have illustrated a decrease from 2016 to 2017 showing that the MPC management is doing a good job in control processes.

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The retained earnings moved up by 26% resulting in the net income increase of 214%, and the dividends augmented to $160,000 to the ordinary stockholders. The income statements illustrate a significant increase in net sales corresponding to the increased cost of goods at 17. 1% rate. The financial analyses show an increase in operational cost within 2017 this includes merchandising and management expenses. MPC should review the fundamental cause of the increased expenses and critically scrutinize the operational cost amenities to examine the necessity and vitality of the costs incurred. The total number of asset in 2018 is computed as follows: Total Assets turnover = (Sales)/Average Total Assets= =1. 46 But asset turnover=average of (Sales/average total sale) = 1/2(74,104/49047 + 63227/44413) = 1. 46 Computing the above equation X= 62,616. 6 Where 81514. 4 are the projected sales in 2018, X is the total asset projection in 2018.

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The criterion determines the capacity of the organization to meet short-term debts with regards to its liquid assets. The following is the computation of MPC liquidity using two ratios namely: current and quick ratio. The current ratio is the primary method of determining the company’s ability to meet short-term obligations. The current ratio is computed by: Current ratio 2017= Quick ratio 2017 = Financial leverage: defines the aptitude of the company’s fixed objectives and its ability to accomplish them. Financial leverage = Financial leverage (debt ratio) = (Total liabilities)/Total asset= 27219/49047 = 0. 29 Price earnings ratio = Earnings per share/Prices per share = 5. 29/ Measure of relativity value Net present value = R is the discount rate = 11. 2% Earnings per share = = (2868-1. 29 Activity: determines how efficiently the company in investment utilization.

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Inventory turnover 2017= Cost of goods sold/Inventory = 3011/5550 = 0. 25 D= market value debt ratio = 0. 25 V= E+D T is the corporate tax rate = 0. 46 Re is the cost of equity Rd is the cost of debt WACC= 0. 03% EAC= $2,361,960,000 – (0. 2603*$39,193,000,000) = - $9,965,741,900 Synopsis From the ratio analysis above it is safe purchasing stocks from MPC. A low current ratio could mean the company is experiencing a few setbacks in offsetting the short-term obligations. A high current ratio may imply that the organization is unnecessarily putting too many investments in some specific fund allocations. MPC generates 1. 46 of the revenue for each of its assets. The company has intact efficiency in assets utilization and operates with suitable capital-intensive approach. Despite the good market value, the company needs to review its key strategies and perform a thorough SWOT analysis to determine the cause of increased debts despite the financial growth.

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The economic added value suggests that the profits that MPC is making are not sufficient to compensate the capital cost. International risk factors Despite the company strength in the markets, it faces various international financial risk factors. The uncertainty of the refinery market and demand pose a critical financial challenge. The reduction of market demand would adversely affect the MPC cash flow hence affecting its future advancement, assets value, and its aptitude to implement share repurchases and dividend payments. The company has an excellent market value that favors stock purchase. The debts incurred by the company may seem huge, but this is because the company is large and advancing annually the prompts more potential investment opportunities that have proved feasible exploring.

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