Posts tagged “profit margins”
Unfair Profits or Lots of Volume?
Most people, if asked to name off the top of their head which industries were taking advantage of consumers to generate insanely high profits, would likely have the oil and gas industry at the top of their list. Isn’t it a well-known fact that with gas prices spiraling through the roof, “Big Oil” is by far the most profitable industry out there, hence they must be taking advantage of consumers?
Actually, it’s not that simple. But public opinion would have it otherwise.
In fact, industries such as internet information providers and personal computers rank well above major integrated oil and gas (Big Oil) when it comes to profit margins. The simple definition of profit margin is: A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.
It is clear that many people have a very simplistic — but wrong — view of the energy markets. This extends to politicians who believe they can usher in a return to $2 gasoline, as well as those who underestimate the difficulty of replacing oil with renewable energy.
For the average person, gasoline prices go up because oil companies are pulling strings, meeting in secret to set prices, or withholding product from the market. To top it off, we are sending them our tax dollars as subsidies while they are wallowing in cash! That’s the view from the man on the street. Somehow, I would have expected a USC business school professor to have a more sophisticated understanding of the situation — especially if he decided to write an article about it. But I would have been wrong.
Normally, when I read something like the following, I am more prone to just shake my head over the sad state of the person’s energy IQ. But I am making an exception here in the case of Professor Ira Kalb, a marketing professor at USC’s Marshall School of Business. The professor recently wrote the following article for Business Insider:
In my travels around the globe, I have never been to another country that regards their oil companies as we do here in the U.S. I have actually been in countries where people view their domestic oil companies as a source of national pride. Here in the U.S., the average person on the street views our oil companies as vile, greedy parasites on taxpayers that should be tarred, feathered, and run right out of the country. While this belief is commonly held among Democrats, even staunch Conservatives like Bill O’Reilly have gone on anti-oil company rants, while offering suggestions like “American oil companies must supply the federal government with a written explanation every time they raise the price of gas… Continue»
Introduction In Part I, I discussed the short term factors that have resulted in the recent, rapid increase in the price of gasoline. But there are a number of underlying, long-term issues that have been major contributors. I will attempt to address them and answer a number of related questions, such as: Why have no new refineries been built in the past 30 years? Are U.S. refineries breaking down more than normal? Are oil companies purposely withholding supplies to keep prices high? Have environmental regulations played a role? Does the use of ethanol influence gasoline demand growth? The answers to some of these questions may surprise you. Please note that my essays should not be confused with financial advice. Following… Continue»
So, I am running through some of my daily news searches – things like “gas prices”, “gas gouging”, “alternative energy”, etc. I ran across this gem: Gas price gouging becomes even more obvious It is basically just another ignorant screed from someone who apparently thinks oil companies can just raise and lower prices at a whim: As long as no significant gasoline retailer breaks ranks and the price at the pump remains fairly constant from one street corner to the next within a region, there is no reason for any oil company not to raise prices. So they do. An absolutely abysmal understanding of the issues. It is funny that people seem to understand that when the price of gold… Continue»
I have been watching the news closely to see who would be the first politician to attempt to score political points as oil companies released profits this week. The prize was won by Nevada Senator Harry Reid: Reid: The Republican Congress Puts Big Oil Before Working Families Source: U.S. Newswire WASHINGTON, July 27 /U.S. Newswire/ — The following release was issued today by the Senate Democratic Communications Center: Once again, Big Oil is reporting stunning profits as Americans pay skyrocketing prices for gas. With ExxonMobil today reporting $10 billion in second quarter profits, the second largest quarterly profit ever recorded by a publicly traded U.S. company and only the latest of the sky-high profits reported by Big Oil this week,… Continue»
There are a few things I have learned over the years regarding the relationship between the public and oil companies. The public seems to have an especially strong distaste for oil companies, and especially Big Oil. They don’t seem to care that the profit margins are much higher at Microsoft or Citibank, because they don’t have to shell out money directly to them on a regular basis. If they are paying higher prices than they think they should be, and oil company earnings are good, then they think they must be getting ripped off. This mentality is pervasive, despite the fact that finding, extracting, and refining oil is risky, both physically and financially, and requires huge sums of capital. When… Continue»
Where’s the Outrage? They reported profits today of $2.89 billion in the first quarter on revenues of $10.9 billion. Their profit margin on sales was 26.5%! I was expecting outrage. Yet I haven’t heard anyone call for their tax records, to make sure they “aren’t taking a taking a speed pass by the tax man”. (1) I haven’t heard anyone propose legislation to cap their profits. I haven’t heard anyone propose that their CEO be called to Capitol Hill to defend his company’s profits. Why not? Because we are talking about Microsoft, and the rules seem to apply differently when we are talking about “optional” purchases like software instead of “mandatory” purchases like gasoline. (Of course software permeates every facet… Continue»
Can You Believe This Guy? I am aware that from time to time a politician has stopped by to read some of my essays. I have even had contact with some of you. I do believe that political service is a very noble profession. But I also believe that many are wasting an opportunity to best serve their constituents. Far too many tell their constituents what they want to hear, instead of what they need to hear. I implore you to stop the political posturing, and start taking steps to address the real issues. Don’t follow the example of Pennsylvania Governor Ed Rendell, as documented below. I have read with a bit of amusement over the past couple of days… Continue»
I have a few essays in the queue (including a nifty biodiesel story), but I thought I would comment on an article in today’s Deseret News out of Salt Lake City. The article was entitled “Will U.S. Slap Tax on Big Oil Profits?”. (1) A few excerpts from the article, followed by my comments: Republican Sen. Arlen Specter said Sunday that the U.S. Congress should consider taxing the “windfall profits” reaped by oil companies as a result of surging crude oil prices. I understand the frustration with high gas prices even as oil companies rake in record profits. But what is Specter trying to accomplish? Does the good senator believe this will magically bring the price of oil down? Will… Continue»