Wednesday, February 20, 2008

Profits and Profit Margins

Hillary says that she is going to take more money from Exon.

Great. It sounds good to take money from the companies that seem to be making a lot of money. Some members of the media say that the oil companies are gouging the consumer.

It is difficult to say this when you look at the profit margins of the companies in question. What is a profit margin you ask? Well technically: it is the net income divided by the net sales revenue. What does that mean? How much money you make on each dollar of sales. What is profit? That is revenue subtracted from expenses. What does that mean? How much money you make.

When looking at the profits and the profit margins of the oil companies, you see something very interesting. While the profits have gone up, the profit margins have remained the same. (If you don't believe me) This means that the company is simply taking in more sales, while still making the same amount on each dollar. We are not being gouged. YOU are simply buying more of their product. The company has an oblagation to its stock holders to make as much money as it possibly can. So if you are willing to buy the product at the price they are selling it, you can bet that they will sell it at that price.

Let's look at their taxes now. Last year Exon paid about $27 billion in taxes. That is more than the bottom 50% of all tax payers paid! How many is that? 65 million people. If you do the math of all tax payers, total income versus total taxes paid the average tax rate comes out to be about 3%. Do the same math on Exon and you see that the total tax rate comes out to 41%. Any more taxation and you can bet that this industry will leave the US.

If Clinton and Obama really want to reduce the cost of gasoline on the consumer, they would cut the federal tax on each gallon of gas purchased. Currently about 65 cents of every gallon of gas goes to taxes. Cut that in half and you have yourself a very nice reduction in the price.

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