Tuesday, June 3, 2008

Profit Margins

Last week oil company executives were called to testify in front of Congress. It was because of record profits that the oil companies are enjoying.
The oil company execs stated that it was because of volume of sales that they were making so much money not that they were screwing the customer. They brought up their profit margins to back this up. The profit margin is determined by subtracting your sales from your cost of goods then dividing by your sales (Sales-Cost of goods)/Sales. This tells you how much money you made on each dollar brought in.
Right now Exon Mobil has a gross profit margin of 21.6%
Let's compare this to some other companies shall we?

Apple Computers: 34.4%
Whole Foods: 34.5
HP: 24.6
Toyota (maker of the Prius): 25.5

All of these companies make more money on the dollar than the oil company does. Why were they not called before congress? Why wasn't John Mackey torn away from posting bad things about his competitors online to testify in front of congress why his company was screwing the customer by charging too much? Why wasn't Steve Jobs put on the stand to explain his company's extreme profits?

The price of gas can be easily reduced by adding more oil in to the market, forcing the price of crude down. Right now OPEC is in control of the majority of the supply. The US has plenty of oil that it could drill to reduce the burden on its people. Congress has simply refused to allow drilling where the oil is.

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