Oil Profits

By GotDesign
It seems that every year (and this year in particular due to the rise in gas prices) Liberals take great joy in thrashing the oil companies for their "excessive profits." But to a shareholder's mind, there is no such thing as excess profits. A shareholder has put up some of the money that the oil companies use to pay payrolls and buy oil rigs (and the like). The first reason for anyone to go into business is to make money. Thing come things like "for the public good" and "because I like to do it."

But let's look at how much profit oil companies are making. I went to the Exxon Mobil website and looked at their 2005 annual report. On page 38 of their annual report, Exxon Mobil reports its Statement of Income. Exxon Mobil had a total income of $371 Billion and costs (including taxes) of $334 Billion -- which means that Exxon Mobil made a profit of $36 Billion. When you do the math, that means Exxon Mobil's profits as a percentage of Income were 9.7%. That's not bad and its definitely not excessive. In any investment you would do well to get a return on your investment of 10%. After briefly browsing other oil companies, you see generally the same level of profits across the board. I wouldn't categorize profits as "excessive" until you get above 25%. But, if you can get 25% profits, GO FOR IT! There is nothing wrong with profits at any level. If people will pay for it, profit as much as you can. In the end, the market will work you back down to "more reasonable" profit levels.

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