Responding to ordinary supply and demand factors

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Reference no: EM13972102

Every time gas prices go up charges fly back and forth in the news about whose fault it is. Some say the oil companies are getting rich off the backs of the rest of us and cite Exxon-Mobil’s record profits to prove it, but others say they are just responding to ordinary supply and demand factors and that big oil companies are no more profitable than companies in other industries. As financial analysts, we ought to be able to determine the truth of the matter rather quickly. We have heard that Exxon-Mobil makes mega-billions in profits, but how about their profitability ratios? Are they extremely high as well? Let’s do a project to find out. Let’s compare the 2014 financial profitability ratios (Net profit margin, ROA, ROE) for Exxon Mobil with those of say, Wal-Mart, General Electric, Lockheed Martin and Kraft Foods. These are representative large companies in diverse industries not directly associated with big oil. If the results show Exxon Mobil’s ratios are significantly higher than the others, we can join the crowd, carry signs in front of gas stations, and call for a boycott. If the results show that Exxon Mobil’s ratios are not out of line with the others, however, we might reluctantly have to agree that perhaps Exxon Mobil’s management are not villains after all and search for some other culprits.

Reference no: EM13972102

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