Why are oil company profits so large?
Profits of major oil companies reached $43.3 billion in the first half of 2005, some 42 percent higher than in the same period last year. The big percentage increase helped support the impression that oil profits are excessive, but business analysts stress that other measures should be considered in assessing a company’s or industry’s profit picture. Business Week magazine, for example, regularly monitors the profitability of various companies and industries by comparing their profit margins. To determine profit margin, the magazine divides net income by total revenue. In the case of oil and gas companies, total sales consist of the money they receive from selling their products, as well as revenue received from any other sources. Net income is the money left over after all costs and taxes are paid. Over the long haul oil profits generally remain below or on a par with those of other major industries. As the chart indicates, the Business Week analysis of the data from the five-year per
