Rate of return on investments will be highly correlated with profit margins. They are essentially both measurements of the same thing. A company with a high net profit margin usually also has high gross profit margins, operating profit margins, return on equity, return on assets, and return on investments in comparisons with their peers.
Also, again let me add the caveat that I don’t think any comparison between financial ratios among companies in different industries is meaningful. You can draw no meaningful conclusions by comparing the financial ratios of Microsoft and a neighborhood grocery. We’re specificly talking about profit margins in this example, but other ratios are equally meaningless. A grocery store may have an inventory turnover much shorter than Microsoft, but that doesn’t mean they are more efficient. It could simply be the nature of the differing businesses.
In my original message I stated that the oil companies were investing billions in facility expansions. I provided links to examples of just some of those projects in my follow-up. You feel that billions spent on expansion projects is irrelevant???
As for closing of old facilities over the past 25 years did it ever occur to you that much of that was made possible by increased efficiencies and expansion at alternate facilities? Not to mention the investment that would been needed to modernize those old sites to meet current environmental standards.
As for my engineering costs example - costs of intellectual resources / design engineering staff is one of the primary portions of an engineering contract. Do you have any concept of what size of an engineering staff is required for projects this size and how long they take from conception to start-up?
That expected profit margins differ between industry segments is clear. However when we’re talking about risk, that can be compared across businesses. Even within the software business, I don’t think you can say that profit margin is correlated to risk - in fact some of the best profit margins come from companies with close to monopoly positions, and thus market power to raise prices.
I’m not sure what you mean by return on investment in terms of profit margin. It can’t be dividends, since these hardly exist for some classes of companies. It can’t be stock prices, since greater risk would seem to lower these. Investment decisions within a company of course follow the greater the risk the higher required return rule. In the old days I’d grant that volatility was correlated to risk, but that doesn’t seem to be the case anymore. If risk is a factor in profit margin, it is so minor a factor as to be practically invisible.
And yet you’ve failed to demonstrate why we shouldn’t compare the two. If you want to call an industry’s profit margins “nominal”, then you need a yardstick to measure by. Hell, I’ve even told you to come up with one. So far it hasn’t happened.
If we were talking about leverage, this might be relevant. We’re not. It isn’t.
I’ll politely tell you that I developed credit risk management software for the internal use of one of the largest privately held companies in the world. In other words, you’re full of shit.
Oh gee, the market. What do I win?
When? Which performs better depends greatly on how the various metrics of the economy are doing. 1962-1982, the CD wins. 1982-2000, the market wins.
Because they are apples and oranges.
Again, and let me repeat it since you seem to be missing this. The argument being made were that profit margins were “nominal”, which is what I posted a rebuttal to. If you also think they are “nominal”, then back it up. Telling us that we can’t measure them doesn’t help that. I’ve also offered to use your metrics, but you don’t seem to want to give those either.
So, one question. Just one. How, in your opinion, can we determine whether the profits of Exxon are non-existent, nominal, poor, sufficient, good, great, or fucking awesome?
I don’t care what they do (that’s Fortune’s categorization). Their profit margin isn’t nominal. Not by any measure you’d care to use. You have yet to demonstrate otherwise, even nominally.
I keep forgetting that some people don’t realize that others can scroll up, and even click back to previous pages if it comes to that.
No, I’m saying that despite those investments, the result is less refining capacity than there used to be.
I guess you didn’t read the stuff I posted. People were willing to buy those refineries and modernize them. The big companies wanted to shut them down to increase their profit margins. And in the past few years, they’ve been boo-hooing that refining capacity is tight because the evil regulators have prevented them from building any new refineries since the 1970s.
Bull. Shit.
Sure, they’ve been spending billions on expanding refineries. To replace capacity that independent refiners used to provide. For purposes of policymaking, that spending should be regarded as their problem, not ours.
No, I don’t - that’s my point.
This will mark the third time I’ve asked you to provide an idea of the size of those costs, relative to oil company profits. Will it be the charm? I doubt it.
You obviously have issues and/or an axe to grind - neither of which interest me. I simply offered recent facility investment information in response to the following
As for the increased engineering costs, the detailed apples to apples comparison figures you’re looking for don’t exist. I could provide the $$ value of contract award to firms like Jacobs, Flour, or Bechtel but that won’t give you a comparison to what that same contact would have been 10 years ago. However, as Voyager has already pointed out, those costs end up being spread out over many years so the impact on oil company profits is minimal.
If you hadn’t associated that information with an alleged effort to increase capacity, you’d have been good, I suppose.
But the context of this is the viability and appropriateness of windfall-profits taxes on oil companies. Quite simply, it makes a big difference whether or not the oil companies are spending money to increase overall U.S. refining capacity, or whether, having squeezed out and bought out competition, and shut down a bunch of American refineries, they’re now increasing capacity at their remaining refineries to make up some of the shortfall they’ve engineered, now that demand has increased.
If the former, it makes perfect sense to make sure they can deduct such costs from a windfall-profits tax, if you want one in the first place. If the latter, then screw 'em.
Before an honest conclusion could be gathered, a detailed look at why each of those facilities mentioned in your consumer watchdog list were closed, not to mention what the product was that the facility produced - after all not all refineries are the same. It’s not that I doubt that some were closed with the intent to lower overall refining capacity but even if they were who’s to say that those steps weren’t perfectly justified at the time. I call bull shit on the wave of the paint brush over a list of 176 facilities and inferring that they were all closed for the same purpose.
The complaint people have, and the reason for a call for a tax, is not a comparison of prices today vs ten years ago, but today and one year ago. I don’t know how many engineers it takes to design a refinery, but I do know about the design of a new telephone switch and a new microprocessor.
California in particular has a shortage of refinery capacity, due to our special requirements. (We pay more, but we get clean air.) I don’t have any smoking guns, but it seems to take longer to switch from the winter to the summer mix than it used to, and there is a spate of capacity reductions just when prices go down. In most industries if you shut down some of your capacity, you lose big. Gas prices, here at least, are so sensitive to refinery capacity that shutting down a small part of yours can actually increase your revenue from the increase in return from the capacity that is left. This effect has been separate from the price of oil on the global market.
Well, count me as confused. I do not see any way that an oil company can make more money by selling less product. Since oil (and gas) are fungible, you can’t significantly reduce the overall supply by unilaterally reducing your own output. And even if you could, you would be placing yourself at a competitive disadvantage.
ETA: This isn’t a response to the post immediately above, but to the posts way up where the allegation is being made that refineries are being closed down to “tighten the market”.
YOU were the one waving your consumer watchdog list of 176 closed refineries inferring that they were closed to reduce capacity and drive up market pricing, not I. All I’m asking for is a detailed listing of those facilities, what their primary product was, why and when they were closed. Your watchdog group shouldn’t have any difficulty providing that.
No, it’s impossible for me to do the inferring - as the reader, that’s your action. As the writer, I can imply; you can infer (and have) that I was implying something stronger than I was: that every last one of the 176 closings were for that purpose. My claim is weaker: that we wouldn’t have had anywhere near that many closings without the concerted effort of the major oil companies to reduce competition and capacity.
My ‘watchdog group’ is a 2005 article in the Kansas City Star. It is not easy, it is not difficult - it is impossible for that article to produce such a list unless it’s already present in the article. It’s not.
