God, the World, and My Family.

This is a place for me to share my thoughts on God, the state of the World, and my own family. It is intended to be a window into my mind as I anguish and lament over some things and rejoice over others. These days my busy thoughts are anxious to find outlets to express themselves, and they want to share themselves with you.

2008/04/24

"Record Profits"

A lot of people are angry about companies making "record profits."

-Company A is one of the largest private companies in the world and sets records in the dollar amount of profit that it earns, but the industry is capital intensive and the profit margin is only 10%. That is, for every dollar in sales the company makes 10 cents and the rest goes towards expenses and taxes.

-Company B is a smaller company than Company A and makes less dollars in profit, but it has a lesser investment in capital. The profit margin is 30%. For every dollar in sales, the company makes 30 cents.

Which company would better deserve accusations of "price gouging" and application of a windfall profits tax?

Is it fair to apply a windfall profits tax to Company A without doing anything to penalize Company B?

Want to know which companies these really are?

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Company A, with a profit margin of 11.23%, is Exxon-Mobil.

Company B, with a profit margin of 29.29%, is Microsoft.

Some others for comparison:
McDonalds, 10.51%
Apple Inc., 15.37%
General Electric, 12.69%
Home Depot, 15.67%
Time Warner, 9.44%
AT&T, 10.05%

"The profit margins of large U.S. companies have ranged between roughly 5.5 percent and 7.5 percent through most of the period shown. During the mid 50's and early 60's companies enjoyed healthy profitability spurred by strong economic growth. From their peak in 1965, margins generally declined through 1983. During the 1990's they climbed back to their previous highs of 7.5 percent (although a chunk of those earnings would evaporate over the next few years after they were found to be fraudulent). Following the earnings plunge of 2001-2002, the recent economic rebound has put net income at about 8.5 percent of revenues, a 50-year record."
http://www.hussmanfunds.com/rsi/profitmargins.htm

Why aren't people more outraged about Microsoft's profits than Exxon's? Or Home Depot, or GE?

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1 Comments:

Blogger VeganLinda said...

I'm guessing the reason Exxon bothers people more than Microsoft is because they sell something that is considered a necessity not a luxury. I'm not saying you don't have a point, I'm just saying this plays into people's perception. Also, energy and in particular oil has always been a "dirty" business with all sorts of emotion tied to it.

5:37 AM  

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