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Originally Posted by loquitur
it would also be interesting to see whether the profits oil companies are making, compared to their cost of capital, are within the norms of most other companies. That's probably the most relevant comparison, and my undestanding is that the oil companies' returns are good but a bit on the low side. Certainly less than, say, Google or Microsoft or Procter & Gamble. That's off the top of my head, I could be wrong.
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I looked at last fiscal year's return on assets (roa) and return on equity (roe).
Exxon Mobil: ROA 17%, ROE 34%
BP (British Petroleum): ROA 9%, ROE 39%
GOOGLE: ROA 17%, ROE 22%
Starbucks: ROA 13%, ROE 31%
Microsoft: ROA 22.3%, ROE 64%
Home Depot: ROA 21%, ROE 25%
Caterpillar: ROA 6%, ROE 70%
Proctor&Gamble: ROA 9%, ROE - not listed
Return on assets is not good for comparing companies in different industries because of the different capital requirements. In many cases our integrated oil companies may not own the oil in the ground, but may have licencing agreement to pump it, therefore the known oil in the ground would not be an asset.
Return on equity in many cases is a measure of how management manages the balance sheet and to what degree profits are reinvested.