How much do oil companies make on each dollar of sales?
Most well-known oil and natural gas companies are large. As a result, their earnings are often reported prominently. What is not reported is that, compared to the earnings of companies in other industries, there is nothing out of the ordinary about them.
Over the last five years, average earnings for the oil and natural gas industry have been well in line with the rest of the U.S. manufacturing industry, averaging about 7 cents for every dollar of sales. By the first quarter of 2012, U.S. oil and natural gas industry earnings rose to 7.5 cents for every dollar in comparison to manufacturing earnings, which rose to 8.9 cents for every dollar of sales.
The industry’s relatively small earning on each dollar of sales is not well understood, in part because reports usually focus on only half the story — profits. Profits reflect the size of an industry, but they’re not necessarily a good reflection of financial performance. Profit margins, or earnings per dollar of sales (measured as net income divided by sales), provide a more useful way to compare financial performance among industries of all sizes.
When looking at net profit margins, the U.S. oil and natural gas industry ranks 114 out of 215 industries. Thus, the oil industry is right in the middle of other industries by profitability and actually has a net profit margin that is much lower than industries that have benefited from higher commodity prices, such as silver, copper, gold, industrial metals and lumber.
It’s also important to note that earnings allow the oil and natural gas industry to invest and reinvest in innovative technologies that improve our environment, increase production and help provide a more secure tomorrow. The oil and natural gas industry has enormous investment needs and U.S. energy companies must continually invest in new energy projects in order to keep pace with global energy demand.
