Another thing to consider. Absolute profit amounts mean nothing - profit is based on "return on capital". Another way to look at it is suppose you made $10,000 profit in a year, but had to invest $1,000,000 to do that. Would that be good - no it would be ****ty profit for what you invested (you made 1% on your money that you tied up for the year). But if you invested only $100,000 and made $10,000 that would be excellent (the money you tied up for a year made you 10%). The absolute number means nothing unless you know how much was invested.
All major oil companies have BBBIIILLLIIIOONNNSS of dollars invested in the infrastruture. In many of their divisions, the return is worse than if they just sold the capital and put it in the bank. Putting money in the bank or smart investments guarantes 4%+ (at least) and is risk free, so why would a company operate if it makes less than that such as the retail gas indusrty.
Believe it or not, the margin is so low at the retail gas station that most would be closed if you didn't buy cigs or pop or carwashes, etc (gas alone doesn't cut it). Keep in mind that an average station sits on land worth $1.5M and that the station costs $1.5M to build which only has a life of 10-15 years until it is obsolete and needs to be closed or rebuilt again. Thus in 10 years the company must recoup the 1.5M$ to build - that means the station must profit at least $150,000/yr just to cover the investment - what about profit?? So if you heard that your local gas outlet made $200,000 profit and so did the neighbouring one and so on (which adds up when a large company has thousands of stations), would you feel cheated. You shouldn't because this is what they need just to remain open, and I know first hand that many individual stations profit much less than this which is why their overall return is worse than just selling and putting it in the bank.
|
10-27-2005, 06:14 PM
Posting Rules
Threaded Mode