Overview: Profitability Ratios

This week we will focus on the company’s profitability ratios. Profitability ratios are very important to investors. Companies often use these ratios when evaluating its managers.

Profitability should be viewed from three different perspectives:

1. Profitability in relation to sales.

2. Profitability in relation to assets.

3. Profitability in relation to equity.

It is quite possible for the company to perform well from one perspective and poorly from another.

Report Headings

Name of Company and Ticker Symbol: Exxon Mobil Corporation (XOM)

10-K Report: https://www.sec.gov/ix?doc=/Archives/edgar/data/34088/000003408821000012/xom-20201231.htm

Company Website: https://corporate.exxonmobil.com

Industry name and NAICS Code: 447190 – Other Gasoline Stations, 324110-Petroleum Refineries, 211120 – Crude Petroleum Extraction

Profitability Ratios: Follow the formatting in the example below to present the data. See this sample eStatement Studies document for help in finding the industry average data needed for this assignment.

20XX

20XX

20XX

Industry Average**

Gross Profit Margin (Gross Profit / Sales)

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Operating Profit Margin (Operating Profit / Sales)

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Pre-Tax Net Profit Mg (Pre-Tax Profit** / Sales)

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Pre-Tax Return on Equity (Pre-Tax Profit* / Shareholders Equity)

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Pre-Tax Return on Assets (Pre-Tax Profit** / Total Assets)

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*use Pre-Tax Profit to make the comparison to the industry average more accurate. **There will be a single industry average for the gross, operating, and pre-tax net profit margins. List all 3 industry average figures for the pre-tax return on equity and the pre-tax return on assets.

Evaluation: Share what we learn from the data and information collected for this discussion. Interpret each of the ratios. Review the Financial Ratios Guidelines document for direction. Do you see any red flags? How profitable is the company in relation to sales? How profitable is it in relation to assets? How profitable is it in relation to equity?