Return to the Free Liberal Homepage

« More Energy Blather | Main | Safe to go back in the water? »

How to "Lie" with Statistics

All this talk about "price gouging" and a "windfall profits" tax got me to wonder: Just how well did, for instance, Exxon Mobil do in the third quarter.

In my experience, the media simply does not understand financial statements. Ditto for pols. I used to work on Wall Street, and I know, at least, how financial people look at things, which is generally a far better representation of how things are. It's their livelihood, after all, not just a news story to be covered one day, dropped the next.

For instance, we keep hearing about the "outrageous" $9.9B profit that Exxon Mobil made in the third quarter of this year. Apparently, that's the biggest single-quarter profit ever, by any corporation.

Is this somehow surprising? To me it's not. Exxon Mobil is the second largest company in the US. Odds are high that a very large company is going to post the largest profit, at least once in a while.

Then, news reports hammer home that Exxon's profits were up 75% FROM THE PREVIOUS YEAR. While financial reports do report "year over year" results, Wall Street generally disregards those numbers. Instead, they look at more current trends. Over the past 4 quarters, Exxon's profits have been ranging from $7.6B up to $9.9B. Nice increase in the last quarter, but only about 20 to 30% better than the previous 3 quarters.

Katrina hit in late August, so its effects were felt basically for one-third of the third quarter. There was a temporary supply shock. But Exxon was no doubt selling inventory that it had generated in previous months for most of September. Prices went up for inventories that had refined pre-Katrina. Of course profits would spike a bit in the third quarter. If they hadn't, Exxon would have been a terrible manager!

In fact, if you look at the profitability percentages -- net income divided by revenues -- of the last 4 quarters, what do you find?

Exxon's profit rates were right in line in ALL 4 QUARTERS, at about 10%.

Beware "facts," because "facts" are no replacement for truth.

-Robert Capozzi

Posted by Robert Capozzi on November 29, 2005 04:03 AM |

Free-for-all (frfr-ôl) -- n. A disorderly fight, argument, or competition in which everyone present participates.

from Dictionary.com



Advertisement
Free For All -- The Free Liberal Blog