It is the aim of every company to maximize their profits and thus increase the net worthy of the business as a whole. In this regard, it is not peculiar to get many companies measuring their success in terms of how much profits they make in a given trading period. Profit of an organization is defined as the amount of revenue remaining after every expense has been paid. In most cases profitability is used to measure the financial position of a company (Armstrong 212). It should be noted that government taxes as well as other state dues are part of the expenses that have to be paid before profit is declared. In other words, profitability can be defined as a situation where a firm’s investments earn more revenue than the expenses used. It is important to note that profitability does not necessarily mean that a company is doing everything good, because profitability is not synonymous to success per se. However, increase in profitability is crucial in measuring performance of an organization.
Profitability is measured using several methods, depending on the rules of the country. However, the most common way is the deduction of net expenses from total revenue. On the same note, there are several ratios that can be used to compare profitability over a period of time or between various firms. In this regard, making higher profits does not mean that a firm is more profitable than one making lower profits. The amount of capital invested and the volume of sales, among other factors need to be considered when comparing profitability (Armstrong 201). Nevertheless, profits from different companies and different industries can be compared.
Exxon is arguably the most successful company in the world not only boasting of the highest revenue, but also highest number of traded stock. In the year 2011, Exxon reported total revenue of 486.4 billion U.S dollars (Sander 115). However the company has received many criticisms concerning the way it addresses environmental issues. It is noted that the Company is less concerned with environmental protection. On the other hand, Chevron, which is also involved in the oil industry, has invested a lot in social corporate responsibility. However, its revenues are not as high as that of Exxon and were reported to be 244.4 billion U.S dollars in the year ended 2011 (sander 116). Nevertheless, some people argue that Chevron has been leading in stockholder returns in the past five years in the industry.
On the same note, Apple has been having tight competition from Microsoft since its inception. However, the performance of Apple has been very impressive and it has lately surpassed Microsoft. In the year 2011 its sales totaled 108.249 billion U.S dollars (Brockett 195). Google on the other hand has had a vibrant growth rate since it was incorporated in 1998. It is involved in various philanthropic ventures in the world which average about one billion U.S dollars. In the year 2011 the total revenue of Google was 37.905 U.S dollars (Brockett 193).
Measuring profitability simply as the difference between total revenue and total expenses, Exxon will be the most profitable of the four companies given that its net income was 41.060 billion U.S dollars in the year 2011. Chevron will be the second with 26.9 billion U.S dollars net income, compared to Apple’s 25.922 billion U.S dollars and Google’s 9.737 billion U.S dollars during the same period (Brockett 195). It should be noted that the oil industry requires a lot of capital investments in its endeavors. Using the return on capital as a yard stick of profitability, Exxon again leads with 27.48%. It is followed by Apple at 24%, Chevron at 21.6% and lastly Google at 13.4% for the period ended 2011 (Sander 116). Exxon and Chevron have been paying dividends to their stockholders regularly while Apple stopped in 1995, though it announced plans to begin in the quarter that started July 2012 (Brown 151).
It should, however, be noted that all these firms have a way of avoiding tax which is the reason why sometimes they make so much profits. They all use some methods to pay as minimal tax as possible, though they do this within the provisions of the law. However, when confronted Exxon agreed to pay 32.1 billion U.S dollars as tax backs (Brown 173). This idea has caused great debate as to whether the companies should be allowed to avoid tax. Nevertheless, given the considerations above, Exxon is the most profitable company among the four. It has the highest amount of revenue, net income and return on capital.
Avoidance of tax makes a government loose a lot of money which could have been used for other development projects. In this regard, implementation of a law that regulates the minimum percentage of tax that a company can pay, depending on either the total revenue or other factors can in one way or the other affect company performance (Lang 284). Similarly, the law suits against tax avoidance schemes can also reduce the avenues of avoiding tax for many firms thus, reducing their profitability. Exxon has been forced to pay tax backs through this initiative.
References
Armstrong, Michael. Armstrong’s Handbook of human Resource Management Practice. City: Kogan Page Publishers, 2012. Print.
Brockett, Ralph G. Business Sustainability and Accountability: The Emerging Performance and Reporting Paradigm. Hoboken: John Wiley and Sons, 2012. Print.
Brown, Karen B. A Comparative Look at Regulation of Corporate Tax Avoidance. City: Springer, 2012. Print.
Lang, Micahel. CFC Legislation: Domestic Provisions, Tax Treaties and EC Law. City: Kluwer Law International, 2004. Print.
Sander, Peter. The 100 Best Stocks You can Buy 2011. City: Adams Media, 2010. Print.