Excessive Spending - Investment Exceeds Earnings

The American Petroleum Institute has run a full page ad showing a graph that compares oil industry investment versus "earnings" since 1992.

This ad shows that investments exceeded "earnings" in most years... except for 2004. 2005 is not shown.

The basic question here is what is meant by the term "earnings". Is that gross revenue, gross profit, net profit... what? Most people may not know that the term means:

The net income of a company during a specific period. Generally, but not necessarily, referring to after-tax income.

Notes:

Earnings are perhaps the single most studied number in a company's financial statements. They show how profitable a company is.

See also: Bottom Line, Core Earnings, Earnings Estimate, Earnings Surprises, EBITDA, Earnings Per Share (EPS), Net Income

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So, it is not surprising that "earnings" are less than investment. In fact, it is astounding that "earnings" exceed investment. The automobile industry invests billions of dollars to earn millions. So the oil industry seems pretty lucrative by comparison.

Exxon's return on investment (ROI) is about 32%; GM and Ford are about 0%; Toyota is about 5-1/4%. THAT should put things into a little better perspective. (Source: www.money.cnn.com).

ROI=((Benefits-Costs)/Costs)*100%
for example: Earnings of 500, Cost of 5000 gives a 10% return