Computing and Interpreting Profitability Ratios
Use the information for Chevron Corporation in E13-1 to complete the following requirements.
Required:
1.Compute the gross profit percentage for each year (one decimal place). Assuming that the change for 2007 to 2008 is the beginning of a sustained trend, is Chevron likely to earn more or less gross profit from each dollar of sales in 2009?
2.Compute the net profit margin for each year (expressed as a percentage with one decimal place). Given your calculations here and in requirement 1, explain whether Chevron did a better or worse job of controlling expenses other than the costs of crude oil and products in 2008 relative to 2007.
3.Chevron reported average net fixed assets of $85 billion in 2008 and $74 billion in 2007. Compute the fixed asset turnover ratios for both years (round to two decimal places). Did the company better utilize its investment in fixed assets to generate revenues in 2008 or 2007?
4.Chevron reported average stockholders’ equity of $82 billion in 2008 and $73 billion in 2007. Compute the return on equity ratios for both years (expressed as a percentage with one decimal place). Did the company generate greater returns for stockholders in 2008 or 2007?
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