The average price of a gallon of gas in 2013 dropped $0.12 (3 percent) from $3.6
ID: 2592728 • Letter: T
Question
The average price of a gallon of gas in 2013 dropped $0.12 (3 percent) from $3.61 in 2012 (to $3.49 in 2013). Let’s see whether these changes are reflected in the income statement of Chevron Corporation for the year ended December 31, 2013 (amounts in billions).
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1. Compute the gross profit percentage for each year.
2. Assuming that the change from 2012 to 2013 is the beginning of a sustained trend, is Chevron likely to earn more or less gross profit from each dollar of sales in 2014?
3. Compute the net profit margin for each year.
4. Did Chevron do a better or worse job of controlling expenses, other than the costs of crude oil and products, in 2013 relative to 2012?
5. Chevron reported average net fixed assets of $150 billion in 2013 and $130 billion in 2012. Compute the fixed asset turnover ratios for both years. (Round your answers to 2 decimal places.)
6. Did the company better utilize its investment in fixed assets to generate revenues in 2013 or 2012?
7. Chevron reported average stockholders’ equity of $140 billion in 2013 and $130 billion in 2012. Compute the return on equity ratios for both years.
8. Did the company generate greater returns for stockholders in 2013 or 2012?
The average price of a gallon of gas in 2013 dropped $0.12 (3 percent) from $3.61 in 2012 (to $3.49 in 2013). Let’s see whether these changes are reflected in the income statement of Chevron Corporation for the year ended December 31, 2013 (amounts in billions).
2013 2012 Total Revenues $ 220 $ 231 Costs of Crude Oil and Products 143 149 Other Operating Costs 41 36 Income before Income Tax Expense 36 46 Income Tax Expense 15 20 Net Income $ 21 $26
1. Compute the gross profit percentage for each year.
2. Assuming that the change from 2012 to 2013 is the beginning of a sustained trend, is Chevron likely to earn more or less gross profit from each dollar of sales in 2014?
3. Compute the net profit margin for each year.
4. Did Chevron do a better or worse job of controlling expenses, other than the costs of crude oil and products, in 2013 relative to 2012?
5. Chevron reported average net fixed assets of $150 billion in 2013 and $130 billion in 2012. Compute the fixed asset turnover ratios for both years. (Round your answers to 2 decimal places.)
6. Did the company better utilize its investment in fixed assets to generate revenues in 2013 or 2012?
7. Chevron reported average stockholders’ equity of $140 billion in 2013 and $130 billion in 2012. Compute the return on equity ratios for both years.
8. Did the company generate greater returns for stockholders in 2013 or 2012?
Explanation / Answer
Answer 1-a.
2012:
Gross Profit Percentage = (Total Revenue - Cost of Crude Oil and Products) / Total Revenue
Gross Profit Percentage = ($231 - $149) / $231
Gross Profit Percentage = 35.5%
2013:
Gross Profit Percentage = (Total Revenue - Cost of Crude Oil and Products) / Total Revenue
Gross Profit Percentage = ($220 - $143) / $220
Gross Profit Percentage = 35.0%
Answer 1-b.
Gross Profit Percentage decreased from 2012 to 2013, so, Chevron is likely to earn less gross profit from each dollar of sales in 2014.
Answer 2-a.
2012:
Net Profit Margin = Net Income / Total Revenue
Net Profit Margin = $26 / $231
Net Profit Margin = 11.3%
2013:
Net Profit Margin = Net Income / Total Revenue
Net Profit Margin = $21 / $220
Net Profit Margin = 9.5%
Answer 2-b.
Chevron did worse job in controlling expenses as net profit margin decreases in 2013 as compared to 2012.
Answer 3-a.
2012:
Fixed Asset Turnover = Total Revenue / Average Net Fixed Assets
Fixed Asset Turnover = $231 / $130
Fixed Asset Turnover = 1.78 times
2013:
Fixed Asset Turnover = Total Revenue / Average Net Fixed Assets
Fixed Asset Turnover = $220 / $150
Fixed Asset Turnover = 1.47 times
Answer 3-b.
Company did better utilization of investment in fixed assets to generate revenues in 2012.
Answer 4-a.
2012:
Return on Equity (ROE) = Net Income / Average Stockholders’ Equity
Return on Equity (ROE) = $26 / $130
Return on Equity (ROE) = 20.00%
2013:
Return on Equity (ROE) = Net Income / Average Stockholders’ Equity
Return on Equity (ROE) = $21 / $130
Return on Equity (ROE) = 16.15%
Answer 4-b.
Company generate greater returns for stockholders in 2012.
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