Looking at profitability is a very important step in understanding a company. Profitability is essentially why the company exists and a key component in deciding whether to invest or to remain invested in a company. There are many metrics involved in calculating profitability, but for this article, I will look at BP PLC’s (BP) earnings and earnings growth, profit margins, profitability ratios and cash flow.
1. Earnings = Sales x Profit Margin
- 2010 – $302,545 billion x -1.22% = $(3.719) billion
- 2011 – $386.463 billion x 6.65% = $25.700 billion
In looking at BP’s 2010 earnings we can see the impact that the tragic accident that claimed 11 lives and injured many more on the Deepwater Horizon rig in the Gulf of Mexico had on the company. In 2010 the company spent $40.858 billion on “Gulf of Mexico oil spill response” which greatly affected the company’s earnings in 2010. Due to the tragic events in the Gulf of Mexico in April of 2010, the company reported a loss of $3.719 billion.
To read more: BP PLC’s Profitability Analysis