Oil Companies - Essay Example According to the report, titled, Hot Profits and Global Warming: How Oil Companies Hurt Consumers and the Environment, the soaring prices are not dampening demand because most families have little leeway to alter their driving habits. Federal government statistics show this summer's gasoline demand up between 1.6 and 1.9 percent from 2005. The increased prices of gasoline have translated into record oil company profits. In the first six months of 2006, the five largest US oil companies posted $59.4 billion in profits. These companies have spent $112 billion since 2005 to buy back their own stock and pay dividends rather than invest in infrastructure or alternative energy sources, according to analysis done by Public Citizen. (Raymond J. Learsy. The Blog Eat The Press Becoming Fearless. The Huffington Post). In this regard, the American government summoned British Petroleum before the House Committee on Energy and Commerce for clarification. It is alleged that the company allowed its Alaska pipelines to deteriorate despite such large profit margins, causing a partial shutdown of oil production in the US's largest oilfield and temporarily driving up global oil prices. Surprisingly it was reported that the officials of British Petroleum responded that the profits and saving secured were adjusted with the losses the company suffered due to the fluctuation of oil prices. The company was able to convince the panel easily, however the later reports indicated that the company in actual manipulated the accounts, and invested the money for the purchases of physical equipments which were off the record. British Petroleum has claimed itself to be renewable energy leader; it invested only $800 million a year in solar, wind, natural gas and hydrogen energy, less than 2 percent of the total amount the company posted in profits, stock buybacks, dividend payments and cash reserves in 2005. "Under the current market framework, oil companies aren't making investments in ways to break our addiction to oil and apparently have no intention of doing so," said Tyson Slocum, director of Public Citizen's energy program and the report's author. "With $1 trillion in assets tied up in extracting, refining and marketing oil, their business model will squeeze the last cent of profit out of that spent capital for as long as possible." (Johnston, 2005) IMPORTANCE OF RESERVES (Why reserves value are so important) It is understandable that fraction of the profits stem from the international rise in the prices of petroleum, the report has mentioned that, large oil company mergers have squelched competition and has created negative impact on US consumers. Recent mergers between giant oil companies such as Exxon and Mobil, Chevron and Texaco, and Conoco and Phillips have resulted in just a few companies controlling a significant amount of gasoline in the US. Since 2005, the largest five control 55 percent of the refining market, and the largest 10 dominate 81.4 percent. The purpose of these exercises was to increase the amount of reserves produced and refined by the merged company. These exercises are further responsible for giving a strong image to the company, on the basis of their production activity. It is to be mentioned that the company's total
12/13/2019 0 Comments
Standard Deviation - Essay Example
When the data points are spread apart and the bell-shaped curve is flat, the standard deviation -- and the variation -- is great.
Standard deviation with regard to finance can be defined as "Statistical measure that shows the likelihood of an investment to yield above- or below-average returns over a period of time. For example, if hypothetical XYZ Fund has an average annual total return of 11% and a standard deviation of 6.00, which means XYZ Fund's performance is likely to vary from a low of 5% to a high of 17%. Calculated by the fund, standard deviation is only relative to the asset class being measured." (2)
The standard deviation of investment returns is widely accepted as the best, and perhaps only commonly used indicator of portfolio risk in the investment management business. However, its usefulness is actually quite limited. In fact, relying on it can often produce misleading and inaccurate
conclusions. Although standard deviation does provide some insight, and in many circumstances is in fact meaningful but there are a number of flaws associated with relying on the standard deviation of returns as a risk measure.
The bigger flaw with standard deviation is that it isn't intuitive. ...
Although standard deviation does provide some insight, and in many circumstances is in fact meaningful but there are a number of flaws associated with relying on the standard deviation of returns as a risk measure.
The bigger flaw with standard deviation is that it isn't intuitive. Sure, a standard deviation of seven is obviously higher than a standard deviation of five, But are those high or low figures Because a fund's standard deviation is not a relative measure-which means it's not compared with other funds or with a benchmark-it is not very useful to you without some context.
Another limitation to standard deviation lies with the underlying data. Most investors will recall normal distribution from their introduction to statistics course. This bell curve underlies all of the assumptions about standard deviation. If the underlying data is not normally distributed, then the standard deviation is likely to give misleading results. It's worth noting that a number of studies show that investment returns are not normally distributed.
There are some drawbacks to using standard deviation as a measure of risk, however. It interprets any difference from the average, above or below, as bad. This runs contrary to the way most investors feel about returns.
Few investors fret about their portfolios doubling; most only worry about the downside--their returns being below average.
There is another theory which is called Utility Theory. "This theory gives us a way to measure investor's preferences for wealth and the amount of risk they
are willing to undertake in the hope of attaining greater wealth. This makes it possible to develop a theory of portfolio optimization. Thus utility theory lies at the heart of modern portfolio theory." (3)
Write something about yourself. No need to be fancy, just an overview.