Unless you’ve been living under a rock, you’ve heard about U.S. political leaders calling for a windfall profits tax on oil companies. Apparently, these oil conglomerates, like ExxonMobil, are making too much money, and the government should take more of it than they already do to use as they wish.
Are oil companies, like ExxonMobil, making obscene amounts of money at the expense of the American taxpayer? To determine the answer to that question, you have to do some research.
Let’s take two hypothetical companies — one we’ll call XOM, and the other we’ll call GOOG — and compare their hypothetical financials. However, XOM is a much larger company than GOOG — about 25 times larger. So, instead of comparing actual numbers, we’ll normalize them. (That’s a fancy way to say we’ll adjust the numbers as if both companies were the same size.)