The average price of a gallon of gas in 2013 dropped $0.12 (3 percent) from $3.6

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). Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Chevron Corporation for the year ended December 31, 2013 (amounts in billions). (Decreases should be indicated by a minus sign. Enter your answers in billions (i.e., 10,000,000,000 should be entered as 10). Round percentage values to 1 decimal place.) Conduct a vertical analysis by expressing each line as a percentage of total revenues. (Round percentage values to 1 decimal place.) Excluding income tax and other operating costs, did Chevron earn more profit per dollar of revenue in 2013 compared to 2012?

Explanation / Answer

CHEVRON CORPORATION Income Statements For the Year ended December 31 2013 2012 Dollars Percentage Total Revenues 220 231 -11 -4.8% Cost of Crude Oils & Products 143 149 -6 -4.0% Other Operating Costs 41 36 5 13.9% Income before IT Expense 36 46 -10 -21.7% I T Expense 15 20 -5 -25.0% Net Income 21 26 -5 -19.2% The 3% decrease in the average gas price was less than the 4.8% decrease in revenues and less than the 4.0% decrease in cost of crude oil and products. It appears from this analysis that the decrease in gas prices explains only part of Chevron’s decrease in revenues. Note that the percentage decrease in revenues was similar to the percentage decrease in the cost of crude oil and products, suggesting the costs of crude oil really did decrease a lot in 2013, consistent with the decrease in gas prices. CHEVRON CORPORATION Income Statements For the Year ended December 31 2013 2012 Total Revenues 220 100.0% 231 100.0% Cost of Crude Oils & Products 143 65.0% 149 64.5% Other Operating Costs 41 18.6% 36 15.6% Income before IT Expense 36 16.4% 46 19.9% I T Expense 15 6.8% 20 8.7% Net Income 21 9.5% 26 11.3% As a percent of revenues, Chevron’s cost of crude oil and products was higher in 2013 (65.0%) than in 2012 (64.5%). This implies that Chevron earned less profit (excluding income tax and other operating costs) per dollar of revenues in 2013 than in 20122-b) No

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