Describe why firms in the oil and gas industry have so much debt compared to other industries. What industry has the lowest profit margin? What industry converts the greatest amount of sales dollars into profit?

What will be an ideal response?

Answer: The oil and gas industry is a very capital-intensive industry, with large manufacturing plants and production facilities requiring substantial investment. It can therefore be difficult to raise all of this money with equity, where a higher rate of return is required, than with the cheaper cost of financing obtained through debt. The oil and gas industry can issue large amounts of debt because investors realize that the underlying assets can maintain their value, thus reducing risk.
Profit margins are lowest for the airline industry, where for every dollar of sale, approximately only five cents makes it to net income.
The drug industry tends to convert the greatest amount of sales dollars into profit, with over twenty-two cents of every dollar typically making it to the bottom line. But despite this high profit margin, the drug industry has the lowest return on equity.