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Does Valero Have Adequate Liquidity?


Mar. 29 2018, Updated 10:33 a.m. ET

Valero’s cash flow

In 2017, Valero Energy (VLO) generated $5.5 billion in cash from operations. It had cash outflows of $1.9 billion in the form of capital expenditure, deferred turnaround, and catalyst costs, and $1.2 billion in the form of dividends.

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Valero’s cash flow surplus

Valero’s cash outflows were $3.1 billion in 2017 considering capex (capital expenditure) and dividend outflows. That led to a discretionary surplus of $2.4 billion (the variance between cash from operations and capex and dividend outflows).

The surplus in cash flow was used for fund share repurchases. Valero’s share repurchases were $1.4 billion in 2017. The remaining portion of the surplus was used to invest in joint ventures and increase its cash reserves. Its cash reserves rose from $4.8 billion at the beginning of 2017 to $5.9 billion at the end of 2017.

Peers’ cash flows

To compare cash flows among peers, we’ve estimated CFO (cash flow from operations) as a percentage of revenues. In 2017, VLO’s cash-flow-to-revenues ratio was 6%. Comparatively, Marathon Petroleum (MPC) had the highest CFO-to-revenue ratio of 9% in 2017. However, the lowest ratio of 4% was seen by Phillips 66 (PSX). Andeavor’s (ANDV) CFO-to-revenue ratio was 5%.

VLO’s surplus in its liquidity system

From the above analysis, it’s clear that Valero has a surplus in its liquidity system. In the past few years, it has typically had a surplus of discretionary cash flows, except for a few quarters. That’s despite the fact that Valero has provided high returns to shareholders. VLO has given high shareholder returns without imperiling its liquidity position, which is a positive scenario for shareholders as well as creditors.

VLO most likely also has a sufficient cash reserve. That could help Valero boost growth and handle volatile refining environments. Its comfortable debt position, which we looked at in the previous part, further strengthens the company’s financial position.

In the next and final part of this series, we’ll look at analysts’ ratings for Valero Energy.


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