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Analyzing Phillips 66’s Liquidity Position in 2018

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Phillips 66’s cash flow

Phillips 66’s (PSX) cash from operations more than doubled year-over-year to $7.6 billion in 2018. The rise in the company’s earnings led to an increase in cash from operations. During the same period, Phillips 66’s cash outflows from investing activities rose from $1.2 billion to $2.5 billion. Phillips 66’s cash outflows from financing rose 148% YoY to $5.2 billion in 2018.

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Phillips 66’s cash flow surplus

Phillips 66 had cash outflows of ~$2.7 billion in the form of its capex and ~$1.4 billion in the form of dividends in 2018. The company had ~$4.1 billion of significant cash outflows. Phillips 66’s cash flow from operations of ~$7.6 billion was more than enough to cover the cash outflows. Phillips 66 was left with ~$3.5 billion of surplus cash after spending on its capex and dividends—a favorable position. The company used the surplus to buy back more shares.

Phillips 66 spent ~$4.6 billion to repurchase stock. The company could repurchase stock by utilizing the cash flow surplus and cash reserves. There was a marginal decline in Phillips 66’s cash reserves. The company’s cash balance fell from $3.1 billion at the beginning of 2018 to $3.0 billion at the end of the year.

What does Phillips 66’s cash flow analysis show?

Phillips 66 observed a cash flow surplus in 2018. If we estimate the surplus as a percentage of the cash flow from operations, it will stand at 46%. In 2017, Phillips 66 had a lower cash flow surplus of 12%. The rise in Phillips 66’s cash flow surplus in 2018 points towards a better liquidity position.

Going forward, Phillips 66’s earnings could rise with ongoing growth activities, which we discussed previously in this series. Higher earnings could lead to an increase in surplus cash flows, which would strengthen Phillips 66’s liquidity position.

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