Does Phillips 66 Have a Healthy Debt Position?



Phillips 66’s debt trend

Phillips 66’s (PSX) total debt-to-capital ratio was 29% in the fourth quarter of 2018. The ratio fell from 32% in the first quarter of 2018. The debt-to-capital ratio shows the percentage of debt in a firm’s capital structure. A lower debt on the balance sheet implies higher strength and flexibility to handle harsh business conditions with ease.

In the fourth quarter, integrated energy companies that have refining operations like BP (BP), Total (TOT), and Suncor Energy (SU) had ratios at 39%, 31%, and 28%, respectively.

Article continues below advertisement

Phillips 66’s net debt trend

Phillips 66’s net debt fell 24% from the first quarter to $8.1 billion in the fourth quarter of 2018. The net debt fell due to a decline in the total debt and a rise in cash and equivalents during the same period. Phillips 66’s total debt fell 4% from the first quarter to $11.1 billion in the fourth quarter. During the same period, the company’s cash rose steeply to $3.0 billion due to higher earnings. In 2018, Phillips 66’s net debt declined.

Debt analysis

Phillips 66’s total debt-to-capital ratio fell from the first quarter to the fourth quarter of 2018—an improvement. During the same period, the company’s net debt fell due to a rise in the earnings and cash flows.

From the first quarter to the fourth quarter, the earnings rose due to higher refining, midstream, and marketing earnings. The cash flows from operations increased due to integrated growth in the company’s earnings—a favorable scenario. If the trend continues, Phillips 66 could see more surplus discretionary cash, which could be used to repay debt.

Next, we’ll discuss Phillips 66’s cash flows.


More From Market Realist