Chevron’s debt position
Chevron’s (CVX) net debt-to-adjusted EBITDA ratio was 0.7x in the fourth quarter—below the average industry ratio of 1.2x. The industry average considers 11 integrated energy companies worldwide. The ratio represents a firm’s debt level as a multiple of its earnings.
Another parameter to compare debt is the total debt-to-total capital ratio. In the fourth quarter, Chevron’s total debt-to-total capital ratio was 18%—below the industry average of 35%. Usually, everything else being equal, a lower ratio signifies a healthier debt position. Suncor Energy (SU), Royal Dutch Shell (RDS.A), and BP’s (BP) ratios were 28%, 28%, and 39%, respectively.
Chevron’s debt trend
Chevron’s net debt-to-adjusted EBITDA ratio fell from 1.4x in the fourth quarter of 2017 to 0.7x in the fourth quarter. The ratio fell due to a fall in the net debt and a rise in the earnings.
Chevron’s net debt fell 26% YoY to $25.1 billion. The fall was led by the fall in the company’s total debt and the rise in its cash. The total debt fell 11% YoY to $34.5 billion in the fourth quarter. Chevron’s cash rose 94% YoY to $9.3 billion in the fourth quarter. Chevron’s adjusted trailing 12-month EBITDA rose year-over-year in the fourth quarter due to higher earnings in its upstream segment.
What does Chevron’s debt analysis imply?
Chevron’s net debt-to-adjusted EBITDA ratio and total debt-to-total capital ratio are both below the peer average—a favorable scenario. Chevron has a comfortable debt position compared to its peers.
Both of Chevron’s ratios have declined steeply. The net debt-to-adjusted EBITDA fell from 1.4x in the fourth quarter of 2017 to 0.7x in the fourth quarter. The total debt-to-total capital ratio fell from 20% in the fourth quarter of 2017 to 18% in the fourth quarter. The decline in the ratios shows Chevron’s strengthening debt position.