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Marathon Petroleum’s Liquidity Position Tightened in 2018

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Marathon Petroleum’s cash flow

In 2018, Marathon Petroleum (MPC) had $6.2 billion in cash from operations. The company had cash outflows of $7.4 billion in the form of PPE (plant, property, and equipment) additions and acquisition activities and $0.9 billion in the form of dividends.

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Cash flow shortfall

Marathon Petroleum’s cash outflows were ~$8.3 billion in 2018 if we consider the PPE additions, the acquisition, and dividend payments. The company’s cash flow from operations of $6.2 billion fell short of its necessary capex, acquisition activities, and dividend payments of $8.3 billion in 2018.

Marathon Petroleum’s share repurchases were $3.3 billion in 2018. The shortfall and repurchases were met through cash reserves and debt. Marathon Petroleum’s debt rose by $5.4 billion in 2018. Marathon Petroleum’s cash balance fell from $3.0 billion at the beginning of the year to $1.7 billion at the end of the year.

Peers’ cash flow

Phillips 66’s (PSX) cash flow from operations of $7.6 billion was more than enough to cover its capex and dividend cash outflows. Phillips 66 was left with $3.5 billion of surplus cash after incurring the necessary expenses. HollyFrontier’s (HFC) cash flow from operations of $1.6 billion could cover these cash outflows.

Cash flow analysis

Marathon Petroleum’s cash flow from operations didn’t cover its vital outflows, which created a tough business scenario.

Marathon Petroleum’s capex and acquisition activities could result in better earnings and cash flows in the future, which might improve the company’s cash flow position. Marathon Petroleum will have to be cautious during periods with weaker refining margins and earnings. The conditions could result in a cash flow shortfall, which could increase the company’s debt levels.

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