uploads///Cash flow

Analyzing Shell’s Liquidity Position

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May. 16 2019, Published 9:26 a.m. ET

Shell’s cash flow

In the first quarter, Royal Dutch Shell’s (RDS.A) cash flow from operations fell 9% to $8.6 billion. However, the company’s cash outflows from investing and financing rose in the first quarter.

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Did Shell have a cash flow surplus or shortfall?

In the first quarter, Shell generated $8.6 billion in cash from operations. The company had a capital expenditure cash outflow of $5.1 billion and dividend outflows of $3.9 billion, which equaled $9.0 billion of cash outflow. So, Shell’s cash flow from operations was short by $0.4 billion in covering these vital expenses—the difference between the cash inflow of $8.6 billion and outflows of $9.0 billion. The shortfall is 4% of the company’s cash flow from operations.

Total’s (TOT) cash flow from operations of $3.6 billion was 25% short in the first quarter. BP’s (BP) cash flow from operations of $5.3 billion was 31% short in covering the capex and dividend outflows.

To fund the shortfall, Shell utilized its cash reserves. The company also repaid its debt, paid interest, and repurchased shares in the first quarter. Shell’s cash balance fell from $26.7 billion at the beginning of the quarter to $21.5 billion at the end of the quarter.

What does Shell’s cash flow analysis imply?

In the first quarter, Shell had a cash flow shortfall. However, the company had enough cash reserves to fund the shortfall. Shell could partially repay its debt—a constructive sign. The company’s cash flows could switch to a surplus due to its disciplined cost and capital approach and focus on core competitive assets.

Shell’s higher cash reserves might have motivated the company to continue its share buyback plan.

Shell has announced the fourth tranche of its $25 billion share buyback program. The company is expected to buy a maximum of ~$2.75 billion worth of shares until July 29. In the previous tranches, $6.75 billion of aggregate shares were repurchased.

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