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Does Chevron Have a Sound Debt Position?

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Chevron’s debt position compared to its peers’

Chevron’s (CVX) net debt-to-adjusted EBITDA ratio stood at 0.7x in the first quarter, below the average industry ratio of 1.3x. The industry average considers 11 integrated energy companies worldwide. The ratio represents a company’s debt level as a multiple of its earnings.

Another parameter that’s used to compare debt is the total debt-to-total capital ratio. In the first quarter, Chevron’s total debt-to-total capital ratio stood at 18%, again below the industry average of 34%. Usually, with all else being equal, a lower ratio signifies a healthier debt position. Relatively speaking, ExxonMobil’s (XOM), Royal Dutch Shell’s (RDS.A), and BP’s (BP) ratios stood at 17%, 32%, and 43%, respectively.

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Analyzing Chevron’s debt trend

Chevron’s net debt-to-adjusted EBITDA ratio fell from 1.3x in the first quarter of 2018 to 0.7x in the first quarter of 2019. The ratio fell due to a fall in its net debt and a rise in its earnings.

Chevron’s net debt fell 27% YoY to $24.4 billion led by a fall in total debt and a rise in its cash. Its total debt fell 17% YoY to $33.1 billion in the first quarter. Its cash rose 35% YoY to $8.7 billion in the first quarter. Its adjusted trailing-12-month EBITDA rose year-over-year in the first quarter because of better 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 both stood below the peer average—a favorable scenario that places it in a comfortable debt position relative to its peers.

CVX’s net debt-to-adjusted EBITDA ratio has fallen, and it’s managed to reduce its total debt level. The declines in its ratio and debt levels reflect its strengthening debt position.

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