Table of Contents
Financial Ratio Analysis5
Cash Flow and Growth Analysis14
Capital Structure Estimation16
Weighted Average Cost of Capital17
Cost of Debt17
Cost of Equity - CAPM18
Cost of Equity - DCF19
Cost of Equity - BYPRP19
Project Cash Flow Estimation21
Capital Budgeting Analysis23
This report analyzes Royal Dutch Shell Plc. (RDS.A on NYSE) financial status, history, market space, and growth opportunities. Royal Dutch Shell Plc. (Shell) is one of the world’s largest corporations with annual revenue of $470 billion for fiscal year 2011. When analyzing a company it is vital to ensure all aspects of the firm’s financial standing are stable, this is essential to guarantee its ability to take upon new major projects, such as the one being proposed at this time and evaluated in this report. This report intends to evaluate the possibility of Shell undertaking a project that requires a total initial investment of $580 million in fixed assets as wells as operation expenses of $38 million, for a total of $618 million is startup costs. This report illustrates Shell’s financial standing through, ratio analysis, cash flow analysis, and detailed capital budgeting analysis to help calculate Shell’s capacity to accept the proposed project. The life of the project will be eight years and expected to have a growth rate of 8.5%. The Net Present Value of the project is approximately $284 million and is expected to pay for itself in approximately 4.74 years according to discounted payback calculations (detailed in report).
Royal Dutch Shell plc operates as an oil, gas and energy company that explores for and extracts hydrocarbons worldwide. Royal Dutch Shell also converts natural gas to liquids to provide cleaner-burning fuels; markets and trades natural gas; extracts bitumen from mined oil sands and convert it to synthetic crude oil; and generates electricity from wind energy. In addition, it converts crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, lubricants, bitumen, sulphur, and liquefied petroleum gas (LPG); and produces and sells petrochemicals for industrial use. The company holds interests in approximately 30 refineries; 1,500 storage tanks and 150 distribution facilities; and fuels retail network of approximately 43,000 service stations under the Shell brand name. Royal Dutch Shell plc also markets its products under the Shell V-Power and Shell FuelSaver brand names. In addition, the company offers lubricants for use in passenger cars, trucks, and coaches, as well as for industrial machinery in manufacturing, mining, power generation, agriculture, and construction industries. Royal Dutch Shell plc sells fuels, specialty products, and services to commercial customers; offers fuel for approximately 7,000 aircraft every day at 800 airports in 30 countries; offers liquefied petroleum gas and related services to retail, commercial, and industrial customers for cooking, heating, lighting, and transport applications; provides transport, industrial, and heating fuels; and supplies approximately 11,000 tones of bitumen products. Royal Dutch Shell plc is headquartered in The Hague, Netherlands and employs roughly 23,000 people worldwide. (Royal Dutch Shell, 2012). Financial Ratio Analysis
The following table illustrates Royal Dutch Shell’s financial ratios analysis and will assist in the understanding of the current and (estimated) future status of the organization. The ratios will allow for a general interpretation of the firm’s strength and ability to take on outside projects. The table exemplifies the liquidity, asset management, debt...