2010 - 2014
Prepared by:
Mohamed Ibrahim

Table of contents:
1. Executive summary
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2. Introduction
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3. Financial statements analysis
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3.1 Balance sheet analysis
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3.2 Income statements analysis
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4. Recommendations
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5. Conclusion
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6. Appendix
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7. References
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The report made to measure Royal Dutch Shell financial performance in five years starting from 2010 to 2014; most of the information specially the financial data is collected from the firm’s annual reports.
Ratio analysis of two financial statements balance sheet and income statement been conducted to reach results about the firm’s liquidity, management of its activities, efficiency of its assets and its profitability.
As well as recommendation are added to the performance to make adjustment on the future.

Royal Dutch Shell known as Shell is an Anglo-Dutch multinational oil and gas company headquartered in the
Netherlands and incorporated in the United Kingdom, in 1907
created by the merger of Royal Dutch Petroleum and UK- based Shell Transport & Trading.
Shell is vertically integrated and is active in every area of the oil and gas industry including;
- Exploration and production
- Refining
- Distribution and marketing
- Petrochemicals
- Power generation
- Renewable energy
- Trading
Shell operates in over 90 countries, produces around 3.1 million barrels of oil per day and has 44,000 service stations worldwide.
Shell has a primary listing on London Stock Exchange and it has a market capitalization of £ 129.8 billion at close of trading on 13 April 2015, the largest of any company listed on London
Stock Exchange. It has secondary listings on Euronext
Amsterdam and the New York Stock Exchange NYSE.

As far as performance is concerned in the following will represent the performance of Royal Shell for five years starting from 2010 to 2014, using the two financial statement balance sheet and income statement to measure the firm’s performance
Firstly: Balance sheet analysis:
Out of the balance sheet we will be measuring the liquidity of the firm and we will be able to understand to which extend the firm is using debt to finance its assets and operations.
Liquidity:
The liquidity of the firm normally will be measured in two ways; current and quick, for Royal Shell liquidity performance during the five years was as follow;
$2,50
$2,00
$1,50
$1,00
$0,50
$0,00
1 2 3 4 5
Quick ratio $0,83 $0,88 $0,87 $0,79 $0,93
Current ratio $1,12 $1,17 $1,18 $1,11 $1,16
Quick ratio
Current ratio

According to the above “line chart” the liquidity performance of Royal Shell was quite optimistic as stated that in 2010 for each dollar of current liabilities there will be $1.12 of current assets, however the firm’s liquidity performance improved through the years and reach the peak in 2012 which stated that for each dollar of current liabilities there will be $1.18 of current assets, though in 2013 the firm showed the lowest level of liquidity which $1.11 to meet each dollar of current liabilities and in 2014 the liquidity started to increase again to reach $1.16 for each dollar of current liabilities.
The quick ratio shows illiquidity which makes it impossible for the company to cover its current liabilities using its quick assets. However the average standard of the oil industry shows inabilities for most of the petroleum companies to cover their current liabilities with quick current assets due to the nature of the oil industry.
So far the liquidity position of Royal Shell was good enough which enable the firm to meet its liabilities all through the five years, but not using the quick assets due to the nature and operations conducted in the oil and gas industry.
Financial leverage:
In order to understand the concept of leveraging we relate the debt of the firm (total liabilities) with assets and Owner’s equity and relate the total assets with Owner’s equity to have full picture about the usage of debt and the ability of the firm to cover these debts over the years. Royal Shell financial leverage was as follow;

$4,50
$4,00
$3,50
$3,00
$2,50
$2,00
$1,50
$1,00
$0,50
$0,00
Financial leverage
Debt to equity
Debt to assets
1
$2,15
$1,15
$0,54
2
$2,11
$1,11
$0,53
3
$1,99
$0,99
$0,50
4
$1,97
$0,97
$0,49
5
$2,04
$1,04
$0,51
The above “line chart” shows to which extent the firm is using debt, in 2010 Royal Shell showed that for each dollar of assets there will be $0.54 which represents that 54% of the total assets are debt (liabilities) and the rest 46% are Owner’s equity, however the portion of the debt reduced through the years and reaches the best level in 2013 which was $0.49 in each dollar of total asset, in 2014 the situation is worsening to reach $0.51 of debt in each dollar of total asset.
Comparing the debt to equity, in most years the level of equity was always below the level of debt or liabilities except in 2012 and 2013 which stated $0.99 and $0.97.
The financial leverage represents the relationship between the assets and the share holders’ equity which is moving congruently with debt to equity, therefore 2013 considered the best year in terms of financial leverage.
Royal Shell usage of debt fluctuating form 49% to 54% out of

the total assets, however the years 2012 and 2013 represent the lowest use of debt even the portion of Owner’s equity was higher the portion of debt in each dollar of assets.

:
Evaluation of the income statement will be consisting of coverage ratio, activities ratios and profitability ratios as follow;
Coverage ratio:
Shows the ability of the firm to cover its financial charges, the coverage ratio of Royal Shell for the five years as follow;
45,00
40,00
35,00
30,00
25,00
20,00
15,00
10,00
5,00
0,00
2010
Coverage ratio: 36,49
2011
41,45
2012
29,75
2013
21,46
2014
16,70
The coverage ratio shows the firm’s ability to meet its financial charges, in 2010 the coverage ratio was 36.5 times and increased further in 2011 to reach 41.45 times and start declining through the years to reach 16.70 times in 2014 which is still able to cover its financial charges
.

Activities measures:
Activity ratios or measures shows how efficient the firm is managing its primary activities which are; receivables, payables and inventories.
Royal Shell during the five years managed to keep its activities as follow;
Receivables turnover
Receivables turnover in days
Inventory turnover
Inventory turnover in days
2010
2.16
169.16
10.48
34.82
2011
2.16
169.16
13.51
27.01
2012
2.16
169.16
13.49
27.05
2013
2.16
169.16
13.00
28.07
2014
2.16
169.16
12.18
29.98
The table summaries some of the activities ratios for the five years, the receivables turnover in times calculated by using the assumption of
“40% of the firm’s revenues are sold on credit in all five
edyears” the collection of the receivables during the five years considered to be very good as started in 2010 2.16 times which is almost 170 days to collect $70,102,000, however the collection frequency increased during the years to reach 2.95 times and 124 days to receive $58,470,000 in 2014.
The inventory management is one of the most important activities that an analyst require to understand the overall activities performance of the company, in 2010 was the lowest turnover of inventory which was 10.48 times almost each 35 days, the firm improved its inventory management well through the years and reaches in 2014 the best turnover which was 18.14 in times and 21 in days to sell out an inventory of
$19,701,000 annually, which is an outstanding performance.

Efficiency of Assets:
The efficiency of assets represent how good the company in using assets to generate sales over the time, during the five years Royal Shell was indicating the following;
$1,60
$1,40
$1,20
$1,00
$0,80
$0,60
$0,40
$0,20
$0,00
1
Total assets turnover $1,17
2
$1,50
3
$1,49
4
$1,42
5
$1,34
Total assets turnover represents the efficiency of assets to generate sales, Royal Shell stated its lowest turnover of assets in 2010 which for each dollar of total asset generated $1.17 of revenues, in 2011 was the peak of the asset turnover which was $1.44 and the efficiency started declining due to many reasons one of which the reduction of the overall consumption of oil and gas industry as an impact of the financial crises in most of the markets specially Europe and Asia. However with all these reasons the firm managed to sustain reasonable asset turnover over the last five years.

Profitability measures:
Profitability measures are one of the most important indicators of the business success NPM, ROI and ROE are the most valuable profitability ratios, the following chart shows the profitability of Royal Shell.
0,25
0,2
0,15
0,1
0,05
0
1 2 3 4 5
Net profit margin 0,05414225 0,064176896 0,055968445 0,035957432 0,034149078
ROI
ROE
$0,06
$0,14
$0,10
$0,21
$0,08
$0,18
$0,05
$0,11
$0,05
$0,10
Royal Shell NPM which relates net income to revenues fluctuated from $0.05 in 2010 to $0.06 in 2011 and 2012 and declined again to reach $0.4 in 2013 and $0.3 in 2014 that was due to several market changes.
Return on investment (ROI) represents how efficient the firm is using its assets to generate net income; in 2010 the ROI was
$0.06 and increased significantly in 2011 to reach $0.09 for each dollar of assets, however start declining from 2012 to
$0.08 and reaches its worst record in 2014 to reach $0.04 for

each dollar of assets.
Return on investment (ROE) represents the net income generated by each dollar of owner’s equity; Royal Shell in 2010 for each dollar of owner’s equity generates $0.14 of net income.
However the firm reaches the peak of ROE in 2011 by generating $0.19 for each dollar of equity, due to the economic changes that impacted on the oil and gas industry which is effect the industry efficiency and reducing its profitability from
2012 Royal Shell ROE start declining to reach $0.15 and reduced more in 2013 and 2014 to reach $0.09 for each dollar of owners’ equity.

Number of recommendations and comments with regard to the
Royal Dutch Shell performance has to take place in order to adjust its performance in the future years, these recommendations will be as follow;
- Improvement with regard to its quick ratio, some adjustment has to take place either reducing the inventory portion or reducing the overall liabilities of the firm by depending more on Owner’s equity.
- Assets turnover shows decline in the last two years the company should develop more distribution channels and find new markets to boost the overall sales.
- Due to the financial crises and other consumption problems the firm showed decline in its profitability in the last two years, developing new alternative products and energy solutions is the only approach that Shell should adopt to sustain in the industry.
- However a general trend now moving towards reducing consumption of fuel and oil and now moving towards Green energy products Shell as a leading company should spend more on research and development to produce new energy solutions rather than oil and gas.

As conclusion, Royal Dutch Shell showed an outstanding financial performance during the last five years of the conducted analysis which started 2010 to 2014, Shell considered one of the largest firms in the industry in terms of revenues.
Therefore the firm will be recommended for all kinds of activities of investments and financing due to its strong ability to sustain profit over time.
However the firm may realizes a reduction on its financial performance during the last two years, but was due to the changes of overall economic worldwide. But Shell in terms ability and strength considered to be one of the most strongest firms in terms of assets, revenues, reputation, production, employees satisfaction as well as profitability.
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1.
Royal Dutch Shell annual reports 2011, 2013 and 2014 – financial statements and related information.
2.
www.wikipdia.org
3.
www.Shell.com