Financial Analysis of Shell PLC

Table of Contents
1.
Introduction…………………………………………………………………………………
……………….3

2. Performance
analysis……………………………………………………………………………………..3

3. Analysis of Financial Performance

Changes……………………………………………………….7
4.Sustainability
Analysis…………………………………………………………………………………….8

5.
Conclusion……………………………………………………………………………………
………………

6. References...............................................................................................9
1.Introduction
This is critical financial analysis of PLC Shell for potential of making an
investment by Sachs Investment Bank. The report will analysis the
financial resilience of the company and its sustainability policies. The
analysis will critically examine Shells PLC financial health by analysing its
financial statements and recent performance trends. It will also examine
its suitability practises. And will evaluate how it performs against its
industry competitors to give context to the broader energy sector. This
report will analyse both the company’s ability to deliver financial returns
and sustainability practises.

Shell PLC is one the largest oil and Gas companies in the world.
Headquartered in London it has a workforce of over 103,000 employees
operating in more than 70 countries. (Shell PLC , 2024) Shell primary
activities are the oil and gas industry including the exploration,
production, refining and manufacturing of chemical materials. Shell also
operates in the renewable energy sector such as wind and solar. ( Shell
PLC, 2024)Because of this shell has invested heavily into renewable
technologies adapting to changing demand and regulations. This gives
shell a strong position in both the traditional and renewable energy
sectors.

Shell’s main competitor is BP a large energy company. Like shell it is

heavily invested into oil and gas but also follows Shell in investing into
renewable energy technologies. BP has a commitment to reducing carbon
emissions and creating more sustainable energy sources. Both BP and
shell are huge players int eh energy sector and are both following zero net
emissions by 2050. (BP, 2024)

2. Performance Analysis
Income Statement
Source: (Shell PLC, 2023)

Revenue

Revenue for shell in 2023 dropped from $381,314 million in 2022 to

$316,620 million a drop of 17%. Revenue and other income dropped from
$386,201 million to $323,183 million a 16.3%. Likely to the shifting global
demand and volatile oil prices. Which saw a high of $120 in 2022 and now
averaging $80 (tradingeconmics, 2024)

Expenditure

Total expenditure dropped from $321,386 million in 2022 to $290,556

million in 2023 a 9.59%. Purchase costs also dropped by 17.6 %, however
other costs rose depreciation, depletion, and amortization expenses
increased by 68.92% and interest increased by 47% meaning an increase
in borrowing costs. Despite a reduction in overall expenditure increased
expenses in other areas show higher operating costs.

Profit

Shells profit dropped sharply from 2022 to 2023 decreasing by nearly 50%
from a high of $64,815 million to $32,627 million in 2023. This led to a
lower net income of $19,636 million compared to $42,874 million in 2023
a 54% decrease. As a result, Income attributable to Shell shareholders
declined by 54.24%. Despite the attempts of reducing costs the reduce in
revenue has led to a 50% decrease in profits.

Shares
Shells earning per share saw a sharp drop of 50% from $5.76 in 2022 to
$2.88 in 2023. The decrease in the EPS highlights the reduction in net
income. Despite this Shells share price has continued to rise from 2020 to
2024. At the end of 2022 it stood at £2326 and as of October 18 th it stood
at £2536 a 9% increase. (Yahoo Fiance , 2024)This reflects Investors’
confidence in Shell long-term including its resilience in the volatile energy
market and sustainability investments.

Source: (macrotrends, 2024)

Cash Flow

In 2023 Shells Operating Activities were Shells $54.2 billion decrease from
$68.4 billion in 2022. This was due to the reduced net income and the fall
in current payables and receivables. Investing Activities for Shell stood at
$17.7 billion in 2023, lower than in 2022 which was $22.4 billion. This
included $23 billion in capital expenditures and $1.2 billion in investments
in joint ventures and associates. Financing activities stood at $38.2 billion
in 2023, compared to $42 billion in 2022. Large expenditures included
$14.6 billion on share repurchases, $8.4 billion in dividends, and $10.7
billion in debt repayments. This shows Shell’s emphasis on returning
capital to shareholders and managing debt. In 2023 Shell managed to
control its financing and investing outflows. The Large decline in operating
cash flow was because of the reduction in income most likely to the
reduce oil and gas prices in 2023 compared to 2022.

Assets
Source: (Shell PLC, 2023)

Shells total assets declined in 2023 going from $443 billion in 2022 to
$406 billion in 2023 the decrease is both in current and non-current
assets. Non-current assets were slightly down from $277 billion in 2022 to
$272 billion in 2023. Property and Plant and equipment fell from $198.6
billion in 2022 to $194.8 billion in 2023.Deferred tax assets decreased to
$6.5 billion in 2023 from $7.8 billion in 2022.

Current assets decrease by a large amount from $163 billion in 2022 to

$133 billion in 2023. Including inventories dropping from $31.9 billion to
$26.0 billion. A sign of reduced production and good inventory
management. Trade and Receivables also dropped from $66.5 billion in
2022 to $53.3 billion in 2023. In summery Shells assets have decreased
from 2022 to 2023 especially in Property, plant and equipment and
Inventories. This is a sign that shell is streamlining its operations to adjust
to the changes on energy prices and market conditions.

Financial Ratios

Using 3 Financial Ratios Shells Financial Health will be assessed.

(Source: Created using shells financial data Data)

Shell saw an increase in liquidity and debt management from 2022 to

2023, but its Profitability ratio declined. Current Ratio for shell went from
1.36 to 1.4 showing an increased ability to cover debts with assets. Shells
debt to equity declined from 1.30 to 1.16 showing less borrowing.
However, return on assets declined from 9.5 % to 4.8% a large decrease
from 2022. Overall Shell has been able to use less devets and have more
assets to covers debts but its return on assets has declined.

3. Analysis of Financial Performance Changes

Shells Financial Performance has seen a large decrease in Net income in
2023. Exploring major factors affecting shells performance changes such
as economic conditions, market trends and regulatory pressures. An
analysis will be made to help explain the changes and how they have
impacted shells revenue, expenditure and profitability.

Shell’s decreased revenue from $381,314 million in 2022 to $316,620

million in 2023 was due to several economic factors. First was the drop
from the record highs of oil and gas prices from 2022 which went from a
high of $120 a barrel to a current of average of $ 70 (tradingeconmics,
2024). This was driven by the ending of the covid lockdowns and the
Russian Invasion of Ukraine. The Increased demand and the instability
created by the war lead to the high Oil prices, along with Russia supply of
gas being cut off lead to gas prices reaching (Statista, 2024) .All these
benefited Shells revenues in 2022. In 2023 Oil and gas prices started
stabilizing and this led to a drop in Shells revenue in 2023. Furthermore,
Shells chemicals and refining sector dropped because of rising costs and
lower demand. Global slowdowns in growth in Europe and China and high
inflation affected operational cost which led to shells profit margins
decreasing. (Shell PLC, 2023) With expenditures reaching $290,556 million
despite efforts to cut purchase costs. Theses economic factors show the
causes of shells decrease in revenue.

Shifts in Market trends as developed economies pursue sustainable

energy sources. This is driven by regulatory changes and consumer
demand. However, shells revenue is still reliant on oil and gas. The
company is investing into renewable energy sources which is essential to
long term profitability but effects short term profits. The high costs from
2023 reflect this. And this is a part of the shells strategy to reach net zero
by 2050. This transition costs can be seen by increase of 68% of
amortization expense in 2023. ( Shell PLC, 2024) Shell also launched an
aggressive share buyback program costing $18,437 million affecting cash
reserves and financing activities. (Shell PLC, 2024) This shows a strategic
focus on shareholders returns and long-term investments. But they
contribute to decline in profitability and lesser cash reserves. Rising costs
can also be attributed to changes in regulations as countries pursue
sustainable initiatives it causes shells costs to go up. (Financial Times,
2023)

While Shells Income has drastically fallen from 2022 to 2023 the decline is
largely due to the record highs of 2022. Since prices of oil and gas have
stabilized, they still remain high, and shells income still surpasses recent
years. And with its increased investment into sustainable energy sources
shells performance is likely to remain good. While short term profits has
dropped shells strong position and investment into new energy technology
makes it sustainable investment portfolios.

4. Sustainability Analysis
Shell has been continuingly investing into more sustainable energy
sources, as part of its net zero by 2050 plan and to keep up with market
trends. $3.5 Billion dollars were invested towards renewable energies in
2022. This was part of its larger plan to invest 14% if annual expenditure
towards sustainable energy ventures. This includes solar and wind
projects. These projects include offshore wind farms such as in the
Netherland Borssele III and in the US Mayflower Wind. By 2025 Shell aims
to have 500000 charge points for electric vehicles. ( Shell PLC,
2024)These projects show shells commitment in shifting towards more
sustainable energy sources however they only generate a fraction
compared to its oils and gas revenues. Overall Shell is contributing
towards renewable energy sources both technologically and financially.
( Shell PLC, 2024)

5. Conclusion
Despite the large drop in revenue from 2022 to 2022 Shell performance
was still strong. Shell cash flow and long-term investment into sustainable
energy show a robust and resilient company. And that it can adapt to
changing market conditions and Energy prices long term. The continued
high share price and focus on delivering dividends for investors show a
share owner focused company. Based on the analysis shell is a leading
energy company able to mange changing energy prices, able to invest
into new sustainable energy projects and adapt to lower Income by
decreasing costs and inventories. As such I recommend Sachs Investment
bank move forward into making a small-scale investment as shells
financial and sustainability performance aligns with our profit and
responsibility goals.

6. References
Shell PLC. (2024). sustainability. Retrieved from Shell.com:
https://www.shell.com/sustainability.html

BP. (2024). our-transformation. Retrieved from bp.com:

https://www.bp.com/en_gb/united-kingdom/home/were-backing-
britain/our-transformation.html?
utm_source=bpg&utm_medium=gos&utm_campaign=always24q2&
utm_content=omn&utm_type=sea&utm_audience=pfi&gad_source
=1&gclid=Cj0KCQjwsoe5BhDiARIsAOXVoUu5Q0Y8lIGNGg0kqjiGFC

Financial Times. (2023). regulatory-uncertainty-could-endanger-energy-

transition. Retrieved from edp.ft.com:
https://edp.ft.com/article/regulatory-uncertainty-could-endanger-
energy-transition

Shell PLC . (2024). Shell. Retrieved from who are we:

https://www.shell.com/who-we-are.html

Shell PLC. (2023, December 31). statement-of-income. Retrieved from

reports.shell.com:
https://reports.shell.com/annual-report/2023/consolidated-financial-
statements/statement-of-income.html

Shell PLC. (2024). share-buybacks. Retrieved from shell.com:

https://www.shell.com/investors/information-for-shareholders/share-
buybacks.html

Statista. (2024). energy-prices. Retrieved from statista.com/:

https://www.statista.com/topics/1323/energy-prices/#topicOverview

tradingeconmics. (2024). brent-crude-oil. Retrieved from

tradingeconomics.com:
https://tradingeconomics.com/commodity/brent-crude-oil

Yahoo Fiance . (2024, October). SHEL/financials/. Retrieved from

finance.yahoo.com:
https://finance.yahoo.com/quote/SHEL/financials/