Ratio Analysis of Royal Dutch Shell PLC

Accounting
And
Managerial
Finance

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................4
Ratio analysis of the company.........................................................................................................4
Liquidity ratio..............................................................................................................................4
Profitability ratio..........................................................................................................................6
Efficiency and operation..............................................................................................................9
Gearing ratio..............................................................................................................................11
Investment and market related...................................................................................................12
Market........................................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

EXECUTIVE SUMMARY
This project report consists of measurement of results of Royal Dutch Shell PLC for the two
consecutive years 2019 and 2018 through key performance indicators which is ratio analysis.
These analyses consists many ratios like liquidity, profit, gearing, investment and market.
Liquidity ratio shows how efficiently Royal Dutch Shell PLC can convert its current assets into
liquidity or cash. Profitability ratios show a company's overall efficiency and performance.
Ratios showing returns represent the firm's ability to measure overall efficiency to deliver returns
for its shareholders. The efficiency ratio is typically used to analyze how well a company uses its
assets and liabilities internally. An efficiency ratio can calculate the turnover of receivables,
repayment of liabilities, amount and utilization of equity, and general use of inventory and
machinery. A share is an inseparable unit of capital, giving ownership to the shareholder and
creating an ownership relationship between the company and the shareholder.
Price to income ratio is only an indication but before making investment decision it is necessary
to do a complete study, analysis, research of the market as well as knowledge of the industry and
business of the above category. Each of these measures is used differently, but jointly, they
present a very accurate financial picture of a publicly traded company. It is also recommended
that company should not blindly appraise its project or performance based on ratio analyses,
because these analyses only show proportion. It totally ignores the size of the operations.

INTRODUCTION
Royal Dutch Shell PLC also known as Shell is a British-Dutch company which deals mainly in
oil and gas together. It was founded in 1907, and company’s headquarter is located at
Netherlands but incorporated in UK. Today, Shell is operated in more than 70 countries, it
explored and produce only gas and oil then it refines it, transport to destination, distributing and
marketing, petrochemicals, power generation and trading are the major activities or operations of
the company. Shell also deals in renewable energies through biofuels, wind and hydrogen.
Ratio analysis of the company
Ratio analysis is the key performance indicator which measures the efficiency and productivity
of the company through comparing present result with past years ratios. Some of the ratio
analysis techniques are discussed below:
Liquidity ratio
Liquidity describes the degree to which an asset or security can be quickly bought or sold in the
market without affecting the asset's price. In simpler words, liquidity is to get your money
whenever you need it. Cash is considered the most Liquid asset, while real estate, collectibles
and fine arts are all relatively illiquid. Liquidity is the ease of converting tangible assets into cash
and it has different connotations for different situations and contexts. Liquidity is the extent to
which an asset can be bought or sold quickly without affecting the asset's price. Liquidity also
plays an important role as it allows you to seize opportunities (Easton and Sommers, 2018).
Some of the types of liquidity ratios are acid test ratio, current ratio and cash ratio:
Acid test ratio: The acid-test ratio is a more well-conservative version. Although both are similar,
the acid-test ratio provides a more rigorous assessment of the company's ability to pay its current
liabilities. This eliminates all but the most liquid of current assets. The list is the most notable
exclusion, as it is not rapidly convertible into cash and is often sold on credit. Some analysts
include inventories in the ratio, however, if it is more liquid than some realizations (Gabric,
2018).