Capital Structure of the Shell and How to Finance Their Operations - Essay Example

The capital structure that Shell Company applies depends on equity more than debt. “Equity is a more expensive form of capital than debt. And acquisitions that have unstable cash flows require capital for growth and compete in turbulent industries that often require a greater amount of equity. Moreover, equity provides for Shell Company more financial flexibility because it does not require scheduled payments” (Brigham and Ehrhardt, 2008). Also returned earnings take a place in the Shell organization's capital structure by using their profit, which has been generated to reinvest in the business again while it can be paid out to the shareholders “as dividends”.  

Shell’s capital structure focuses on many aspects, such as bonds and commercial papers. Shell uses commercial papers to finance, which are short-term debt requirements while bonds take longer repayment dates, global commercial program and commercial paper program, and euro medium-term notes (Epstein, Nach, and Bragg, 2007).

The table below shows the Shell Royal Dutch Petroleum Company equity and the debt from 2005 until the year 2009. Moreover, to find the capital employed is debt added to equity and that will be in order from 2005 to 2009 (110,840-130,718-144,067-152,135-171,464).

Recently, the Group decided to produce gas and oil, Dich Royal Shell. The sale of several assets already owned, including Royal Dutch Shell of oil and liquefied gas fields, in addition to the European in the North Sea, in order to assist the group in the providing of approximately 28 billion U.S. dollars representing an expenditure program adopted by the new group this year (White, 2010). Especially the assets relating to the refining and marketing in mature markets, such as Europe, in addition to the sales of some fields of oil and gas production in the Sea and Nigeria, which is what makes this plan one of the largest sales of assets, or re- restructuring of assets, in the history of Shell (Shell plc, 2010).