Accounting Policy on Inventory
Inventory Disclosure
Adjustment to Inventory: Conversion from LIFO to FIFO
Adjusted Financial Ratios: LIFO vs. FIFO (Summary)
Adjusted Current Ratio
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Phillips 66 has several valuation methods for the various types of inventories and consistently uses the following methods for each type of inventory. Crude oil and petroleum products inventories are valued at the lower of cost or market in the aggregate, primarily on the last-in, first-out (LIFO) basis. Any necessary lower-of-cost-or-market write-downs at year end are recorded as permanent adjustments to the LIFO cost basis. LIFO is used to better match current inventory costs with current revenues and to meet tax-conformity requirements. Costs include both direct and indirect expenditures incurred in bringing an item or product to its existing condition and location. Materials and supplies inventories are valued using the weighted-average-cost method.

Source: 10-K (filing date: 2019-02-22).

Phillips 66, balance sheet: inventory

US$ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Crude oil and petroleum products
	Materials and supplies
	Inventories

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

Item	Description	The company
Inventories	Amount after valuation and LIFO reserves of inventory expected to be sold, or consumed within one year or operating cycle, if longer.	Phillips 66’s inventories increased from 2016 to 2017 and from 2017 to 2018.

Adjusting LIFO Inventory to FIFO (Current) Cost

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Inventories
	Inventories at LIFO (as reported)
	Add: Inventory LIFO reserve
	Inventories at FIFO (adjusted)
	Adjustment to Current Assets
	Current assets (as reported)
	Add: Inventory LIFO reserve
	Current assets (adjusted)
	Adjustment to Total Assets
	Total assets (as reported)
	Add: Inventory LIFO reserve
	Total assets (adjusted)
	Adjustment to Stockholders’ Equity
	Stockholders’ equity (as reported)
	Add: Inventory LIFO reserve
	Stockholders’ equity (adjusted)
	Adjustment to Net Income Attributable To Phillips 66
	Net income attributable to Phillips 66 (as reported)
	Add: Increase (decrease) in inventory LIFO reserve
	Net income attributable to Phillips 66 (adjusted)

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

Phillips 66’s inventory value on Dec 31, 2018 would be $6,443 (in millions) if the FIFO inventory method was used instead of LIFO. Phillips 66’s inventories, valued on a LIFO basis, on Dec 31, 2018 were $3,543 . Phillips 66’s inventories would have been $2,900 higher than reported on Dec 31, 2018 if the FIFO method had been used instead.

Phillips 66, Financial Data: Reported vs. Adjusted

Phillips 66, adjusted financial ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Current Ratio
	Reported current ratio (LIFO)
	Adjusted current ratio (FIFO)
	Net Profit Margin
	Reported net profit margin (LIFO)
	Adjusted net profit margin (FIFO)
	Total Asset Turnover
	Reported total asset turnover (LIFO)
	Adjusted total asset turnover (FIFO)
	Financial Leverage
	Reported financial leverage (LIFO)
	Adjusted financial leverage (FIFO)
	Return on Equity (ROE)
	Reported ROE (LIFO)
	Adjusted ROE (FIFO)
	Return on Assets (ROA)
	Reported ROA (LIFO)
	Adjusted ROA (FIFO)

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

Financial ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by current liabilities.	Phillips 66’s adjusted current ratio improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Phillips 66’s adjusted net profit margin ratio improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Phillips 66’s adjusted total asset turnover ratio improved from 2016 to 2017 and from 2017 to 2018.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Phillips 66’s adjusted financial leverage ratio decreased from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Phillips 66’s adjusted ROE improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Phillips 66’s adjusted ROA improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.

Phillips 66, Financial Ratios: Reported vs. Adjusted

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Current assets
	Current liabilities
	Liquidity Ratio
	Current ratio¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Adjusted current assets
	Current liabilities
	Liquidity Ratio
	Adjusted current ratio²

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

2018 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

² Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

Liquidity ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by current liabilities.	Phillips 66’s adjusted current ratio improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Phillips 66
	Sales and other operating revenues
	Profitability Ratio
	Net profit margin¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Phillips 66
	Sales and other operating revenues
	Profitability Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

2018 Calculations

¹ Net profit margin = 100 × Net income attributable to Phillips 66 ÷ Sales and other operating revenues
= 100 × hidden ÷ hidden = hidden

² Adjusted net profit margin = 100 × Adjusted net income attributable to Phillips 66 ÷ Sales and other operating revenues
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Phillips 66’s adjusted net profit margin ratio improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Sales and other operating revenues
	Total assets
	Activity Ratio
	Total asset turnover¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Sales and other operating revenues
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

2018 Calculations

¹ Total asset turnover = Sales and other operating revenues ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Sales and other operating revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Activity ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Phillips 66’s adjusted total asset turnover ratio improved from 2016 to 2017 and from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Stockholders’ equity
	Solvency Ratio
	Financial leverage¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted stockholders’ equity
	Solvency Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

2018 Calculations

¹ Financial leverage = Total assets ÷ Stockholders’ equity
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= hidden ÷ hidden = hidden

Solvency ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Phillips 66’s adjusted financial leverage ratio decreased from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Phillips 66
	Stockholders’ equity
	Profitability Ratio
	ROE¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Phillips 66
	Adjusted stockholders’ equity
	Profitability Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

2018 Calculations

¹ ROE = 100 × Net income attributable to Phillips 66 ÷ Stockholders’ equity
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Adjusted net income attributable to Phillips 66 ÷ Adjusted stockholders’ equity
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Phillips 66’s adjusted ROE improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Phillips 66
	Total assets
	Profitability Ratio
	ROA¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Phillips 66
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

2018 Calculations

¹ ROA = 100 × Net income attributable to Phillips 66 ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Adjusted net income attributable to Phillips 66 ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Phillips 66’s adjusted ROA improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.

	Phillips 66	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

Phillips 66 (PSX)

Analysis of Inventory

Accounting Policy on Inventory

Inventory Disclosure

Adjustment to Inventory: Conversion from LIFO to FIFO

Phillips 66, Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: LIFO vs. FIFO (Summary)

Phillips 66, Financial Ratios: Reported vs. Adjusted

Adjusted Current Ratio

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)