LONDON -- These days you don't have to look far to spot lowly rated shares within the FTSE 100.

With a market value of £138 billion, Royal Dutch Shell (LSE:RDSB) (NYSE:RDS-B) is the largest constituent of the blue-chip index. Yet its £22 shares trade at about 8.7 times the underlying earnings declared last week for 2012.

A number of reasons could explain the single-digit rating. Possibilities include the group's prospects for additional production, potential price swings within energy markets and the fact that earnings last year were less than that recorded during 2007.

Another reason could be Shell's capital expenditure. The company spends vast amounts every year on plant, property and equipment, and the sums are well in excess of the associated depreciation and amortization charged against reported earnings.

Here are the figures:








Depreciation and amortization







Net capital expenditure







Source: S&P Capital IQ

You could argue Shell's report earnings are somewhat flattered by its depreciation policy.

In fact, I calculate net capital expenditure during the last six years has exceeded the reported depreciation charge by between 27% and 132%, and by an average of around 80%.

Indeed, more than $140 billion has been spent on plant, property on equipment between 2007 and 2012, of which more than $60 billion was not charged to the profit and loss account.

Of course, Shell's capital expenditure goes toward various long-term projects, so I accept the associated accounting costs are spread across the lifetime of the projects and are not expensed immediately.

But when you consider Shell's earnings were $5 per share during 2007 and were $4 a share last year, you do have to wonder about the benefits of that aforementioned $140 billion of expenditure.

Bear in mind, too, that Shell has indicated net capital expenditure will top $30 billion during each of 2013, 2014 and 2015. At some point, all this expenditure will have to propel the group's earnings higher.

Anyway, I'm a bit skeptical of Shell's reported earnings, and so it seems is the market, which is why I believe you can buy Shell's shares for less than 9 times the firm's accounting profits.

Still, those profits are funding an 114 pence per share dividend for 2013, which in turn supports a 5.2% yield. Not bad -- especially when the payout has just been lifted by nearly 5%.

However, Shell's prospects and valuation were not attractive enough to qualify the share for this exclusive in-depth report, which is devoted instead to another high-income opportunity within the FTSE 100.

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Maynard Paton has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.