Caterpillar Inc – Analysis of the Company

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The company’s ticker symbol is CAT.

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Stock price

From the above chart we can see that the company’s stock price has been quite volatile, while the earnings per share have been fairly stable.

Overview of the company

Caterpillar is a manufacturing company which was founded in 1925 as Caterpillar Tractor Co, with its headquarters in Peoria, Illinois. In 1986, the name was changed to Caterpillar Inc. Caterpillar Inc operates in the Farm and Construction machinery industry, in the industrial goods sector. The company is engaged in the manufacture and sale of construction and mining equipment and machinery, engines, diesel and natural gas engines, forestry machinery; as well as the design, manufacture, remanufacture, maintenance, and service of rail-related products. The company also offers remanufacturing and logistics services to other companies, as well as financing and insurance services to its customers and dealers for the company’s products. Caterpillar uses distribution centers to market its products. The company’s main competitors are CNH Global NV., and Komatsu Ltd Spons AD.

ROE component analysis

Caterpillar’s Return on Equity = (Net Income / Sales) * (Sales / Total Assets) * (Total Assets / Shareholders’ Equity)

Return on Equity = (3,557/ 51,324) * (51,324 / 67,782.0) * (67,782.0 / 8,883.0)

Return on Equity = 0.0693 * 0.7572 * 7.63

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Return on Equity = 0.4 or 40 %

CNH’s Return on Equity = (Net Income / Sales) * (Sales / Total Assets) * (Total Assets / Shareholders’ Equity)

Return on Equity = (825/ 18,476) * (18,476/ 25,459) * (25,459 / 6,454)

Return on Equity = 0.045 * 0.726 * 3.94

Return on Equity = 0.13 or 13 %

Komatsu’s Return on Equity = (Net Income / Sales) * (Sales / Total Assets) * (Total Assets / Shareholders’ Equity)

Return on Equity = (795,929 / 20,421,646) * (20,421,646 / 19,889,485) * (19,889,485 / 8,231,727)

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Return on Equity = 0.039 * 1.027 * 2.42

Return on Equity = 0.097 or 9.7 %

From the computations above, it is evident that Caterpillar’s Du Pont Return on Equity is far much higher than that of its competitors.

Analysis of the company’s trend of sales revenue and net income

Consolidated Results of Operations for the Years Ended December 31

(Dollars in millions except per share data)

2009 2008 2007 2006 2005
Sales and revenues:
Sales of Machinery and Engines 29,540 48,044 41,962 38,869 34,006
Revenues of Financial Products 2,856 3,280 2,996 2,648 2,333
Total sales and revenues 32,396 51,324 44,958 41,517 36,339
Operating costs:
Cost of goods sold 23,886 38,415 32,626 29,549 26,558
Selling, general and administrative expenses 3,645 4,399 3,821 3,706 3,190
Research and development expenses 1,421 1,728 1,404 1,347 1,084
Interest expense of Financial Products -389 1,153 1,132 1,023 768
Other operating (income) expenses 1,822 1,181 1,054 971 955
Total operating costs 30,385 46,876 40,037 36,596 32,555
Operating profit 2,011 4,448 4,921 4,921 3,784
Interest expense excluding Financial Products 389 274 288 274 260
Other income (expense) -445 299 320 214 277
Consolidated profit before taxes 1,177 4,473 4,953 4,861 3,901
Provision for income taxes 270 953 1,485 1,405 1,120
Profit of consolidated companies 907 3,520 3,468 3,456 2,781
Equity in profit (loss) of unconsolidated affiliated companies -12 37 73 81 73
Profit 895 3,557 3,541 3,537 2,854
Profit per common share 6 6 5 4
Profit per common share — diluted1 6 5 5 4
Weighted-average common shares outstanding (millions)
Basi 611 638 659 678
Diluted1 628 660 684 706
Cash dividends declared per common share 2 1 1 1

From the above income statement, it is evident that the company’s sales revenue increased by 14.3 % between 2005 and 2006, then it increased further by 7.96 % between 2006 and 2007 and increased even further by 14.5 % between 2007 and 2008. It then dropped by 38.5 % between 2008 and 2009.

The company’s net income increased by 23.9 % between 2005 and 2006, then it increased slightly by 0.11 % between 2006 and 2007 and increased again slightly by 0.45 % between 2007 and 2008. It then dropped sharply by 74.8 % between 2008 and 2009.

Analysis of the company’s Long Term Assets

Gross Property Plant and Equipment 18,926.00
Accumulated Depreciation -9,547.00
NET PROPERTY PLANT AND EQUIPMENT 9,379.00
Goodwill 2,261.00
Long-Term Investments 94
Finance Division Loans and Leases, Long Term 14,264.00
Finance Division Other Long-Term Assets 4,540.00
Accounts Receivable, Long Term 1,479.00
Deferred Tax Assets, Long Term 3,311.00
Other Long-Term Assets 310
TOTAL LONG TERM ASSETS 35,638.00

From the table above, we can see that the only intangible asset that the company has is goodwill, which only accounts for 6.3 % of total long term assets.

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It is also evident that the company’s assets are fairly old, since accumulated depreciation accounts for 50.4 % of the Gross Property Plant and Equipment value.

Summary

Caterpillar Inc has been a very good company to invest in, since it has been offering its shareholders the highest return on their investment as compared to the other companies in the same industry. However in 2009, the performance was very poor, evidenced by the sharp drop in sales revenue and net income. The cause of this drop needs to be investigated in order to put the company back on track.

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BusinessEssay. (2022) 'Caterpillar Inc - Analysis of the Company'. 25 February.

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BusinessEssay. 2022. "Caterpillar Inc - Analysis of the Company." February 25, 2022. https://business-essay.com/caterpillar-inc-analysis-of-the-company/.

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BusinessEssay. "Caterpillar Inc - Analysis of the Company." February 25, 2022. https://business-essay.com/caterpillar-inc-analysis-of-the-company/.