Caterpillar Annual Report

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2011 Caterpillar Annual Report
Justin Kruse
ACC100 Professor Hubbard
Strayer University
May 24, 2012

2011 Caterpillar Annual Report
Most everyone wanted to jump on the investment train this month with the release of Facebook’s Initial Public Offering (IPO). As a matter of fact, many people did buy stock in Facebook, trouble is, most of them will never be able to understand the paperwork they will receive while holding their shares. Every year publicly traded companies distribute what is known as their Annual Report, which is the yearly record of a publicly held company’s financial condition (Harvey). Throughout this paper we will go through Caterpillar’s annual report in an effort to better understand what we are reading. We will concentrate on four areas while we go through Caterpillar’s finances. First we will explain the main sections of the annual report. Next we will discuss the key factors that influenced the company’s financial performance during the year, as well as discuss the primary assets held by the company. Followed by an explanation of how management characterizes the internal control environment of the company. Annual reports can be very difficult to read and understand, especially reports from large corporations. To the average individual investor, like the majority of the nation, an annual report is just several pages of numbers and dollar signs, dollars we all hope are growing. An annual report contains many different sections including stockholder information, auditor’s report, listing of board of directors, corporate address, and financial statements (Dunn, 2008). Once the report is broken down into these sections it begins to get a bit easier to understand. After the report is broken down we need to concentrate on what is most important to us, the financial statement. Since we are the investor we want to know if what we are spending our money on is truly worth it. The financial statement allows us to see what the company is doing with their money, what they are spending it on and how well their company is doing from a growth and profits standpoint (Dunn, 2008). The financial statement can also be broken down itself, into three categories: cash flow statement, balance sheet, and incomes statement. The cash flow statement shows what money is coming into and going out of the organization, this is where we as investors find out how the companies we have our money in are spending theirs (Dunn, 2008). The balance sheet is where an organizations assets and liabilities are listed and the income statement is defined as presenting the revenues, expenses and resulting net income or net loss for a specific period of time (Weygandt, Kimmel & Kieso, 2009). While reading item no. seven, which is the management’s discussion and analysis of financial condition and results of operations, we are quickly informed of several factors that have contributed to the changes from 2009 to 2010. Per item no. seven, Caterpillar showed a $162 million or six percent decrease in revenues from 2009 and a $19 million or seven percent increase over 2009 (Financial, 2011). The decrease in revenues was principally due to a $223 million unfavorable impact from lower average earning assets (finance receivables and operating leases at constant interest rates), partially offset by a $53 million favorable change from returned or repossessed equipment and the absence of $34 million in write-downs on retained interests related to the securitized asset portfolio that occurred in 2009 (Financial, 2011). The increase was principally due to a $53 million favorable change from returned or repossessed equipment (Financial, 2011). When we step back and look at the past couple years we see a recession that forced many construction companies to close their doors due to a lack of work. Most of these companies had equipment to do the work and with no work the payments ran past due forcing Caterpillar to repossess their...
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