Financial Analysis of Caterpillar (Cat)

Topics: Cash flow, Free cash flow, Cash flow statement Pages: 9 (2346 words) Published: August 24, 2008
Long the pride of Peoria, Illinois, Caterpillar, Inc. has established itself as a premier global manufacturing powerhouse whose commercial construction, transportation and engine solutions have come to symbolize durability, quality, and economic progress. This project paper examines the operational and financial numbers resulting from the company’s global sales reach. This paper reviews the publically available corporate financial results for the last decade. This financial data review will be expanded to incorporate how operating and investing activities and results have also impact the Caterpillar bottom line. The paper will conclude with a short summary analysis providing team conclusions to whether the Caterpillar company is a stock worthy of investment ownership.

Table of Contents
Company Profile3
Revenues, Earnings (2006-2007) & Outlook (2008)4
Analysis of 2006 Statement of Cash Flows5
Operating Activities5
Investing Activities6
Financing Activities6
Pro-Forma Statements 20087
S&P / Caterpillar Comparison9
S&P Index – Dividend Returns9
Caterpillar – Dividend Returns9
Cost of Common Stock Calculations10
Summary Analysis10
Appendix – Financial & Calculation Tables12
Balance Sheet12
Statement of Earnings13
Cash Flows13
Free Cash Flow14
Economic Value Added14
Market Value Added14
Costs of Common Stock15
Capital Asset Pricing Model (CAPM)15
Discounted Cash Flow (DCF)15
After Tax Cost of Debt15

Company Profile
Reaching back to the 1890 agricultural steam tractor research being directed by independent entrenpuers Benjamin Holt and Daniel Best, Caterpillar, Inc. has grown to become the world’s largest maker of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines worldwide. Formalized in 1925 upon the merger of The Holt Manufacturing Company and the C. L. Best Tractor Co., the Caterpillar brand and global product line has come to represent a global standard for quality, durability, and economic progress. This informal brand value is best articulated via the company’s stated mission statement. “Caterpillar will be the leader in providing the best value in machines, engines and support services for customers dedicated to building the world's infrastructure and developing and transporting its resources. We provide the best value to customers”. (Caterpillar, 2008). Caterpillar manufacturers over 400 unique products with market access through a global network of over 200 dealers in 178 countries. In addition to the well-known tractor models, Caterpillar builds multiple heavy construction, mining and forestry machinery products. Examples include trucks, graders, evacuators, rand scrapers. Caterpillar also makes diesel and gas engines used in Caterpillar machinery, electric power generation equipment, locomotives, and other industrial equipment. Caterpillar complements its production revenues with financial and lending services provided by its affiliated financial services organizations. by its Caterpillar Financial Services Corporation. The financial services organizations. The Caterpillar financial services family consists of Caterpillar Financial Services Corporation (Cat Financial), Caterpillar Insurance Holdings, Inc. (Cat Insurance), and Caterpillar Power Ventures Corporation (Cat Power Ventures). These organizations offer purchase financing, insurance, and project investment opportunities for its global customers and dealer network. Caterpillar does about 44 percent of its business within the United States and 56 percent internationally.. Caterpillar’s business serious approach and implementation of operational efficiency strategies (i.e. Lean, Six Sigma) in collusion with a mid-1990’s organizational restructuring has allowed the company to recognize significant ongoing labor and financial savings. The mid-1990’s organizational restructuring effort enabled a more agile and...

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