FIN400 – Analyzing Financial Statements
June 23, 2013
Caterpillar Inc. Analysis Caterpillar Inc. is a global company headquartered Peoria, Illinois. They specialize in the manufacturing and selling of construction, mining, and farm equipment. Caterpillar Financial Services is a subsidiary company that offers financing options to their customers. I currently work of a construction company and I specialize in the accounting management of the company’s assets. Approximately 80% of the company assets are from Caterpillar and 70% of the assets that are financed are through Caterpillar Financial Services. The stability of Caterpillar Inc. is important to the company I work for.
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This tells me that the company’s investments are not increasing or producing the sales they hoped for.
Long-Term Debt-Paying Ability The debt/equity ratio is another ratio significant to CPA’s. This ratio measures the company’s long-term debt-paying abilities. Caterpillar’s debt/equity ratio is overall declining. Although there was a setback in 2011, this is a good trend to have. There are still 2.7 times higher than the industry though so there is some much need for improvement. Caterpillar is defiantly borrowing more money than they are bringing in with an increase of $19,089,000,000 compared to the increase in stockholder equity of $6,708,000,000. Increasing debt can be a good business decision as long as the debt is being used to better the business. Investing in updated equipment or technology that will increase efficiency or production would be a good example of this. Another concern with adding debt is making sure the company and will be able to make the payments. If the additional debt incurred is not producing additional revenues, making the schedule payment will become difficult.
“Profitability is the ability of a firm to generate earnings.” (Gibson, 2012, pg. 323) The net profit margin is a frequently used to evaluate company and management’s control of expenses.