Inventory Accounting Policy

Inventories are stated at the lower of cost or market. Cost is principally determined using the last-in, first-out (LIFO) method. The value of inventories on the LIFO basis represented about 60 percent of total inventories at December 31, 2013 and 2012, and about 65 percent at December 31, 2011.

If the FIFO (first-in, first-out) method had been in use, inventories would have been $2,504 million, $2,750 million and $2,422 million higher than reported at December 31, 2013, 2012 and 2011, respectively.

Source: Caterpillar Inc., Annual Report

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Inventory Disclosure

Caterpillar Inc., Statement of Financial Position, Inventory

USD $ in millions

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Raw materials 2,966  3,573  3,872  2,766  1,979 
Work-in-process 2,589  2,920  2,845  1,483  656 
Finished goods 6,785  8,767  7,570  5,098  3,465 
Supplies 285  287  257  240  260 
Inventories 12,625  15,547  14,544  9,587  6,360 

Source: Based on data from Caterpillar Inc. Annual Reports

Item Description The company
Raw materials Carrying amount as of the balance sheet date of unprocessed items to be consumed in the manufacturing or production process. Also includes purchased parts that will be used as components of a finished product. Caterpillar Inc.'s raw materials declined from 2011 to 2012 and from 2012 to 2013.
Work-in-process Carrying amount as of the balance sheet date of merchandise or goods which are partially completed, are generally comprised of raw materials, labor and factory overhead costs, and which require further materials, labor and overhead to be converted into finished goods, and which generally require the use of estimates to determine percentage complete and pricing. Caterpillar Inc.'s work-in-process increased from 2011 to 2012 but then declined significantly from 2012 to 2013.
Finished goods Carrying amount as of the balance sheet date of merchandise or goods held by the company that are readily available for sale. Caterpillar Inc.'s finished goods increased from 2011 to 2012 but then declined significantly from 2012 to 2013.
Supplies Carrying amount as of the balance sheet date of products used directly or indirectly in the manufacturing or production process, which may or may not become part of the final product. May also include items used in the storage, presentation or transportation of physical goods. Caterpillar Inc.'s supplies increased from 2011 to 2012 but then slightly declined from 2012 to 2013.
Inventories Carrying amount (lower of cost or market) as of the balance sheet date of inventories less all valuation and other allowances. Excludes noncurrent inventory balances (expected to remain on hand past one year or one operating cycle, if longer). Caterpillar Inc.'s inventories increased from 2011 to 2012 but then declined significantly from 2012 to 2013.

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Adjustment to Inventory: from LIFO to FIFO

Adjusting LIFO Inventory to FIFO (Current) Cost

USD $ in millions

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Adjustment to Inventories
Inventories at LIFO (as reported) 12,625  15,547  14,544  9,587  6,360 
Add: Inventory LIFO reserve 2,504  2,750  2,422  2,575  3,003 
Inventories at FIFO (adjusted) 15,129  18,297  16,966  12,162  9,363 
Adjustment to Current Assets
Current assets (as reported) 38,335  42,524  38,128  31,810  26,789 
Add: Inventory LIFO reserve 2,504  2,750  2,422  2,575  3,003 
Current assets (adjusted) 40,839  45,274  40,550  34,385  29,792 
Adjustment to Total Assets
Total assets (as reported) 84,896  89,356  81,446  64,020  60,038 
Add: Inventory LIFO reserve 2,504  2,750  2,422  2,575  3,003 
Total assets (adjusted) 87,400  92,106  83,868  66,595  63,041 
Adjustment to Equity Attributable To Common Stockholders
Equity attributable to common stockholders (as reported) 20,811  17,532  12,883  10,824  8,740 
Add: Inventory LIFO reserve 2,504  2,750  2,422  2,575  3,003 
Equity attributable to common stockholders (adjusted) 23,315  20,282  15,305  13,399  11,743 
Adjustment to Profit Attributable To Common Stockholders
Profit attributable to common stockholders (as reported) 3,789  5,681  4,928  2,700  895 
Add: Increase (decrease) in inventory LIFO reserve (246) 328  (153) (447) (180)
Profit attributable to common stockholders (adjusted) 3,543  6,009  4,775  2,253  715 

Caterpillar Inc.'s inventory value on Dec 31, 2013 would be $15,129  (in millions) if the FIFO inventory method was used instead of LIFO. Caterpillar Inc.'s inventories, valued on a LIFO basis, on Dec 31, 2013 were $12,625 . Caterpillar Inc.'s inventories would have been $2,504  higher than reported on Dec 31, 2013 if the FIFO method had been used instead.

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Adjusted Ratios: LIFO vs. FIFO (Summary)

Caterpillar Inc., adjusted ratios

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
Current Ratio
Reported current ratio (LIFO) 1.40 1.43 1.33 1.44 1.39
Adjusted current ratio (FIFO) 1.50 1.52 1.42 1.56 1.54
Net Profit Margin
Reported net profit margin (LIFO) 7.19% 9.01% 8.59% 6.77% 3.03%
Adjusted net profit margin (FIFO) 6.72% 9.53% 8.32% 5.65% 2.42%
Total Asset Turnover
Reported total asset turnover (LIFO) 0.62 0.71 0.70 0.62 0.49
Adjusted total asset turnover (FIFO) 0.60 0.68 0.68 0.60 0.47
Financial Leverage
Reported financial leverage (LIFO) 4.08 5.10 6.32 5.91 6.87
Adjusted financial leverage (FIFO) 3.75 4.54 5.48 4.97 5.37
Return on Equity (ROE)
Reported ROE (LIFO) 18.21% 32.40% 38.25% 24.94% 10.24%
Adjusted ROE (FIFO) 15.20% 29.63% 31.20% 16.81% 6.09%
Return on Assets (ROA)
Reported ROA (LIFO) 4.46% 6.36% 6.05% 4.22% 1.49%
Adjusted ROA (FIFO) 4.05% 6.52% 5.69% 3.38% 1.13%
Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by current liabilities. Caterpillar Inc.'s adjusted current ratio improved from 2011 to 2012 but then slightly deteriorated from 2012 to 2013.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Caterpillar Inc.'s adjusted net profit margin improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Caterpillar Inc.'s adjusted total asset turnover improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Caterpillar Inc.'s adjusted financial leverage declined from 2011 to 2012 and from 2012 to 2013.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Caterpillar Inc.'s adjusted ROE deteriorated from 2011 to 2012 and from 2012 to 2013.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Caterpillar Inc.'s adjusted ROA improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013.

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Adjusted Current Ratio

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Current assets (USD $ in millions) 38,335  42,524  38,128  31,810  26,789 
Current liabilities (USD $ in millions) 27,297  29,755  28,561  22,020  19,292 
Current ratio1 1.40 1.43 1.33 1.44 1.39
Adjusted: from LIFO to FIFO
Adjusted current assets (USD $ in millions) 40,839  45,274  40,550  34,385  29,792 
Current liabilities (USD $ in millions) 27,297  29,755  28,561  22,020  19,292 
Adjusted current ratio2 1.50 1.52 1.42 1.56 1.54

2013 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= 38,335 ÷ 27,297 = 1.40

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 40,839 ÷ 27,297 = 1.50

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by current liabilities. Caterpillar Inc.'s adjusted current ratio improved from 2011 to 2012 but then slightly deteriorated from 2012 to 2013.

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Adjusted Net Profit Margin

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Profit attributable to common stockholders (USD $ in millions) 3,789  5,681  4,928  2,700  895 
Sales of Machinery and Power Systems (USD $ in millions) 52,694  63,068  57,392  39,867  29,540 
Net profit margin1 7.19% 9.01% 8.59% 6.77% 3.03%
Adjusted: from LIFO to FIFO
Adjusted profit attributable to common stockholders (USD $ in millions) 3,543  6,009  4,775  2,253  715 
Sales of Machinery and Power Systems (USD $ in millions) 52,694  63,068  57,392  39,867  29,540 
Adjusted net profit margin2 6.72% 9.53% 8.32% 5.65% 2.42%

2013 Calculations

1 Net profit margin = 100 × Profit attributable to common stockholders ÷ Sales of Machinery and Power Systems
= 100 × 3,789 ÷ 52,694 = 7.19%

2 Adjusted net profit margin = 100 × Adjusted profit attributable to common stockholders ÷ Sales of Machinery and Power Systems
= 100 × 3,543 ÷ 52,694 = 6.72%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Caterpillar Inc.'s adjusted net profit margin improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013.

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Adjusted Total Asset Turnover

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Sales of Machinery and Power Systems (USD $ in millions) 52,694  63,068  57,392  39,867  29,540 
Total assets (USD $ in millions) 84,896  89,356  81,446  64,020  60,038 
Total asset turnover1 0.62 0.71 0.70 0.62 0.49
Adjusted: from LIFO to FIFO
Sales of Machinery and Power Systems (USD $ in millions) 52,694  63,068  57,392  39,867  29,540 
Adjusted total assets (USD $ in millions) 87,400  92,106  83,868  66,595  63,041 
Adjusted total asset turnover2 0.60 0.68 0.68 0.60 0.47

2013 Calculations

1 Total asset turnover = Sales of Machinery and Power Systems ÷ Total assets
= 52,694 ÷ 84,896 = 0.62

2 Adjusted total asset turnover = Sales of Machinery and Power Systems ÷ Adjusted total assets
= 52,694 ÷ 87,400 = 0.60

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Caterpillar Inc.'s adjusted total asset turnover improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013.

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Adjusted Financial Leverage

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Total assets (USD $ in millions) 84,896  89,356  81,446  64,020  60,038 
Equity attributable to common stockholders (USD $ in millions) 20,811  17,532  12,883  10,824  8,740 
Financial leverage1 4.08 5.10 6.32 5.91 6.87
Adjusted: from LIFO to FIFO
Adjusted total assets (USD $ in millions) 87,400  92,106  83,868  66,595  63,041 
Adjusted equity attributable to common stockholders (USD $ in millions) 23,315  20,282  15,305  13,399  11,743 
Adjusted financial leverage2 3.75 4.54 5.48 4.97 5.37

2013 Calculations

1 Financial leverage = Total assets ÷ Equity attributable to common stockholders
= 84,896 ÷ 20,811 = 4.08

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted equity attributable to common stockholders
= 87,400 ÷ 23,315 = 3.75

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Caterpillar Inc.'s adjusted financial leverage declined from 2011 to 2012 and from 2012 to 2013.

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Adjusted Return On Equity (ROE)

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Profit attributable to common stockholders (USD $ in millions) 3,789  5,681  4,928  2,700  895 
Equity attributable to common stockholders (USD $ in millions) 20,811  17,532  12,883  10,824  8,740 
ROE1 18.21% 32.40% 38.25% 24.94% 10.24%
Adjusted: from LIFO to FIFO
Adjusted profit attributable to common stockholders (USD $ in millions) 3,543  6,009  4,775  2,253  715 
Adjusted equity attributable to common stockholders (USD $ in millions) 23,315  20,282  15,305  13,399  11,743 
Adjusted ROE2 15.20% 29.63% 31.20% 16.81% 6.09%

2013 Calculations

1 ROE = 100 × Profit attributable to common stockholders ÷ Equity attributable to common stockholders
= 100 × 3,789 ÷ 20,811 = 18.21%

2 Adjusted ROE = 100 × Adjusted profit attributable to common stockholders ÷ Adjusted equity attributable to common stockholders
= 100 × 3,543 ÷ 23,315 = 15.20%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Caterpillar Inc.'s adjusted ROE deteriorated from 2011 to 2012 and from 2012 to 2013.

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Adjusted Return On Assets (ROA)

 
Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009
As Reported
Profit attributable to common stockholders (USD $ in millions) 3,789  5,681  4,928  2,700  895 
Total assets (USD $ in millions) 84,896  89,356  81,446  64,020  60,038 
ROA1 4.46% 6.36% 6.05% 4.22% 1.49%
Adjusted: from LIFO to FIFO
Adjusted profit attributable to common stockholders (USD $ in millions) 3,543  6,009  4,775  2,253  715 
Adjusted total assets (USD $ in millions) 87,400  92,106  83,868  66,595  63,041 
Adjusted ROA2 4.05% 6.52% 5.69% 3.38% 1.13%

2013 Calculations

1 ROA = 100 × Profit attributable to common stockholders ÷ Total assets
= 100 × 3,789 ÷ 84,896 = 4.46%

2 Adjusted ROA = 100 × Adjusted profit attributable to common stockholders ÷ Adjusted total assets
= 100 × 3,543 ÷ 87,400 = 4.05%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Caterpillar Inc.'s adjusted ROA improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013.

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