Basic information about Caterpillar Inc.
The income statement (statement of earnings) reports on the performance of Caterpillar Inc., the result of its operating activities.
Comprehensive income is the change in equity (net assets) of Caterpillar Inc. during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
The assets reports major classes and amounts of resources owned or controlled by Caterpillar Inc..
The liabilities and stockholders’ equity reports major classes and amounts of external claims on assets and owners’ capital contributions, and other internally generated sources of capital.
The cash flow statement provides information about Caterpillar Inc. cash receipts and cash payments during an accounting period, showing how these cash flows link the ending cash balance to the beginning balance shown on Caterpillar Inc. balance sheet.
Common-Size Financial Statements
Income statement components (revenues and expenses) shown as percentage of total sales.
Assets components shown as percentage of total assets.
Liabilities and stockholders’ equity components shown as percentage of total liabilities and stockholders’ equity.
Analysis of Financial Ratios
Measures the income of Caterpillar Inc. relative to its revenues and invested capital.
Examines Caterpillar Inc. capital structure in terms of the mix of its financing sources and the ability of the firm to satisfy its longer-term debt and investment obligations.
Evaluates revenues and output generated by the Caterpillar Inc. assets. Operating performance ratios describe the relationship between the Caterpillar Inc. level of operations and the assets needed to sustain operating activities.
Measures how efficiently Caterpillar Inc. generates revenues from its investments in fixed or total assets.
An approach to decomposing Caterpillar Inc. return on equity, return on assets, and net profit margin ratio as the product of other financial ratios.
Caterpillar Inc. operates in 4 segments: Construction Industries; Resource Industries; Energy & Transportation; and Financial Products.
Relative valuation technique determine the value of Caterpillar Inc. by comparing it to similar entities (like industry or sector) on the basis of several relative ratios that compare its stock price to relevant variables that affect the stock value, such as earnings, book value, and sales.
To calculate EBITDA analysts start with net earnings. To that earnings number, interest, taxes, depreciation, and amortization are added. EBITDA as a pre-interest number is a flow to all providers of capital.
Free cash flow to the firm is the cash flow available to the Caterpillar Inc. suppliers of capital after all operating expenses have been paid and necessary investments in working and fixed capital have been made.
Free cash flow to equity is the cash flow available to Caterpillar Inc. equity holders after all operating expenses, interest, and principal payments have been paid and necessary investments in working and fixed capital have been made.
Discounted Cash Flow (DCF) Valuation
CAPM is a theory concentrated with deriving the expected rates of return on risky assets based on the assets’ systematic risk levels. Systematic risk is the variability of returns that is due to macroeconomic factors that affect all risky assets. It cannot be eliminated by diversification.
Main items of Caterpillar Inc. financial statements.
Caterpillar Inc. profitability ratio calculated as operating income divided by revenue.
Caterpillar Inc. profitability ratio calculated as net income divided by total assets.
Caterpillar Inc. solvency ratio calculated as total debt divided by total shareholders’ equity.
The P/E ratio tells analyst how much an investor in Caterpillar Inc. common stock pays per dollar of current earnings.
The P/BV ratio is interpreted as an indicator of market judgment about the relationship between a company required rate of return and its actual rate of return.
An rationale for the P/S ratio is that sales, as the top line in an income statement, are generally less subject to distortion or manipulation than other fundamentals such as EPS or book value. Sales are also more stable than earnings and never negative.
Analysis of Components of Financial Statements
Financial Reporting Quality
Financial reporting quality relates to the accuracy with which Caterpillar Inc. reported financial statements reflect its operating performance and to their usefulness for forecasting future cash flows.
Aggregate accruals deriving measures of the accrual component of Caterpillar Inc. earnings.