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Inventory Accounting Policy

Inventories are stated at the lower of cost or net realizable value. Cost is principally determined using the last-in, first-out (LIFO) method. The value of inventories on the LIFO basis represented about 65 percent and 60 percent of total inventories at December 31, 2017and 2016.

If the FIFO (first-in, first-out) method had been in use, inventories would have been $1,934 million and $2,139 million higher than reported at December 31, 2017 and 2016, respectively.

Source: Caterpillar Inc., Annual Report

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Inventory Disclosure

Caterpillar Inc., Statement of Financial Position, Inventory

USD $ in millions

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Raw materials
Work-in-process
Finished goods
Supplies
Inventories

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 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
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 declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
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 declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
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 declined from 2015 to 2016 and from 2016 to 2017.
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 declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Adjustment to Inventory: from LIFO to FIFO

Adjusting LIFO Inventory to FIFO (Current) Cost

USD $ in millions

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Inventories
Inventories at LIFO (as reported)
Add: Inventory LIFO reserve
Inventories at FIFO (adjusted)
Adjustment to Current Assets
Current assets (as reported)
Add: Inventory LIFO reserve
Current assets (adjusted)
Adjustment to Total Assets
Total assets (as reported)
Add: Inventory LIFO reserve
Total assets (adjusted)
Adjustment to Equity Attributable To Common Stockholders
Equity attributable to common stockholders (as reported)
Add: Inventory LIFO reserve
Equity attributable to common stockholders (adjusted)
Adjustment to Profit (loss) Attributable To Common Stockholders
Profit (loss) attributable to common stockholders (as reported)
Add: Increase (decrease) in inventory LIFO reserve
Profit (loss) attributable to common stockholders (adjusted)

Caterpillar Inc.'s inventory value on Dec 31, 2017 would be $11,952  (in millions) if the FIFO inventory method was used instead of LIFO. Caterpillar Inc.'s inventories, valued on a LIFO basis, on Dec 31, 2017 were $10,018 . Caterpillar Inc.'s inventories would have been $1,934  higher than reported on Dec 31, 2017 if the FIFO method had been used instead.

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Adjusted Ratios: LIFO vs. FIFO (Summary)

Caterpillar Inc., adjusted ratios

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Current Ratio
Reported current ratio (LIFO)
Adjusted current ratio (FIFO)
Net Profit Margin
Reported net profit margin (LIFO) % % % % %
Adjusted net profit margin (FIFO) % % % % %
Total Asset Turnover
Reported total asset turnover (LIFO)
Adjusted total asset turnover (FIFO)
Financial Leverage
Reported financial leverage (LIFO)
Adjusted financial leverage (FIFO)
Return on Equity (ROE)
Reported ROE (LIFO) % % % % %
Adjusted ROE (FIFO) % % % % %
Return on Assets (ROA)
Reported ROA (LIFO) % % % % %
Adjusted ROA (FIFO) % % % % %
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 deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Caterpillar Inc.'s adjusted net profit margin deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Caterpillar Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level.
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 increased from 2015 to 2016 and from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Caterpillar Inc.'s adjusted ROE deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Caterpillar Inc.'s adjusted ROA deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

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Adjusted Current Ratio

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Current assets (USD $ in millions)
Current liabilities (USD $ in millions)
Current ratio1
Adjusted: from LIFO to FIFO
Adjusted current assets (USD $ in millions)
Current liabilities (USD $ in millions)
Adjusted current ratio2

2017 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= ÷ =

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= ÷ =

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 deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

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Adjusted Net Profit Margin

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Profit (loss) attributable to common stockholders (USD $ in millions)
Sales of Machinery, Energy & Transportation (USD $ in millions)
Net profit margin1 % % % % %
Adjusted: from LIFO to FIFO
Adjusted profit (loss) attributable to common stockholders (USD $ in millions)
Sales of Machinery, Energy & Transportation (USD $ in millions)
Adjusted net profit margin2 % % % % %

2017 Calculations

1 Net profit margin = 100 × Profit (loss) attributable to common stockholders ÷ Sales of Machinery, Energy & Transportation
= 100 × ÷ = %

2 Adjusted net profit margin = 100 × Adjusted profit (loss) attributable to common stockholders ÷ Sales of Machinery, Energy & Transportation
= 100 × ÷ = %

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 deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

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Adjusted Total Asset Turnover

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Sales of Machinery, Energy & Transportation (USD $ in millions)
Total assets (USD $ in millions)
Total asset turnover1
Adjusted: from LIFO to FIFO
Sales of Machinery, Energy & Transportation (USD $ in millions)
Adjusted total assets (USD $ in millions)
Adjusted total asset turnover2

2017 Calculations

1 Total asset turnover = Sales of Machinery, Energy & Transportation ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Sales of Machinery, Energy & Transportation ÷ Adjusted total assets
= ÷ =

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 deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level.

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Adjusted Financial Leverage

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Total assets (USD $ in millions)
Equity attributable to common stockholders (USD $ in millions)
Financial leverage1
Adjusted: from LIFO to FIFO
Adjusted total assets (USD $ in millions)
Adjusted equity attributable to common stockholders (USD $ in millions)
Adjusted financial leverage2

2017 Calculations

1 Financial leverage = Total assets ÷ Equity attributable to common stockholders
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted equity attributable to common stockholders
= ÷ =

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 increased from 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Equity (ROE)

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Profit (loss) attributable to common stockholders (USD $ in millions)
Equity attributable to common stockholders (USD $ in millions)
ROE1 % % % % %
Adjusted: from LIFO to FIFO
Adjusted profit (loss) attributable to common stockholders (USD $ in millions)
Adjusted equity attributable to common stockholders (USD $ in millions)
Adjusted ROE2 % % % % %

2017 Calculations

1 ROE = 100 × Profit (loss) attributable to common stockholders ÷ Equity attributable to common stockholders
= 100 × ÷ = %

2 Adjusted ROE = 100 × Adjusted profit (loss) attributable to common stockholders ÷ Adjusted equity attributable to common stockholders
= 100 × ÷ = %

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 2015 to 2016 but then slightly improved from 2016 to 2017.

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Adjusted Return on Assets (ROA)

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Profit (loss) attributable to common stockholders (USD $ in millions)
Total assets (USD $ in millions)
ROA1 % % % % %
Adjusted: from LIFO to FIFO
Adjusted profit (loss) attributable to common stockholders (USD $ in millions)
Adjusted total assets (USD $ in millions)
Adjusted ROA2 % % % % %

2017 Calculations

1 ROA = 100 × Profit (loss) attributable to common stockholders ÷ Total assets
= 100 × ÷ = %

2 Adjusted ROA = 100 × Adjusted profit (loss) attributable to common stockholders ÷ Adjusted total assets
= 100 × ÷ = %

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Caterpillar Inc.'s adjusted ROA deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

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