Accounting Policy on Inventory
Inventory Disclosure
Adjustment to Inventory: Conversion from LIFO to FIFO
Adjusted Financial Ratios: LIFO vs. FIFO (Summary)
Adjusted Current Ratio
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

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 of total inventories at December 31, 2018 and 2017.

If the FIFO (first-in, first-out) method had been in use, inventories would have been $2,009 million and $1,934 million higher than reported at December 31, 2018 and 2017, respectively.

Source: 10-K (filing date: 2019-02-14).

Caterpillar Inc., balance sheet: inventory

US$ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Raw materials
	Work-in-process
	Finished goods
	Supplies
	Inventories

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

Item	Description	The company
Inventories	Amount after valuation and LIFO reserves of inventory expected to be sold, or consumed within one year or operating cycle, if longer.	Caterpillar Inc.’s inventories increased from 2016 to 2017 and from 2017 to 2018.

Adjusting LIFO Inventory to FIFO (Current) Cost

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	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)

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

Caterpillar Inc.’s inventory value on Dec 31, 2018 would be $13,538 (in millions) if the FIFO inventory method was used instead of LIFO. Caterpillar Inc.’s inventories, valued on a LIFO basis, on Dec 31, 2018 were $11,529 . Caterpillar Inc.’s inventories would have been $2,009 higher than reported on Dec 31, 2018 if the FIFO method had been used instead.

Caterpillar Inc., Financial Data: Reported vs. Adjusted

Caterpillar Inc., adjusted financial ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	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)

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

Financial 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 2016 to 2017 and from 2017 to 2018.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Caterpillar Inc.’s adjusted net profit margin ratio improved from 2016 to 2017 and from 2017 to 2018.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Caterpillar Inc.’s adjusted total asset turnover ratio improved from 2016 to 2017 and from 2017 to 2018.
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 ratio increased from 2016 to 2017 but then decreased significantly from 2017 to 2018.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Caterpillar Inc.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Caterpillar Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018.

Caterpillar Inc., Financial Ratios: Reported vs. Adjusted

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Current assets
	Current liabilities
	Liquidity Ratio
	Current ratio¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Adjusted current assets
	Current liabilities
	Liquidity Ratio
	Adjusted current ratio²

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

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

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

Liquidity 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 2016 to 2017 and from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Profit (loss) attributable to common stockholders
	Sales of Machinery, Energy & Transportation
	Profitability Ratio
	Net profit margin¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Adjusted profit (loss) attributable to common stockholders
	Sales of Machinery, Energy & Transportation
	Profitability Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

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

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

Profitability 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 ratio improved from 2016 to 2017 and from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Sales of Machinery, Energy & Transportation
	Total assets
	Activity Ratio
	Total asset turnover¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Sales of Machinery, Energy & Transportation
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

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

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

Activity 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 ratio improved from 2016 to 2017 and from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Equity attributable to common stockholders
	Solvency Ratio
	Financial leverage¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted equity attributable to common stockholders
	Solvency Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

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

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

Solvency 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 ratio increased from 2016 to 2017 but then decreased significantly from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Profit (loss) attributable to common stockholders
	Equity attributable to common stockholders
	Profitability Ratio
	ROE¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Adjusted profit (loss) attributable to common stockholders
	Adjusted equity attributable to common stockholders
	Profitability Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

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

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

Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Caterpillar Inc.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018.

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Profit (loss) attributable to common stockholders
	Total assets
	Profitability Ratio
	ROA¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in millions)
	Adjusted profit (loss) attributable to common stockholders
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

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

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

Profitability 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 2016 to 2017 and from 2017 to 2018.

	Caterpillar Inc.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

Caterpillar Inc. (CAT)

Analysis of Inventory

Accounting Policy on Inventory

Inventory Disclosure

Adjustment to Inventory: Conversion from LIFO to FIFO

Caterpillar Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: LIFO vs. FIFO (Summary)

Caterpillar Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Current Ratio

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)