Caterpillar Inc. (NYSE:CAT)

The composition of inventories demonstrates a consistent upward trend from 2021 through 2025. Examination of the individual components reveals varying rates of increase and relative contributions to the overall inventory balance.

Raw Materials

Raw materials exhibited a steady increase over the five-year period, rising from US$5,528 million in 2021 to US$7,434 million in 2025. The rate of growth appears to have accelerated in the later years, with a more substantial increase between 2023 and 2025 compared to earlier periods. This suggests potential anticipation of increased production or rising input costs.

Work-in-Process

Work-in-process inventories showed a modest increase overall, moving from US$1,318 million in 2021 to US$1,598 million in 2025. While generally trending upward, a slight decrease was observed between 2022 and 2023. The relatively stable nature of this component suggests consistent production flow with limited significant disruptions.

Finished Goods

Finished goods represent the largest component of total inventories and demonstrate a consistent upward trend, increasing from US$6,907 million in 2021 to US$8,725 million in 2025. The growth rate is relatively consistent throughout the period, indicating a steady demand for completed products or a deliberate build-up of stock.

Supplies

Supplies inventory increased from US$285 million in 2021 to US$378 million in 2025. The increase was relatively consistent until 2025, where growth slowed. This component represents a small portion of total inventories, but the upward trend suggests increasing operational activity.

Total Inventories

Total inventories increased from US$14,038 million in 2021 to US$18,135 million in 2025, representing a cumulative increase of approximately 29.2%. The consistent growth across all inventory categories suggests a general expansion of business activity or a strategic decision to maintain higher inventory levels. The largest contribution to this increase comes from finished goods and raw materials.

The observed trends indicate a potential correlation between raw material accumulation and finished goods production, suggesting a proactive approach to managing the supply chain and meeting anticipated demand. Further investigation into sales figures and production volumes would be necessary to confirm these observations.

The information presents a five-year trend of reported and adjusted financial figures following a change in inventory valuation method from LIFO to FIFO. The adjustments primarily relate to inventory and subsequently impact related balance sheet and income statement items. A consistent increase is observed in adjusted values compared to reported values across all presented line items.

Inventory Impact

Reported inventories demonstrate a steady increase from US$14,038 million in 2021 to US$18,135 million in 2025. However, the adjusted inventories, reflecting the FIFO method, are substantially higher, beginning at US$16,637 million in 2021 and rising to US$22,440 million in 2025. This difference, representing the cumulative effect of the LIFO to FIFO adjustment, widens over the period, indicating a significant impact on the reported asset base.

Balance Sheet Adjustments

Adjustments to inventory directly influence current assets and total assets. Reported current assets show a fluctuating trend, increasing from US$43,455 million in 2021 to US$52,485 million in 2025, with a slight decrease in 2024. Adjusted current assets consistently exceed reported figures, growing from US$46,054 million to US$56,790 million over the same period. A similar pattern is evident in total assets, where adjusted total assets are consistently higher than reported total assets, increasing from US$85,392 million to US$102,890 million.

Equity Impact

The shift to FIFO also impacts equity attributable to common shareholders. Reported equity increases from US$16,484 million in 2021 to US$21,318 million in 2025. Adjusted equity shows a larger increase, starting at US$19,083 million and reaching US$25,623 million in 2025. The difference between reported and adjusted equity widens annually, mirroring the inventory adjustment trend.

Profitability Impact

Reported profit attributable to common stockholders fluctuates over the period, peaking at US$10,792 million in 2024 and decreasing to US$8,884 million in 2025. Adjusted profit consistently exceeds reported profit, beginning at US$6,956 million in 2021 and reaching US$11,233 million in 2024 before decreasing to US$9,325 million in 2025. The adjustment to profit reflects the higher cost of goods sold under LIFO, which is reversed with the adoption of FIFO. The difference between reported and adjusted profit is relatively stable between US$500 and US$700 million for most years, except for 2025 where the difference narrows.

In summary, the transition from LIFO to FIFO results in higher reported inventory values, current assets, total assets, equity, and profit. The cumulative effect of this change increases over time, demonstrating a material impact on the company’s financial position and performance.

The financial ratios presented demonstrate subtle but consistent differences between reported figures and those adjusted for inventory valuation methods, likely reflecting the impact of transitioning from LIFO to FIFO. Generally, the adjustments result in modestly improved profitability and solvency metrics, while asset utilization appears slightly dampened.

Liquidity

The reported current ratio exhibits fluctuations between 1.35 and 1.46 over the period. The adjusted current ratio consistently exceeds the reported value, ranging from 1.45 to 1.55. This suggests that adopting FIFO increases reported current assets relative to current liabilities, presenting a marginally stronger liquidity position. The difference remains relatively small, indicating the inventory valuation method has a limited impact on short-term solvency.

Profitability

Reported net profit margin shows volatility, peaking at 17.59% in 2024 before declining to 13.89% in 2025. The adjusted net profit margin consistently surpasses the reported margin, ranging from 13.13% to 18.31%. This indicates that FIFO generally results in higher reported profits, likely due to lower cost of goods sold in a rising price environment. The impact is most pronounced in 2024, aligning with the peak in reported net profit margin.

Asset Utilization

Reported total asset turnover increased from 0.58 in 2021 to 0.73 in 2023, then decreased to 0.65 in 2025. The adjusted total asset turnover mirrors this trend, but remains consistently lower than the reported value, ranging from 0.62 to 0.70. This suggests that the FIFO method, through its impact on inventory valuation, may slightly reduce the efficiency with which assets are used to generate revenue.

Solvency & Returns

Reported financial leverage fluctuates between 4.49 and 5.16. The adjusted financial leverage is consistently lower, ranging from 3.92 to 4.62, indicating a reduced level of financial risk when accounting for inventory valuation adjustments. Both reported and adjusted Return on Equity (ROE) and Return on Assets (ROA) follow similar patterns. The adjusted ROE and ROA are consistently lower than their reported counterparts, but the differences are relatively small. This is consistent with the impact of FIFO on profitability and asset utilization, resulting in a slightly lower return on investment.

Overall, the adjustments suggest a modest positive impact on reported profitability and solvency metrics when utilizing FIFO. However, the effect on asset utilization is slightly negative. The differences between reported and adjusted ratios are generally consistent across the period, indicating a stable and predictable impact from the inventory valuation method.

The adjusted current ratio exhibited a generally stable pattern over the five-year period, with some fluctuation. Reported current assets showed an initial increase followed by a decrease and then a substantial rise, while the adjusted current assets consistently increased throughout the period. The reported current ratio demonstrated more volatility than the adjusted current ratio.

Adjusted Current Ratio Trend

The adjusted current ratio began at 1.54 in 2021, decreased to 1.49 in 2022, and then slightly declined to 1.45 in 2023. A recovery was observed in 2024, with the ratio increasing to 1.54, and continued to rise to 1.55 in 2025. This indicates a strengthening of the company’s ability to cover its current liabilities with adjusted current assets over the latter part of the period.

Adjusted vs. Reported Current Assets

Adjusted current assets consistently exceeded reported current assets throughout the observed period. The difference between the two grew from US$2,599 million in 2021 to US$4,305 million in 2025. This suggests that adjustments are being made to current assets that increase their liquidity as perceived by the analysis. The growth in adjusted current assets appears to be a key driver of the stability in the adjusted current ratio.

Reported Current Ratio Trend

The reported current ratio started at 1.46 in 2021, decreased to 1.39 in 2022, and further declined to 1.35 in 2023. It then increased to 1.42 in 2024 and reached 1.44 in 2025. This pattern mirrors the fluctuations in reported current assets, indicating a direct relationship between the two.

The divergence between the reported and adjusted current ratios suggests that the adjustments made to current assets are materially impacting the assessment of short-term liquidity. The consistent increase in adjusted current assets provides a positive signal regarding the company’s short-term financial position, even as reported current assets experienced some volatility.

The period under review demonstrates fluctuations in both reported and adjusted profitability metrics. Reported profit attributable to common stockholders increased from US$6,489 million in 2021 to US$6,705 million in 2022, then experienced substantial growth reaching US$10,335 million in 2023 and US$10,792 million in 2024, before declining to US$8,884 million in 2025. A similar pattern is observed in adjusted profit attributable to common stockholders, moving from US$6,956 million in 2021 to US$7,427 million in 2022, peaking at US$10,437 million in 2023 and US$11,233 million in 2024, and subsequently decreasing to US$9,325 million in 2025.

Reported Net Profit Margin

The reported net profit margin exhibited volatility throughout the period. It began at 13.47% in 2021, decreased to 11.85% in 2022, and then rose significantly to 16.18% in 2023 and 17.59% in 2024. A decline to 13.89% was noted in 2025. This suggests a sensitivity to changes in profitability and potentially cost structures.

Adjusted Net Profit Margin

The adjusted net profit margin mirrored the trend of the reported margin, though with consistently higher values. Starting at 14.44% in 2021, it decreased to 13.13% in 2022, then increased to 16.34% in 2023 and peaked at 18.31% in 2024. A decrease to 14.57% was observed in 2025. The adjusted margin consistently exceeded the reported margin, indicating that adjustments positively impacted profitability in each year. The difference between the reported and adjusted margins remained relatively stable across the period.

The years 2023 and 2024 represent a period of strong profitability, as evidenced by both reported and adjusted net profit margins. However, the decline in both profit metrics and margins in 2025 warrants further investigation to determine the underlying causes, such as increased costs, decreased revenues, or other operational factors. The consistent difference between reported and adjusted figures suggests the presence of recurring non-operational items impacting the reported results.

The adjusted total asset turnover ratio exhibited a generally stable pattern over the five-year period, with some fluctuations. Reported total assets showed an initial decrease followed by increases, while adjusted total assets consistently increased throughout the period. The analysis below details these observations.

Adjusted Total Asset Turnover

The adjusted total asset turnover ratio began at 0.56 in 2021 and rose to 0.66 in 2022, indicating improved efficiency in asset utilization. A further increase to 0.70 was observed in 2023, representing the highest value within the observed timeframe. The ratio then decreased slightly to 0.67 in 2024 and continued to decline to 0.62 in 2025. This recent downward trend suggests a potential decrease in the efficiency with which assets are being used to generate sales, despite the increasing asset base.

Total Asset Trends

Reported total assets decreased from US$82,793 million in 2021 to US$81,943 million in 2022. Subsequently, reported total assets increased to US$87,476 million in 2023 and US$87,764 million in 2024, before a more substantial increase to US$98,585 million in 2025. Adjusted total assets followed a similar pattern of growth, starting at US$85,392 million in 2021 and rising consistently to US$102,890 million in 2025.

Relationship between Asset Turnover and Total Assets

Despite the consistent growth in adjusted total assets, the adjusted total asset turnover ratio did not maintain a corresponding upward trend. The peak in asset turnover occurred in 2023, while asset levels were still relatively lower than in 2024 and 2025. The decline in the ratio in the latter years, coupled with increasing asset levels, suggests that the company may be investing in assets that are not yet generating proportional sales revenue, or that sales growth is not keeping pace with asset expansion.

The difference between reported and adjusted total assets remained relatively consistent throughout the period, suggesting a stable approach to asset adjustments. Further investigation into the nature of these adjustments may provide additional insights into the company’s asset management practices.

An examination of the financial information reveals trends in both reported and adjusted asset and equity figures, subsequently impacting financial leverage ratios. Over the five-year period, both reported and adjusted total assets generally increased, with a slight decrease observed between 2021 and 2022 for reported total assets. Adjusted total assets demonstrate a more consistent upward trajectory, growing from US$85,392 million in 2021 to US$102,890 million in 2025.

Equity attributable to common shareholders also exhibited an overall increase throughout the period. Similar to assets, reported equity experienced a minor decline from 2021 to 2022, while adjusted equity remained relatively stable during that same timeframe. By 2025, both reported and adjusted equity reached US$21,318 million and US$25,623 million, respectively.

Reported Financial Leverage

Reported financial leverage decreased from 5.02 in 2021 to 4.49 in 2023, before stabilizing at approximately 4.50-4.62 for the subsequent two years. This suggests a reduction in the proportion of assets financed by equity, followed by a period of relative stability.

Adjusted Financial Leverage

Adjusted financial leverage followed a similar pattern, declining from 4.47 in 2021 to 3.92 in 2024, and then increasing slightly to 4.02 in 2025. The adjusted leverage ratio consistently remained lower than the reported leverage ratio throughout the period, indicating that the adjustments made to assets and equity resulted in a more conservative leverage position.

The convergence of the reported and adjusted leverage ratios towards the end of the period suggests that the impact of the adjustments to assets and equity is becoming less pronounced. The overall trend indicates a moderate decrease in financial leverage, followed by stabilization, suggesting a potential shift in capital structure management.

Asset and Equity Adjustments

The consistent difference between reported and adjusted figures for both total assets and equity suggests the presence of items impacting the financial position that are not reflected in the reported values. These adjustments appear to increase both the asset base and equity, leading to lower leverage ratios. Further investigation into the nature of these adjustments would be necessary to fully understand their implications.

The period between 2021 and 2025 demonstrates fluctuating performance in both reported and adjusted profitability and equity. Analysis reveals distinct trends in both metrics, impacting calculated return on equity (ROE) figures.

Profitability

Reported profit attributable to common stockholders increased from US$6,489 million in 2021 to US$6,705 million in 2022, then experienced substantial growth, reaching US$10,335 million in 2023 and US$10,792 million in 2024. A decrease is observed in 2025, with reported profit falling to US$8,884 million. Adjusted profit attributable to common stockholders follows a similar pattern, beginning at US$6,956 million in 2021, rising to US$10,437 million in 2023 and US$11,233 million in 2024, before declining to US$9,325 million in 2025. The adjusted profit consistently exceeds the reported profit throughout the period.

Equity

Reported equity attributable to common shareholders decreased from US$16,484 million in 2021 to US$15,869 million in 2022, then increased significantly to US$19,494 million in 2023 and remained relatively stable at US$19,491 million in 2024, before rising to US$21,318 million in 2025. Adjusted equity attributable to common shareholders shows a similar trajectory, starting at US$19,083 million in 2021, increasing to US$22,917 million in 2023, reaching US$23,355 million in 2024, and further increasing to US$25,623 million in 2025. The adjusted equity values are consistently higher than the reported equity values.

Reported Return on Equity (ROE)

Reported ROE increased from 39.37% in 2021 to 42.25% in 2022, then rose substantially to 53.02% in 2023 and 55.37% in 2024. A decline is noted in 2025, with reported ROE decreasing to 41.67%. This movement correlates with the trends in reported profit and equity.

Adjusted Return on Equity (ROE)

Adjusted ROE began at 36.45% in 2021, increased to 38.70% in 2022, then rose to 45.54% in 2023 and 48.10% in 2024. A decrease is observed in 2025, with adjusted ROE falling to 36.39%. The adjusted ROE consistently remains lower than the reported ROE, reflecting the impact of adjustments made to profit and equity. The peak ROE, both reported and adjusted, occurs in 2024, followed by a decline in 2025.

The observed decline in both reported and adjusted ROE in 2025 warrants further investigation to determine the underlying causes, such as decreased profitability or changes in equity structure. The consistent difference between reported and adjusted figures suggests the presence of items impacting the financial statements that are being accounted for through adjustments.

The period between 2021 and 2025 demonstrates fluctuating, yet generally positive, performance in profitability and asset utilization as measured by return on assets. Both reported and adjusted profit attributable to common stockholders exhibited an increasing trend from 2021 to 2023, followed by a decline in 2025. Total assets, both reported and adjusted, generally increased throughout the period, with a more substantial increase observed between 2024 and 2025.

Reported Return on Assets (ROA)

Reported ROA increased from 7.84% in 2021 to a peak of 12.30% in 2024. This indicates improving profitability relative to the reported asset base. However, a decrease to 9.01% was observed in 2025, suggesting a decline in efficiency or profitability during that year. The increase from 2021 to 2024 is substantial, indicating a significant improvement in the generation of profit from the reported asset base.

Adjusted Return on Assets (ROA)

Adjusted ROA mirrored the trend of the reported ROA, rising from 8.15% in 2021 to 12.26% in 2024 before decreasing to 9.06% in 2025. The adjusted figures consistently exceeded the reported figures across all years, suggesting that adjustments to total assets and profit positively impacted the ROA calculation. The decline in 2025, while present in both reported and adjusted ROA, was slightly less pronounced in the adjusted metric.

Profit Trends

Both reported and adjusted profit attributable to common stockholders increased significantly between 2021 and 2023. The growth rate slowed in 2024, and a decline was observed in 2025 for both metrics. This suggests potential headwinds impacting profitability in the most recent year of the period.

Asset Trends

Total assets, both reported and adjusted, experienced moderate growth from 2021 to 2024. A more substantial increase occurred between 2024 and 2025, with adjusted total assets increasing to 102,890 US$ in millions. This increase in assets did not translate into a corresponding increase in profitability, as evidenced by the decline in ROA during 2025.

The consistent difference between reported and adjusted ROA highlights the impact of the adjustments made to profit and asset figures. The decline in ROA in 2025, despite continued asset growth, warrants further investigation to determine the underlying causes, such as decreased operational efficiency or increased costs.