Caterpillar Company Analysis

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For most people, the term “machinery” is rather hard to locate, mostly because of the numerous types of equipment that it embraces. As a result, the success of such giants of machinery industry as the famous Caterpillar is hardly noticed by average citizens. However, over the past few year, the company has made an impressive breakthrough, which has resulted in it topping the lists of the most successful entrepreneurship of the year and leading to a worldwide recognition.

Because of a careful and well thought out approach towards the creation of its financial statement, as well as maintaining a reasonable income statement and a well balanced financial condition, Caterpillar has joined the ranks of some of the most profitable companies of the XXI century, leaving a number of corporate giants behind.

When it comes to defining the income statement of the company, one may notice that Caterpillar has improved its total revenue in 2013 compared to the results that the company delivered in 2011; however, the 2012 results still remain the highest that the Caterpillar has managed to reach over the past five years so far.

It seems that the company should have spent more on research development, which clearly had a major impact on the annual income of the Cat Co. in 2012, with a total of $ 18,852,000 earned by the organization that year (Caterpillar Inc. (CAT) para. 1).

In addition, the company should obviously continue focusing on the general and administrative selling policies; as the existing data shows, the Caterpillar, Inc., the gross profit from Selling General and Administrative has increased considerably from $ 6,404,000 in 2012 to $ 6,528,000 in 2013 (Caterpillar Inc. (CAT) para. 1).

Speaking of its financial condition, the company defines the latter as “good” (Contractor Thrives with CAT Equipment para. 2). However, according to the 2013 report on the company’s financial state, it was noted that the annual income could have been better – there has been a considerable decrease in the amount of sales and revenues ($ 55,656 billion compared to $ 65,875 in 2012, a total of 16%) (Caterpillar Inc. General and Financial Information A-70).

The change in the company’s annual revenues can be explained by the fact that some of the risks have not been taken into consideration by the company’s leader, such as the threat of entering into the realm of extremely high competition.

As far as the company’s cash flow goes, the Caterpillar, Inc. can be identified as rather stable. Compared to the results delivered in 2010, Caterpillar’s net income has increased by 37%, with the 2010 results showing a total net income of $ 2.76 billion, whereas in 2013, the company has reached the mark of $ 38 billion. Though such a progress is admittedly impressive, the data on 2012 should be still brought up.

According to the official statistics, the company was experiencing a remarkable upheaval that year, which resulted in a net income of $ 5,72 billion and a range of other financial achievements, including a much better financial condition, as it has been stressed above.

Therefore, despite its overall prognosis for the future progress, the company should, probably, analyze the factors that may have induced the remarkable improvement witnessed by the organization two years ago. It can be suggested, though, that increased revenues could be explained by a smaller number of competitors.

Nevertheless, to analyze the Caterpillar Inc.’s financial policy better, considering its recent financial data is not enough. A thorough overview of the company’s liquidity, profit and efficiency ratios should be carried out. As the report provided by the organization shows, he current liquidity ratio of the company makes 1.40, which means that Caterpillar is fully capable of repay its creditors in cash.

Apart from being higher than 1, which already indicates that a company is capable of dealing with a possible financial crisis, the given liquidity ratio is much higher than it was in 2010, as well as in 2011. However, the ratio is still lower than the 2012 record, which made 1.43 (Caterpillar Inc. (CAT) “Stock Analysis” para. 2).

Another important data regarding the company’s financial status, which allows for defining the company’s profitability and overall potential, the profit ratio, made 7.19%, which is a rather impressive evidence of the company’s popularity within the market in question.

Again, as it was with the previous elements of the company’s success, the profit margins have increased considerably compared to the data obtained in 2011; however, when considering the statistics from 2012, one will have to admit that the company’s profit ratio has been reduced significantly. Although in 2012, the organization reached the mark of 9.01%, in 2013, the amount of the net income dropped by nearly 2%.

Finally, speaking about the company’s efficiency rates, which are supposed to define the organization’s revenue, has also been altered in accordance with the paradigm mentioned above. While in 2011, the company performed less efficiently than in 2013, the 2012 ratio is still greater than the one of 2013. According to its definition, an efficacy ratio is the quotient of expenses divided by revenue.

Therefore, in 2013, the company’s efficiency ratio made $ 11.66 billion divided by $ 2.76 billion (Caterpillar Inc. (CAT) “Stock Analysis” para. 2). Hence, the efficiency ratio of the company makes roughly 4,225.

The data provided above shows that the Caterpillar Company has obviously chosen the track that was leading it to success for quite a while. In fact, it had been working up until 2012, when the company’s annual statistics showed a slight drop in the organization’s revenues. There are many ways of looking at the give phenomenon. One might argue that the reconsideration of the Caterpillar, Inc.’s financial statement served as the defining factor in Caterpillar’s eventual revival.

However, the external factors, including the aforementioned competition issue, are also worth discussing. First, the aforementioned issue of competition should be listed among the key factors defining the company’s change in its financial statement in 2012. Indeed, due to the globalization process and the tendency among SMEs to create mergers and make acquisitions in order to enter the global market, a range of minor corporations have become major obstacles on the way to attracting more customers.

On the one hand, healthy competition may help a company prosper; on the other hand, it requires that time tested strategies should be replaced with new ones, which are most likely to turn out half-baked. Another possible reason for the company to default on its mission statement concerns such external factors as an economic crisis. Although 2012 is traditionally considered a generally favorable year for business growth, it still set a few obstacles on the way of major companies to the global influence.

As far as the Caterpillar’s improvements in terms of its financial achievements are concerned, a sudden increase in the company’s profitability also has several key factors to have been enhanced with. First and foremost, learning important lessons from its unsuccessful 2012 experience, the Caterpillar, Inc. has made a couple of alterations to its financial policy, changing the risk management strategy towards shared responsibility and corporate governance (Company Governance para. 1).

Second and most important, the company has finally reconsidered its financial policy in that some major expenditures have been cut (Caterpillar Inc. General and Financial Information A-73). As a result, the company is clearly geared towards success.

Though it would be wrong to attribute the company’s entire success to its financial policy, including the financial statement, the income statement, and the financial condition, one must admit that these elements have made the bulk for Caterpillar’s further progress. Being the key premises for the firm’s further evolution, these elements have been developed based on careful calculations and a reasonable evaluation of the company’s financial assets and the possible risks that Caterpillar may take in the process.

It is important to emphasize the fact that the company was doing remarkably better in 2012. Indeed, the factors that could have served as the premises for the company to build a more efficient financial policy need to be explored.

However, at present, Caterpillar shows remarkable stability. Though the future evolution of the company may require the ability to fight massive financial crises efficiently, at present, Caterpillar seems a very stable and financially safe entrepreneurship, and it is clearly going to stay that way for at least the next couple of decades.

Works Cited

Caterpillar Inc. (CAT). 2013. Web.

Caterpillar Inc. (CAT) “Stock Analysis”. 2013. Web.

Caterpillar Inc. General and Financial Information. 2013. Web.

Contractor Thrives with CAT Equipment. 2013. Web.

Company Governance. 2014. Web.

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Caterpillar Company Analysis

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