Caterpillar Presentation Firm Analysis

8/18/2019 Caterpillar Presentation Firm Analysis

1/29


2/29

Company Overview

❑ Caterpillar Tractor Company was formed by themerger of the Holt Manufacturing Company andthe C. L. Best Tractor Company in 1!"

❑

#ncorporated again in 1$% under the current nameCaterpillar #nc.❑ Head&uarters Located in 'eoria( #llinois( )*+.❑ Caterpillar is the world,s leading manufacturer of

construction and mining e&uipment( diesel and

natural gas engines( industrial gas turbines diesel-electric locomoties.

❑ /perates through three product segments0Machinery( nergy 2 Transportation

❑ +lso has a 3inancial 'roducts segment


3/29

Major Events in Last 5years❑ Caterpillar #nc. has ac&uired a number of

companies in the resource( energy andtransportation sectors

❑ These ac&uisitions helped Caterpillar #nc.e4pand its portfolio and allow caterpillar toproide comprehensie solution to itscustomers

❑ 5.6. /berhelman was named as chairman of

the board and C/ of Caterpillar #nc.❑ Caterpillar ac&uired and diested Bucyrus7Bucyrus was a manufacturer of miningmachinery8

❑ #n !91: Caterpillar #nc. added sustainabilityto its core alues in action


4/29

Prospects

❑ 'resent C/ has stressed on cost management(restructuring actions and operational e4ecution

❑ Caterpillar saed )* ; !.< billion byrestructuring and ma=ing its processes leaner

❑ 5ecline in commodity prices meant a boon forthe Caterpillar as it saed on cost of goodssold

❑ Caterpillar sees !91% reenue within a range of)* ;:9-;:: billion. The midpoint of that range(

;:!-billion( is around ;


5/29

Governance Analysis

❑ 3eatures of board structure0❑ Combined C/ and Chairman of the Board?❑ 'residing 5irector?❑ #ndependent 5irectors? and❑ Committees comprised entirely of independent directors.

❑ Currently 1! 5irectors❑ /nly ! directors can be non-independent❑ Chairman 7and C/8 is the only non-independent director❑

#ndependent 5irectors @ business( education( goernmentand public policy bac=ground.❑ Three standing committees0 +udit( Compensation and H6( and

'ublic 'olicy and Aoernance


6/29

Major Shareholders


7/29

Major Shareholders


8/29

Major Shareholders


9/29

Eec!tive Compensation

C/M'/T*

❑ Base salary - smallest component of thecompensation structure

❑ *toc= option - has the biggest share as it lin=se4ecuties, compensation to stoc=holdere4pectations

❑ 4ecutie *hort Term #ncentie 'lan 7*T#'8 based on corporate and business unitperformance

❑ *trategic 'erformance 'lan 7*''8 long termincenties - based on company success in thelong-run


10/29



11/29



12/29


❑ C/s in the *2' "99 list earned;1!.D million on aerage in !91:

❑ Thus( Caterpillar,s C/compensation was aboe aerage7;1:.D million8

❑ C/ compensation has climbed1:> in !91:

❑ Howeer Caterpillar,s sales haedropped about ;19 billion in !91


13/29

"atio Analysis # Li$!idity

❑ Lower ratio than competitors❑ Higher ris= for shortcomings

Liquidity - Current Ratio

20

15

20

14

20

13

20

12

20

11

Caterpill ar

1.31

1.39

1.40

1.43

1.34

Deer e &Com

pany

2.

06

2.

17

2.

05

2.

24

2.

07

C!Corporati on

2.

09

2.

25

2.

57

2.

29

1.

94


14/29

"atio Analysis #E%ciency

❑ Githin range with competitors❑ 6elatiely low turnoer❑ Higher depreciation and storage

Efciency - AssetsTurnover Ratio

2

0

1

5

2

0

1

4

2

0

1

3

2

0

1

2

2

0

1

1

Cat erpi llar

0.

5

8

0.

6

5

0.

6

4

0.

0.

8

3

!eere"Co#p

any

0.

4

8

0.

6

0

0.

6

5

0.

6

$

0.

0


15/29

"atio Analysis # Sta&ility

❑ Higher and lower than some❑ /erall relatiely high debt ratio❑ Higher ris= in slower mar=ets

"ta#ility - De#t to $quityRatio

20

15

20

14

20

13

20

12

20

11

Caterpill ar

2.

57

2.

35

1.

%1

2.

29

2.

69

Deer e &

Com pany

5.

47

4.

0%

3.

36

4.

74

3.

91

C!Corporati

on

0.

22

0.

22

0.

23

0.

12

0.

14


16/29

"atio Analysis # Growth

❑ Aeneral negatie trend for all❑ Caterpillar has highest growth

decline

'ro(t) - AnnualRevenue 'ro(t)

2

0

1

5

2

0

1

4

2

0

1

3

2

0

1

2

2

0

1

1

Cat erpi llar

-

1

4.

8

1

*

-

0.

8

5

*

-

1

5.

5

1

*

$.

5

4

*

4

1.

2

1

*

!ee

re"

-

1$.

-

4.5

4.

53

1

2.$

2

3.1


17/29

'ividend Policy

❑ 5iidend policy based onstability

❑ *teady yearly increase

regardless of mar=et

(

)

*

5

(

)

*

+

(

)

*

,

(

)

*

(

(

)

*

*'ivid

ends

per

Share

,

.

)

*

(

.

-

)

(

.

,

(

(

.

)

(

*

.

(

/otal

CashCom

*

0

-

*

0

1

11

*

0

+

21

*

0

,

*2

*

0

*

-1


18/29

3al!ation and Stoc4 Price'etermination

❑ +ssumptions0 Based on !911 !91" income and balancestatementACC 6.38*

/on ter# 'ro(t)Rate o ree Cas)lo(

5*

ales ro(t)2016-201 -5*

ales 'ro(t)2018-2020

1*

ales 'ro(t)ater 2020

3*

Currentassetsales

58*

t)erassetsales

52*

Currentliailitiesales

50*

7et e,assetsales

2$*

Costs o oo,ssol,ales 68*

'Aales 14*


19/29

ree cas ow ca c! a on

7in 8S Millions9

,epreci ation

3082.6

31$3.3

3488.8

3855.

4260.1

418.4

5236.5

5808.5

643$.

136.4

utractincrease incurrentassets

222.8

1386.2

-242.5

-24 4.$

-24.3

-4$.5

-1.$

-$5.1

-818.$

-843.5

A,,ac>

increase in

- 426

-11$1

208.

210.

212.

64 4.

663.

683.

03.

2 4.

❑ Based on assumptions used to derie the free cashow forecasts for the ne4t ten years


20/29

8se o: model to val!e;rm

tae 1 - Calculatin t)eTer#inal alueei)te,averaecost ocapitalACC

6.38*

/on-ter#

ro(t)rate oCs

5.00*


21/29


22/29

Capital Str!ct!re # ()*5

Company

CapitalStructure

Inter est

CoverageRati

o(EBITInterestE!pense"

#e$t E%uity

Caterpilla

&&'6)

22'*2)


23/29

Capital Str!ct!re'e&t= "oc4et >ooster or Anchor

❑ #n !99$( Caterpillar had a capitalstructure of $> debt and 11>e&uity

❑ The company realiIed that thisamount of debt was &uite highespecially with the recession which

began to reduce sales❑ They began to reduce oerhead

costs and pay down their debt. By

!91! they had a capital structure of


24/29

Cost o: Capital

❑ Cost of capital indicates how the mar=etiews the ris= of Caterpillar,s assets

❑ +ssumptions0

❑ o otation cost listed in Bloomberg data❑ JTM is 1.DD> from Bloomberg❑ 5iidend growth and C+'M methods were used

to calculate cost of e&uity and G+CC. 'referredmethod was 5iidend growth

❑ Beta was not calculated( and Bloomberg aluewas used❑ Mar=et 6is= 'remium is "."> from Bloomberg❑ Caterpillar does not issue preferred shares


25/29

Cost o: 'e&t

❑ #ndicates the re&uired return on

Caterpillar long term debt❑ 3lotation cost is 9❑ JTM is 1.DD>

Cost o !et 1.*

Ater ta

Cost o !et

1.3

1*


26/29

Cost o: E$!ity

❑ #ndicates the return re&uired by e&uityinestors gien the ris= of the cashows from Caterpillar

❑ )sed both 5iidend Arowth( and C+'MMethods( both resulted in similaralues

❑ 6is= 3ree rate used is 1.DD>❑

Cost oEuity :sin!ivi,en,'ro(t)%o,el

10.$4*

Cost oEuity :sin

CA=%

10.

5*


27/29

?ACC

❑ #ndicates the aerage cost of capital forCaterpillar. This aerage is the re&uired return

on Caterpillar,s assets based on the mar=etperception of the ris= of those assets❑ )sed Cost of &uity calculated using 5iidend

Arowth( and C+'M Methods( both resulted insimilar alues

❑ Geight of common e&uity( preferred e&uity( andlong term debt as "!.">( 9>( and :D.">

ACC usin

,ivi,en,ro(t)#o,el

6.338*

ACC usin

CA=%

6.1

5*


28/29

>eta 7K8

❑ #ndicates whether the inestment ismore or less olatile than the mar=et

❑ *ince K is more than 1( the Caterpillarstoc= is considered more olatile thanthe mar=et

❑ K for 5eere 2 Co is 1.1!. 3or CM# 1.:D❑ ot calculated. K was obtained from

Bloomberg

eta '() 1.6


29/29

"ecommendation :orInvestment

❑Ge would not recommend to inestin this company gien the following0

❑ 5ecreasing free cash ow❑ /eraluation of stoc= price

❑ More olatile stoc= than thecompetitors 7K8

❑ High debt ratio while growth in decline

Caterpillar Presentation Firm Analysis

Documents

Transcript of Caterpillar Presentation Firm Analysis