Caterpillar Company Analysis Essay

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Caterpillar Inc. Caterpillar Incorporated is the world’s largest producer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Caterpillar's headquarters are located in Peoria, Illinois, United States. The company operates in three principal lines of business: machinery, engines, and financial products. The machinery segment includes the design, manufacture, marketing, and selling of all kinds of machinery such as; tractors, forestry and mining machinery, off-highway trucks, and paving products. The machinery segment also includes logistics services for other companies. The second business segment that Caterpillar operates in is engines. This includes the design, manufacture, marketing, and …show more content…
Komatsu was second with a price-to-earnings ratio of 12.91 (Yahoo! Finance 2012). One area in which Caterpillar trails the industry is their current ratio. The current ratio measures a company's ability to pay short-term debts and other current liabilities. While Caterpillar’s current ratio of 1.335 is technically considered healthy, it ranks among just the 7th percentile in their industry. Caterpillar’s main competitors have better current ratios: Komatsu (1.5) and Deere (2.028). The main reason for Caterpillar’s mediocre current ratio is that they keep a massive amount of inventory ($14.54 billion in 2011, almost three times that of Deere). Nevertheless, stakeholders (those that can affect or be affected by the actions of the business) and investors aren’t likely to be impressed by Caterpillar’s current ratio (Ycharts.com).
Another area in which Caterpillar falls short is the price/earnings to growth ratio (PEG). This ratio is used to predict the probable growth of a company over a period of time. Caterpillar’s PEG for the next five years, 0.46, is actually lowest among its major competitors (Yahoo! Finance). This may deter investors who are looking for long-term options. Caterpillar’s low price/earnings to growth ratio is most likely due to the fact that since they are already such a massive corporation making billions of dollars, there is not a whole lot of room for growth. Regardless of
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