Data and information relative to Caterpillar, Inc. was collected via the internet. Current information was crucial to keeping the report timely and accurate. The five members assigned to the group wrote one section per person. Research was conducted on a separate basis, and construction of the report was on a group level. Each team member is responsible for their own assigned areas and nothing more.
Financial Analysis Caterpillar is a publicly traded corporation listed on the New York Stock Exchange. It’s SIC codes indicate their main areas of enterprise are construction machinery, internal combustion engines, and short term business credit and insurance. But this dynamic company has many qualities underneath the surface of its image. These qualities are neither good nor bad. These are Caterpillar’s financial components. Sales Caterpillar, Inc.
primary income is made from sales of machinery and engines. These sales are made to clients in construction, agriculture, and manufacturing industries. Caterpillar divides their sales based on geographic location where the For example, third quarter sales were split between North America, NAME (Europe, Africa, and the Middle East), Latin America, and Asia. North America on average takes up 54% of total sales each quarter (see figure 1. ) Total sales revenue for the third quarter 2000 amounted to $4.
78 billion, one percent higher than the previous year third quarter. Sales volume increased by 2 percent and financial products increased by 12 percent. Caterpillar bases their sales upon two different tiers, although they sell a wide range of different products. The first breakdown consists of what they deem as machinery. The second area of sales consists of engines. Operating profit comparisons for the third quarters of 1999 and 2000 can be seen in table 1.
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Caterpillar has blamed third quarter deficiencies in revenue on the weak Eurodollar. Since 27 percent of their total sales are made in the European region, their claim may be true. As long as Caterpillar depends on foreign markets for sales, they will face problems with fluctuations in foreign currency. Receivables Caterpillar owns and operates a financing corporation to handle its incredibly large receivable account. Receivables make up 30 percent of total assets and short-term receivables make up 65 percent of current assets.
Caterpillar has an acid-test ratio of 1. 05 and an accounts receivable turnover of 1. 40. Caterpillar, obviously, has taken on a large amount of risk to itself because of this. If Caterpillar were forced to liquidate its assets and pay off its debt, it would have a very hard time trying. Therefore, Caterpillar’s receivable account is a real weakness to the corporation as a whole.
Inventories Inventories have been valued $871 million, an increase of $150 million from last year. This can be viewed in a multitude of ways. Caterpillar may be expecting larger sales volume, and are trying to compensate. Caterpillar could have inventory control problems.
Usually, inventory increases are viewed as a negative with a company that should be in theory practicing a just in time approach. Cash Cash on hand is $398 million. This is only a $110 million increase from December 31, 1999. This means relatively little, as the cash flows for the corporation is what really matters. One look at the statement of cash flows indicates that Caterpillar keeps capital expenditures consistent quarter after quarter. The change in cash and short-term investments indicate the company is removing most of its liquidity.
The movement from cash has been used to alleviate its debt. Property, Plant, and Equipment Spending on longer-term assets has not fluctuated much for the past two years. This means they are not putting much money into production. A good deal of profit is spent increasingly on research and development and financing activities. Long term receivables from financing Caterpillar is the sole owner of Caterpillar Financing, a subsidiary company set up to handle the large amount of financing needed for a construction company to buy their equipment. Note also, that Caterpillar’s receivables mirror their sales in that they are split in different markets around the globe, making collection on them risky at best.
Used to figure out how much money we are earning for: (a) (b) (c) (d) vendors, employees, etc – Cost of Goods Sold, Operating Expenses lenders, bondholders – Interest, government – Taxes, owners/stockholders – Dividends/Retained Earnings Sales (-) Cost of Goods Sold (-) Operating Expenses (-) Depreciation EBIT (-) Interest EBT (-) Taxes Net Income (-) Dividends Additions to ...
In 1999, Caterpillar sold $1. 66 billion of its receivables, and refinanced $594 million others to pay their own creditors. Liabilities Liabilities as a whole increased in 1999. In fact, on a percentage basis liabilities increased from 67 percent (1997 to 1998) to a 90 percent rise (1998 to 1999).
Any further increase in percentages in the future could be dangerous to Caterpillar because their ability to pay their bills is harder from all the credit they give their customers. Outlook on financial future Caterpillar’s board of director’s indicate in the third quarter report to investors, that full year 2000 sales and revenues will be higher than in 1999. The outlook on 2001 is a slight increase in sales and revenues. Therefore, if CAT is to be profitable, they must reduce their own debt, and not add too much to their business.
Strengths Caterpillar Incorporation (CAT) is the world-leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. Caterpillar has become the world leader because of its many strengths, which have propelled it to the top of the industry. It did not accomplish this superior status by just entering the market; it took a great deal of work and planning both internally and externally to become the world leader. Caterpillar has done well in the industrial machinery market because of its many strengths, some of which are stronger than others. Caterpillar’s strengths consist of its name recognition, worldwide market, internal marketing, mission for the future, Internet (website), giving back to the community, CAT financial (subsidiary), expansion, but most importantly staying at the top of its industry. Caterpillar’s biggest strength is the name recognition that it has earned by producing a high quality product.
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Everyone knows that Caterpillar produces an extremely high quality industrial machine. Caterpillar has made this a main focus, because it knows that people today want to buy quality even if it means spending a little more money. When you as a consumer think of the name Caterpillar your first thought is quality, and that is what every company wants. Caterpillar has used its name recognition to not only become popular here in the United States, but also all over that world (cat. com).
One of Caterpillar’s strengths is that it realized the United States market is only so big, so they expanded to the world market.
Although Caterpillar does business overseas it still gets 50% of its sales from right here in the United States. Caterpillar has expanded to the Latin American, Australian, European, and now the China market. Caterpillar believes in making strong alliances with these countries, that way it can build on them for the future. Caterpillar never allowed for itself to become trapped in just a one-country market. By doing this Caterpillar has expanded it products to all of the top countries of the world, which allows for endless possibilities in the market. While expanding over the world market Caterpillar has kept its dealer network a key competitive edge over its competitors.
The customer’s deal with people they know and trust. This is accomplished because most dealerships are locally owned, which allows the dealers to build close relationships with its customers. Most of the dealers are independent businesses, which have been on board for over 50 years. This allows the consumers to build a strong loyalty towards the dealers. There are 207 dealers serving the worldwide market of nearly 200 countries, and they are all locally owned for this reason (cat. com).
Caterpillar’s marketing strategy is an important strength. With its strategy it has been able to market to all of the different countries that it supplies equipment for. You can’t market Europe the same way you market to Latin America. When supplying a common product to many different countries you have to make sure to market to what the consumers of that country need and are interested in. A good example of this is when Caterpillar was advertising a new combine to the Canadian market. Caterpillar received the CAMA’s Best of Show-Advertising award (fison line paper).
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This award shows how Caterpillar is devoted to modifying its advertising strategy for a certain countries. Although Caterpillar may modify its marketing for a certain country, it is the foundation of its marketing that is most important. This foundation is what keeps Caterpillar at the top of the industry. Caterpillar’s foundation for marketing is based on a high quality product for its consumers. This is also visible in Caterpillar’s mission for the future.
Caterpillar’s mission for the future is an important strength within itself because without planning for the future you have nothing to strive for. Caterpillar’s mission is to be the leader in providing the best value in machines, engines, and support services for customers dedicated to building the world’s infrastructure and developing and transporting its resources. Also, Caterpillar people will increase shareholder value by aggressively pursuing growth and profit opportunities that leverage our engineering, manufacturing, distribution, information management, and financial services expertise. Caterpillar will provide its worldwide workforce with an environment that stimulates diversity, innovation, teamwork, continuous learning and improvement, and rewards individual performance. Last, Caterpillar is dedicated to improving the quality of life while sustaining the quality of our earth for years to come (cat. com).
Caterpillar like many other companies in today’s society has captured the Internet. Caterpillar has been able to us the Internet as a huge strength for the future. Its website is a very powerful tool for consumers that can be accessed by anyone with access to the Internet. The website provides valuable information about its products, services, and industry solutions. The website allows for consumers to research the products and then buy the products online without ever having to leave the comfort of their own home. This is a huge convenience for consumers of today’s world, because it lets consumers compare Caterpillar’s prices with its competitor’s prices online.
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It also saves the consumer time, which everyone in today’s society is looking to do. It is fortunate for Caterpillar that it has been able to capture this for its consumers. Also on Caterpillar’s website is links to Caterpillar financial and the money market in which Caterpillar operates. By having all of this valuable information accessible to all consumers everywhere, Caterpillar can lay the foundation to build a relationship with consumers for the future (cat. com).
Caterpillar also believes strongly in giving back to the community. This method allows for consumers to see just how devoted Caterpillar is to them. The website allows viewers to research many of the latest press releases, which often involve Caterpillar giving back to the community. Caterpillar believes that by giving back to the community you can build a personal relationship with consumers. Caterpillar wants to be recognized as a good citizen in consumer’s eyes. Caterpillar has tried to do this by giving time and money to communities, universities, organizations, and justified causes.
By involving itself in the community Caterpillar has been able to gain valuable recognition with the people of these communities (cat. com).
Another strength for Caterpillar is CAT financi al and CAT money market. Caterpillar Financial is a strong subsidiary of Caterpillar Inc.
with over $10 billion in assets and has an investment grade rating from Standard & Poor’s, Moody’s, and Duff & Phelps (cat. com).
CAT Financial offers consumers the opportunity to rent, buy, or lease a machine from Caterpillar. Caterpillar Financial works along side Caterpillar Inc.
It offers Caterpillar’s consumers a way to finance their purchases without having to go to a bank. This helps Caterpillar to get to the top of the industry because with easy financing people are more likely to buy your product. No producer in this industry has a subsidiary that works hand in hand with it. This is a major strength for Caterpillar because the easier it is for people to get financing to purchase these high quality, high priced products. Caterpillar’s strengths do not end there, because it has learned that if you are not growing in the industry then you are die ing. Caterpillar announced a new Global Mining Division on October 9, 2000.
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This division will take effect January 1, 2001 by combining Caterpillar’s current Corporate Mining Group, along with Caterpillar Elphinstone. Caterpillar created this new division to enhance the ability of CAT and its dealers to work with current Internet and information-sharing requirements for its mining customers. This demonstrates Caterpillar’s commitment and focus to the mining industry and its customers (. com).
Once again Caterpillar is a strong dynamic leader in the construction and mining industries.
This shows that Caterpillar is moving ahead with progress to the future, instead of settling for what it has now in the present. It has taken this outlook, because of its many strengths. Each of these strengths by them self is not as powerful as when they are all combined. Caterpillar has done an excellent job in combining its many strengths.
Caterpillar, and the world Market Headquartered in Peoria, Ill. , Caterpillar Inc. is the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. It is a Fortune 100 company, ranked #1 in its industry, with more than $26 billion in assets (CAT website).
As you can see, Caterpillar is obviously a very strong and profitable company. But the largest and best companies in the world are not immune to their own weaknesses, and Caterpillar is no exception.
When looking into the analyses of Caterpillar, we found a number of things that could be considered a weakness, and possible threat to the success of their business. We will first look at Caterpillar’s position in the world market. Non U. S. competition According to Fortune, The Global 500 Worlds Biggest Corporation, when looking at the worlds largest industrial and farm equipment companies by revenue, Caterpillar ranks 1 st among all U. S.
competition. When looking at competition outside the U. S. , it’s a different Story. Caterpillar holds 49% of its business interests outside the United States, so competition there is nearly important as here. Caterpillar is 5 th in the world with revenues of nearly $19 billion.
This seems pretty good, but companies such as Mitsubishi Heavy Industries in Japan are pulling in over $25 billion a year. Thyssen and Mannesmann, both German companies, as well as Iri, an Italian company, also rank above Caterpillar. Earnings have declined because of economy downturns in Asia and South America, which have offset the booming U. S. construction industry, and the mining, logging and Agricultural industries remain in a deep slump (Hoovers).
Economic Crisis in Asia and South America The Global economic turmoil of the past 2 years has revealed the vulnerability of The economies of Latin America, and put into question whether or not the region can achieve growth without crisis.
For 1990-1999, growth did not reach 3% per year, substantially below the 6% the World Bank estimates will be necessary to reduce poverty in the region (Website ia dialog. org).
They are experiencing record levels of unemployment, shrinking wages and cutbacks in social expenditures due to the fall of prices and demand for the regions commodities. Most South Americans are poorer now than they were during the 80’s, a time when economic growth was also low. This could affect Caterpillar with plants located in Brazil and Mexico. The crisis began in Asia in 1997, and has become very serious and potentially damaging.
In November of 1997, in a single day there was a 5% decline in stocks fueled by fears that the shutdown of Japans 4 th largest securities firm was a sign of more bankruptcy’s to come (pbs. org).
People are now expressing fear for the stock markets and banks. The price of U. S. goods went up, and so did the lack of demand for U.
S. goods. Analysts warn that psychological distrust could spread from financial institutions to areas such as real estate and construction. Jim Ann able, an analyst from First Chicago NBD said that 40% of Caterpillar’s heavy equipment gets exported to Asia, so the Asian recession hurts strongly because Asian products will be a lot cheaper than U.
S. made goods that are imported in. He also stated that the industrial Midwest would grow about 3/4 of a percent slower due to the recession in Asia. Labor Shortages As of right now, Caterpillar seeing a time when their business is thriving in most areas, but what does the future hold for Caterpillar. Just a short time ago, Caterpillar faced huge labor strike that could have crippled the company, but now those workers that once were striking, are now back at work. The majority of people working for Caterpillar right now are skilled at what they do, and have years of experience.
Because of the difficulty of entering into one of the plants, there are not a lot of new workers that come in. Nine out of ten UAW people at Caterpillar make over $40, 000 a year. That’s nearly a third better than the U. S.
median. So you can see that once inside the organization, one of the employees wouldn’t want to leave, and make room for new trainees. Despite all of these aforementioned things, Caterpillar is expected to have a labor shortage of over 15, 000 technicians over the next 5 years (Barron’s).
Skilled older workers are retiring faster than they can be replaced, and mechanically oriented young people are finding steadier work, better pay and cleaner working conditions in Automotive, aerospace and manufacturing industries. What it comes right down to is the simple fact that in today’s job market, most employers are requiring that you have a degree, and even if they don’t require it, someone with a degree will get the job instead of you. What’s going to happen when all of Caterpillars skilled workers, who have been there for years retire from their job.
The next generation of workers will have degrees in technological fields, and won’t want to go work in a factory setting, when they could be making more money at a computer. Caterpillar and the UAW If you were to fly into Peoria, Illinois in 1995, you would have encountered a billboard announcing Caterpillar Incr.’s pride in its headquarters city. If you would continue on downtown and turn right across and Illinois river bridge, you would be in blue collar east Peoria, home to one of Caterpillar’s key plants. Here you would have found a less friendly message posted by the United Auto Workers. It stated “You are entering a war zone. Caterpillar vs.
It’s UAW Workers.” (American Enterprise) Since the fall of 1991, United Auto Workers have had walkouts or lockouts, one right after another. Even still in 1995, 10, 000 CAT unionists were still behind picket lines. The Beginning Sometime in 1990, the cooperative atmosphere on the shop floor began to change. The union says that it can be traced back to the day Donald V. Fites became Chairman and CEO. Fites, a civil engineer with a masters in management and an international career with the company, once expressed to an interviewer that a union “blocks communication channels and adds a layer of inefficiency to an organization” (American Enterprise).
Fites pushed for more outscoring, more flexibility in work rules and fewer positions, all threats to union practices and privileges. In the immediate period before Fites took over, CAT had signed two UAW contracts in a row without a strike, the first time that had happened in over 30 years. The Strike Through 1991, tensions mounted. By 1992, the confrontation had become a full strike. That round ended with a whipped union, skulking back to work without a contract. Needless to say, this did not leave Union workers satisfied, and they began a campaign of signs, buttons and T-shirts with impolite comments about Fites, and CAT leadership.
As the union intended, this did not make CAT’s floor supervision happy and the union got what they wanted by making the supervisors do things that the union knew they could complain about. There was over 120 National Labor Relations Board complaints against the company. Complaints were things such as illegal suspensions, discharges and preferential treatment of people who crossed picket lines. The UAW was now banned together with their disgusts for the company, so when another company wide strike was called in 1994, nearly all UAW members walked out (American Enterprise).
Strike 2 The next strike was characterized as a strike for unfair labor practices so that CAT couldn’t legally replace the workers like in the previous strike.
Workers held up signs like “DEERE IS CAT TO ME,” but CAT knows that it’s real competition lies in the German and Asian Market and not in U. S. companies such as Deere, Inc. UAW workers also stated that Caterpillar was trying to impoverish the working class, but this doesn’t make a lot of sense, considering as we stated earlier, CAT employees make wages that, on average are a third better than the U.
S. median. Labor Management negotiations often improve dramatically when one side begins to hurt, but neither group in Peoria would admit to any pain. Each striker was making $300 a week, plus fully paid insurance, while on strike.
The monthly bill for the UAW internationally probably totals about $20 million. Cat workers, however, represent less then 2% of the membership of a union with a strike fund that is more than $900 million. Individual workers might be hurting, but as you can see, the union is not (American Enterprise).
After the Strike While the strike centers on important universal issues, the lines were clear-cut and the opponents well matched. Both CAT and the union have major intellectual and financial backing, as well as good reason to come to an agreement. However, the knowledge, skills and commitment needed to survive today in international business must be found on the plant floor as well as in the office.
Noting the need for cooperation, the union local president asked “What the hell are they going to do when they get that work force back in there? Who’s going to cooperate”? That quote is the basis for this weakness of Caterpillar, Inc. What is going to happen at the end of this contract when another one needs to be made? Are the employees of caterpillar still bitter about the strike? Are the supervisors and directors at Caterpillar still bitter? Only time will tell. Fites is no longer the Chairman and CEO of Caterpillar, so some problems with him may be solved. But there is no doubt that some bitterness is still present in both the floor and the towers of Caterpillar, Inc. For these reasons, Caterpillar may not be a good purchase of stock. They may be doing quite well now, but what if you invest money in them, only to see your money possibly be dwindled away by another bitter strike, or individual sales were contrived..