Caterpillar
The world of investing is full of choices. Selecting those areas which can provide above average returns requires focusing on corporations with: strong management, balance sheets and business models. These elements allow firms to increase its earnings, dividends and shareholder value. This is what some of the most successful corporations do to achieve these objectives.
Since 1926, Caterpillar has been focused on providing tractors, construction equipment and other machinery to a variety of industries. The most notable include: oil / gas, construction and locomotives. Over the years, its business model has been continuing to evolve to meet the changing needs of customers. The result is that the firm is selling a variety of products in numerous countries around the world to include: the U.S., Canada, Brazil, China, the EU and Russia. (Standards and Poor's, 2014)
Caterpillar is organized into a number of different segments (i.e. Construction, Resources, Power Systems and Financial Products). Each one of them will cover the customer's specific needs and ensure that they have the financing to purchase different machinery and equipment. Construction is focusing on meeting the needs of the construction industry. The merchandise they sell include: backhoes, small wheels, skid steers, multi-terrain, medium wheel, compact track, compact wheel, track-type loaders; mini excavators, wheel excavators, small / medium / large track excavators, motor graders and pipe layers (for heavy construction). (Standards and Poor's, 2014)
Resource Industries sells materials that are utilized in the exploration and extraction of various natural resources (i.e. gold, oil and silver). The different products they sell include: electric rope, hydraulic shovels, draglines, drills, high wall / long wall miners, hard rock vehicles, large track-type tractors, trucks, large wheel loaders, wheel tractor scrapers; wheel dozers, machinery components, electronics and control systems. Power Systems is manufacturing / distributing generators, engines and integrated systems. The equipment they sell include: reciprocating engines, turbines, turbine-related services, diesel-electric locomotives / components, rail-related products and services. (Standards and Poor's, 2014)
The Financial Products division provides retail and wholesale financing alternatives for customers. It focuses on addressing the different issues they will face on the job. The most notable include: loans, property / casualty / life / accident / health insurance and short-term receivables. These areas give customers greater amounts of flexibility and it helps Caterpillar to meet these needs. (Standards and Poor's, 2014)
The result is that Caterpillar has become one the largest construction firms in the world. However, the stock is trading nears its 52-week high and the developing economies slowing. This is creating concerns about its valuations moving forward. (Standards and Poor's, 2014)
To determine if the company is a good long-term buy requires focusing on its strengths and weaknesses. This will be accomplished by conducting a financial review, providing a pro forma balance sheet, ratio analysis, return on equity, asset management performance, its financial policies and a synapses of the findings. Together, these elements will determine if now is the right time to purchase Caterpillar.
A financial statement review
The different financial statements are demonstrating how the company is in strong fiscal shape. For instance, the annual report is indicating that Caterpillar has diversified their business model to provide customers with an array of services through their 16, 200 dealerships. They sell them various products / services and provide continuing support. This is something that helps the brand to receive a larger following in developed and developing countries.
The result is that the earnings per share and the dividend have been steadily increasing. The case of earnings the firm is realized $5.75 in 2013. This is up from $1.43 in 2009. However, the earnings are down from 2012 which was $8.48. While the dividends, have been steadily increasing from $1.68 (in 2009) to $2.23 (in 2013). This is indicating that the company's strategy is working to increase the bottom line numbers and shareholder value. Yet, it is also illustrating a certain amount of volatility directly related to shifts in the economy. This is because the company sells its products to firms that are involved in the manufacturing of specific products. If there is a decline, it will adversely impact the firm's earnings. The drop from 2012 to 2013 is indicative of this.
According to Graham (1976), those companies that are cyclical will have a direct impact on: the price of the stock,...
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