An Analysis of Caterpillar Inc. Essay

1750 Words Apr 10th, 2011 8 Pages
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Essay Sample: Page 2
As a result, the company has become much less dependent on the sale of equipment, lowering its earnings volatility.

Along with strengths, also come weaknesses. Among Caterpillar’s weaknesses are: high debt structure and falling sales in the U.S., Europe, Africa, and the Middle East. The company’s long term debts have been rising sharply in the recent past. From $9,928 million in 1999, rising to $22,834 million in 2008, which results in a WACC (weighted average cost of capital) of 7.6%.(6) Caterpillar’s debt to equity ratio has also increased from 1.82 in 1999 to 3.75 in 2008.(6) A further decline in the debt condition could place pressures on the cash flows of the company.

Another weakness Caterpillar is currently facing is declining sales in some of their markets. A major weakness of Caterpillar Inc. is the weakening demand for its products, especially in the U.S. due to the decline in the housing market. This has caused an interruption in profits and cash flows. Although Caterpillar’s rapidly growing integrated service sectors have help offset these waning revenues by facilitating and sustaining product purchases through financing, service contracts, and insurance, Caterpillar has still felt the impact of declining sales in these
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