Caterpillar and the Global Financial Crisis
Despite being a multinational corporation (MNC) and the global leader in the manufacturing of construction equipment, mining equipment, engines (diesel, natural gas), turbines, and locomotives, Caterpillar (CAT), like other global leaders, was susceptible to adverse effects cause by the global credit crisis of 2009 (CAT, 2016). As such, the company’s exposure to risks associated with conducting business overseas were exacerbated by deficiencies in the global financial market and economic slowdowns (Shapiro, 2014). For example, the company’s revenue figures started trending downward the first quarter in 2008 and dropped to their lowest point in the third quarter of 2009 (United States Securities and …show more content…
According to the United States Securities and Exchange Commission (2016b), Caterpillar’s quarterly revenue declined 46.4% from their high-point in June 2008, to their low-point in September 2009. As indicated in Exhibit C (annual revenue and cost bar graph), from January to March in 2009, Caterpillar’s experienced an unprofitable quarter were costs ($9,400,000,000) exceeded revenue ($9,225,000,000). Moreover, stated in their annual 10-K report for 2009, the global economic crisis and instability of both capital and credit market adversely affected their overall profitability and growth potential (United States Securities and Exchange Commission, …show more content…
Specifically, high mortgage interest rates significantly hampered the construction of new homes within the U.S. (United States Securities and Exchange Commission, 2010). Consequently, governments around the world began to respond and implemented stimulus packages designed to counteract the negative effects of the credit crisis. As a result, CAT economic and country risk exposure increased due to their reliance on these modifications, which consisted of lowering interest rates to boost investments, to recharge their overseas revenue figures (United States Securities and Exchange Commission, 2009). For instance, CAT’s annual 10-k report for 2008 discussed their belief that the European and Japanese Central Banks were both reacting too slowly to the economic crisis within their respective countries and may tighten their policies at the first sign of improvement (United States Securities and Exchange Commission, 2009). Nevertheless, CAT was able to supplement their losses by hedging swaps in an attempt to lower both their interest-rate risk and economic exposure (Shapiro, 2014). For example, by compensating fixed/floating rate debts with fixed rate
Despite being a multinational corporation (MNC) and the global leader in the manufacturing of construction equipment, mining equipment, engines (diesel, natural gas), turbines, and locomotives, Caterpillar (CAT), like other global leaders, was susceptible to adverse effects cause by the global credit crisis of 2009 (CAT, 2016). As such, the company’s exposure to risks associated with conducting business overseas were exacerbated by deficiencies in the global financial market and economic slowdowns (Shapiro, 2014). For example, the company’s revenue figures started trending downward the first quarter in 2008 and dropped to their lowest point in the third quarter of 2009 (United States Securities and …show more content…
According to the United States Securities and Exchange Commission (2016b), Caterpillar’s quarterly revenue declined 46.4% from their high-point in June 2008, to their low-point in September 2009. As indicated in Exhibit C (annual revenue and cost bar graph), from January to March in 2009, Caterpillar’s experienced an unprofitable quarter were costs ($9,400,000,000) exceeded revenue ($9,225,000,000). Moreover, stated in their annual 10-K report for 2009, the global economic crisis and instability of both capital and credit market adversely affected their overall profitability and growth potential (United States Securities and Exchange Commission, …show more content…
Specifically, high mortgage interest rates significantly hampered the construction of new homes within the U.S. (United States Securities and Exchange Commission, 2010). Consequently, governments around the world began to respond and implemented stimulus packages designed to counteract the negative effects of the credit crisis. As a result, CAT economic and country risk exposure increased due to their reliance on these modifications, which consisted of lowering interest rates to boost investments, to recharge their overseas revenue figures (United States Securities and Exchange Commission, 2009). For instance, CAT’s annual 10-k report for 2008 discussed their belief that the European and Japanese Central Banks were both reacting too slowly to the economic crisis within their respective countries and may tighten their policies at the first sign of improvement (United States Securities and Exchange Commission, 2009). Nevertheless, CAT was able to supplement their losses by hedging swaps in an attempt to lower both their interest-rate risk and economic exposure (Shapiro, 2014). For example, by compensating fixed/floating rate debts with fixed rate