Caterpillar Corporate Bonds and Leverage Analysis
CAT Stock | USD 357.93 0.39 0.11% |
Caterpillar holds a debt-to-equity ratio of 2.338. At this time, Caterpillar's Interest Debt Per Share is comparatively stable compared to the past year. Cash Flow To Debt Ratio is likely to gain to 0.36 in 2024, whereas Short and Long Term Debt Total is likely to drop slightly above 23.8 B in 2024. Caterpillar's financial risk is the risk to Caterpillar stockholders that is caused by an increase in debt. In other words, with a high degree of financial leverage come high-interest payments, which usually reduce Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Caterpillar's liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Caterpillar's cash, liquid assets, total liabilities, and shareholder equity can be utilized to evaluate how much leverage the Company is using to sustain its current operations. For traders, higher-leverage indicators usually imply a higher risk to shareholders. In addition, it helps Caterpillar Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Caterpillar's stakeholders.
For most companies, including Caterpillar, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Caterpillar the most critical issue when dealing with liquidity needs is whether the current assets are properly aligned with its current liabilities. If not, management will need to obtain alternative financing to ensure that there are always enough cash equivalents on the balance sheet in reserve to pay for obligations.
Price Book 9.3663 | Book Value 39.037 | Operating Margin 0.1933 | Profit Margin 0.1541 | Return On Assets 0.1008 |
Caterpillar |
Caterpillar Bond Ratings
Caterpillar bond ratings play a critical role in determining how much Caterpillar have to pay to access credit markets, i.e., the amount of interest on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for Caterpillar's borrowing costs.Piotroski F Score | 7 Strong |
Beneish M Score | -2.76 Unlikely Manipulator |
Caterpillar Debt to Cash Allocation
As Caterpillar follows its natural business cycle, the capital allocation decisions will not magically go away. Caterpillar's decision-makers have to determine if most of the cash flows will be poured back into or reinvested in the business, reserved for other projects beyond operational needs, or paid back to stakeholders and investors. Many companies eventually find out that there is only so much market out there to be conquered, and adding the next product or service is only half as profitable per unit as their current endeavors. Eventually, the company will reach a point where cash flows are strong, and extra cash is available but not fully utilized. In this case, the company may start buying back its stock from the public or issue more dividends.
The company has 38.45 B in debt with debt to equity (D/E) ratio of 2.34, meaning that the company heavily relies on borrowing funds for operations. Caterpillar has a current ratio of 1.38, which is typical for the industry and considered as normal. Debt can assist Caterpillar until it has trouble settling it off, either with new capital or with free cash flow. So, Caterpillar's shareholders could walk away with nothing if the company can't fulfill its legal obligations to repay debt. However, a more frequent occurrence is when companies like Caterpillar sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Caterpillar to invest in growth at high rates of return. When we think about Caterpillar's use of debt, we should always consider it together with cash and equity.Caterpillar Total Assets Over Time
Caterpillar Assets Financed by Debt
Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the Caterpillar's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Caterpillar, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Caterpillar debt ratio should be compared their industry average or other competing firms.Caterpillar Corporate Bonds Issued
Caterpillar issues bonds to finance its operations. Corporate bonds make up one of the most significant components of the U.S. bond market and are considered the world's largest securities market. Caterpillar uses the proceeds from bond sales for a wide variety of purposes, including financing ongoing mergers and acquisitions, buying new equipment, investing in research and development, buying back their own stock, paying dividends to shareholders, and even refinancing existing debt. Most Caterpillar bonds can be classified according to their maturity, which is the date when Caterpillar has to pay back the principal to investors. Maturities can be short-term, medium-term, or long-term (more than ten years). Longer-term bonds usually offer higher interest rates but may entail additional risks.
Caterpillar Short Long Term Debt Total
Short Long Term Debt Total |
|
Understaning Caterpillar Use of Financial Leverage
Caterpillar financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Caterpillar's total debt position, including all of outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Caterpillar assets, the company is considered highly leveraged. Understanding the composition and structure of overall Caterpillar debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business and if it is worth investing in it. Financial leverage can amplify the potential profits to Caterpillar's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Caterpillar's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets).
Last Reported | Projected for Next Year | ||
Short and Long Term Debt Total | 38.5 B | 23.8 B | |
Net Debt | 31.5 B | 20.6 B | |
Short Term Debt | 13.6 B | 7.6 B | |
Long Term Debt | 24.5 B | 21.9 B | |
Long Term Debt Total | 29.6 B | 24.8 B | |
Short and Long Term Debt | 13.4 B | 10 B | |
Net Debt To EBITDA | 1.97 | 1.87 | |
Debt To Equity | 1.95 | 1.90 | |
Interest Debt Per Share | 75.47 | 79.25 | |
Debt To Assets | 0.43 | 0.35 | |
Long Term Debt To Capitalization | 0.56 | 0.46 | |
Total Debt To Capitalization | 0.66 | 0.54 | |
Debt Equity Ratio | 1.95 | 1.90 | |
Debt Ratio | 0.43 | 0.35 | |
Cash Flow To Debt Ratio | 0.34 | 0.36 |
Pair Trading with Caterpillar
One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if Caterpillar position performs unexpectedly, the other equity can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Caterpillar will appreciate offsetting losses from the drop in the long position's value.Moving against Caterpillar Stock
0.91 | GP | GreenPower Motor Financial Report 12th of July 2024 | PairCorr |
0.84 | LNN | Lindsay Financial Report 4th of July 2024 | PairCorr |
0.84 | TWI | Titan International Financial Report 1st of May 2024 | PairCorr |
0.82 | LEV | Lion Electric Corp Financial Report 14th of May 2024 | PairCorr |
0.8 | ZEVYW | Lightning eMotors | PairCorr |
The ability to find closely correlated positions to Caterpillar could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Caterpillar when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back Caterpillar - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling Caterpillar to buy it.
The correlation of Caterpillar is a statistical measure of how it moves in relation to other instruments. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as Caterpillar moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Caterpillar moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for Caterpillar can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.Check out the analysis of Caterpillar Fundamentals Over Time. For more information on how to buy Caterpillar Stock please use our How to Invest in Caterpillar guide.Note that the Caterpillar information on this page should be used as a complementary analysis to other Caterpillar's statistical models used to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
Complementary Tools for Caterpillar Stock analysis
When running Caterpillar's price analysis, check to measure Caterpillar's market volatility, profitability, liquidity, solvency, efficiency, growth potential, financial leverage, and other vital indicators. We have many different tools that can be utilized to determine how healthy Caterpillar is operating at the current time. Most of Caterpillar's value examination focuses on studying past and present price action to predict the probability of Caterpillar's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Caterpillar's price. Additionally, you may evaluate how the addition of Caterpillar to your portfolios can decrease your overall portfolio volatility.
Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets | |
Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities | |
Money Managers Screen money managers from public funds and ETFs managed around the world | |
My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
Global Correlations Find global opportunities by holding instruments from different markets | |
Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets |
Is Caterpillar's industry expected to grow? Or is there an opportunity to expand the business' product line in the future? Factors like these will boost the valuation of Caterpillar. If investors know Caterpillar will grow in the future, the company's valuation will be higher. The financial industry is built on trying to define current growth potential and future valuation accurately. All the valuation information about Caterpillar listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
Quarterly Earnings Growth 0.893 | Dividend Share 5.1 | Earnings Share 20.12 | Revenue Per Share 131.336 | Quarterly Revenue Growth 0.029 |
The market value of Caterpillar is measured differently than its book value, which is the value of Caterpillar that is recorded on the company's balance sheet. Investors also form their own opinion of Caterpillar's value that differs from its market value or its book value, called intrinsic value, which is Caterpillar's true underlying value. Investors use various methods to calculate intrinsic value and buy a stock when its market value falls below its intrinsic value. Because Caterpillar's market value can be influenced by many factors that don't directly affect Caterpillar's underlying business (such as a pandemic or basic market pessimism), market value can vary widely from intrinsic value.
Please note, there is a significant difference between Caterpillar's value and its price as these two are different measures arrived at by different means. Investors typically determine if Caterpillar is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Caterpillar's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.
What is Financial Leverage?
Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the debt provider will limit how much risk it is ready to take and indicate a limit on the extent of the leverage it will allow. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan. The concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.Leverage and Capital Costs
The debt to equity ratio plays a role in the working average cost of capital (WACC). The overall interest on debt represents the break-even point that must be obtained to profitability in a given venture. Thus, WACC is essentially the average interest an organization owes on the capital it has borrowed for leverage. Let's say equity represents 60% of borrowed capital, and debt is 40%. This results in a financial leverage calculation of 40/60, or 0.6667. The organization owes 10% on all equity and 5% on all debt. That means that the weighted average cost of capital is (.4)(5) + (.6)(10) - or 8%. For every $10,000 borrowed, this organization will owe $800 in interest. Profit must be higher than 8% on the project to offset the cost of interest and justify this leverage.Benefits of Financial Leverage
Leverage provides the following benefits for companies:- Leverage is an essential tool a company's management can use to make the best financing and investment decisions.
- It provides a variety of financing sources by which the firm can achieve its target earnings.
- Leverage is also an essential technique in investing as it helps companies set a threshold for the expansion of business operations. For example, it can be used to recommend restrictions on business expansion once the projected return on additional investment is lower than the cost of debt.