Intrinsic value of Caterpillar - CAT

Previous Close

$136.26

  Intrinsic Value

$412.75

stock screener

  Rating & Target

str. buy

+203%

Previous close

$136.26

 
Intrinsic value

$412.75

 
Up/down potential

+203%

 
Rating

str. buy

We calculate the intrinsic value of CAT stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 80.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  18.00
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
Revenue, $m
  53,645
  62,604
  72,326
  82,797
  93,999
  105,914
  118,528
  131,824
  145,792
  160,424
  175,717
  191,672
  208,292
  225,590
  243,579
  262,277
  281,709
  301,902
  322,888
  344,702
  367,386
  390,981
  415,535
  441,100
  467,729
  495,480
  524,416
  554,601
  586,104
  618,998
Variable operating expenses, $m
  23,240
  26,982
  31,043
  35,417
  40,096
  45,074
  50,342
  55,896
  61,731
  67,843
  73,400
  80,065
  87,008
  94,233
  101,747
  109,558
  117,675
  126,110
  134,876
  143,989
  153,464
  163,320
  173,577
  184,256
  195,379
  206,971
  219,058
  231,667
  244,827
  258,567
Fixed operating expenses, $m
  22,196
  22,684
  23,183
  23,693
  24,214
  24,747
  25,292
  25,848
  26,417
  26,998
  27,592
  28,199
  28,819
  29,453
  30,101
  30,763
  31,440
  32,132
  32,839
  33,561
  34,300
  35,054
  35,825
  36,614
  37,419
  38,242
  39,084
  39,943
  40,822
  41,720
Total operating expenses, $m
  45,436
  49,666
  54,226
  59,110
  64,310
  69,821
  75,634
  81,744
  88,148
  94,841
  100,992
  108,264
  115,827
  123,686
  131,848
  140,321
  149,115
  158,242
  167,715
  177,550
  187,764
  198,374
  209,402
  220,870
  232,798
  245,213
  258,142
  271,610
  285,649
  300,287
Operating income, $m
  8,210
  12,938
  18,100
  23,687
  29,688
  36,094
  42,894
  50,079
  57,644
  65,583
  74,725
  83,408
  92,466
  101,904
  111,730
  121,956
  132,594
  143,660
  155,173
  167,153
  179,622
  192,607
  206,133
  220,230
  234,931
  250,267
  266,274
  282,990
  300,455
  318,711
EBITDA, $m
  11,766
  16,949
  22,605
  28,724
  35,294
  42,305
  49,746
  57,607
  65,881
  74,564
  83,651
  93,145
  103,047
  113,364
  124,104
  135,279
  146,904
  158,997
  171,575
  184,663
  198,285
  212,468
  227,242
  242,638
  258,691
  275,437
  292,914
  311,164
  330,230
  350,156
Interest expense (income), $m
  1,075
  1,883
  2,495
  3,167
  3,896
  4,682
  5,522
  6,416
  7,362
  8,360
  9,407
  10,505
  11,652
  12,849
  14,096
  15,394
  16,743
  18,146
  19,603
  21,118
  22,692
  24,329
  26,030
  27,800
  29,642
  31,560
  33,558
  35,639
  37,810
  40,074
  42,438
Earnings before tax, $m
  6,326
  10,443
  14,933
  19,790
  25,006
  30,572
  36,478
  42,717
  49,285
  56,176
  64,220
  71,756
  79,617
  87,808
  96,337
  105,213
  114,448
  124,057
  134,055
  144,460
  155,293
  166,576
  178,333
  190,588
  203,371
  216,709
  230,635
  245,180
  260,381
  276,273
Tax expense, $m
  1,708
  2,820
  4,032
  5,343
  6,752
  8,254
  9,849
  11,534
  13,307
  15,167
  17,339
  19,374
  21,496
  23,708
  26,011
  28,407
  30,901
  33,495
  36,195
  39,004
  41,929
  44,976
  48,150
  51,459
  54,910
  58,511
  62,271
  66,199
  70,303
  74,594
Net income, $m
  4,618
  7,623
  10,901
  14,447
  18,255
  22,317
  26,629
  31,184
  35,978
  41,008
  46,881
  52,382
  58,120
  64,100
  70,326
  76,805
  83,547
  90,561
  97,860
  105,456
  113,364
  121,601
  130,183
  139,129
  148,461
  158,198
  168,363
  178,982
  190,078
  201,680

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  90,770
  105,929
  122,380
  140,096
  159,050
  179,212
  200,554
  223,052
  246,687
  271,445
  297,322
  324,317
  352,441
  381,709
  412,146
  443,785
  476,665
  510,832
  546,341
  583,253
  621,634
  661,558
  703,105
  746,361
  791,419
  838,376
  887,337
  938,411
  991,716
  1,047,375
Adjusted assets (=assets-cash), $m
  90,770
  105,929
  122,380
  140,096
  159,050
  179,212
  200,554
  223,052
  246,687
  271,445
  297,322
  324,317
  352,441
  381,709
  412,146
  443,785
  476,665
  510,832
  546,341
  583,253
  621,634
  661,558
  703,105
  746,361
  791,419
  838,376
  887,337
  938,411
  991,716
  1,047,375
Revenue / Adjusted assets
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
Average production assets, $m
  27,252
  31,803
  36,742
  42,061
  47,751
  53,805
  60,212
  66,966
  74,062
  81,496
  89,264
  97,369
  105,813
  114,600
  123,738
  133,237
  143,108
  153,366
  164,027
  175,109
  186,632
  198,618
  211,092
  224,079
  237,606
  251,704
  266,403
  281,737
  297,741
  314,451
Working capital, $m
  4,184
  4,883
  5,641
  6,458
  7,332
  8,261
  9,245
  10,282
  11,372
  12,513
  13,706
  14,950
  16,247
  17,596
  18,999
  20,458
  21,973
  23,548
  25,185
  26,887
  28,656
  30,496
  32,412
  34,406
  36,483
  38,647
  40,904
  43,259
  45,716
  48,282
Total debt, $m
  46,204
  58,650
  72,156
  86,701
  102,262
  118,815
  136,337
  154,808
  174,212
  194,539
  215,783
  237,947
  261,036
  285,065
  310,054
  336,030
  363,024
  391,075
  420,228
  450,533
  482,043
  514,821
  548,931
  584,445
  621,437
  659,989
  700,185
  742,118
  785,881
  831,577
Total liabilities, $m
  74,522
  86,968
  100,474
  115,019
  130,580
  147,133
  164,655
  183,126
  202,530
  222,857
  244,101
  266,265
  289,354
  313,383
  338,372
  364,348
  391,342
  419,393
  448,546
  478,851
  510,361
  543,139
  577,249
  612,763
  649,755
  688,307
  728,503
  770,436
  814,199
  859,895
Total equity, $m
  16,248
  18,961
  21,906
  25,077
  28,470
  32,079
  35,899
  39,926
  44,157
  48,589
  53,221
  58,053
  63,087
  68,326
  73,774
  79,438
  85,323
  91,439
  97,795
  104,402
  111,272
  118,419
  125,856
  133,599
  141,664
  150,069
  158,833
  167,976
  177,517
  187,480
Total liabilities and equity, $m
  90,770
  105,929
  122,380
  140,096
  159,050
  179,212
  200,554
  223,052
  246,687
  271,446
  297,322
  324,318
  352,441
  381,709
  412,146
  443,786
  476,665
  510,832
  546,341
  583,253
  621,633
  661,558
  703,105
  746,362
  791,419
  838,376
  887,336
  938,412
  991,716
  1,047,375
Debt-to-equity ratio
  2.840
  3.090
  3.290
  3.460
  3.590
  3.700
  3.800
  3.880
  3.950
  4.000
  4.050
  4.100
  4.140
  4.170
  4.200
  4.230
  4.250
  4.280
  4.300
  4.320
  4.330
  4.350
  4.360
  4.370
  4.390
  4.400
  4.410
  4.420
  4.430
  4.440
Adjusted equity ratio
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4,618
  7,623
  10,901
  14,447
  18,255
  22,317
  26,629
  31,184
  35,978
  41,008
  46,881
  52,382
  58,120
  64,100
  70,326
  76,805
  83,547
  90,561
  97,860
  105,456
  113,364
  121,601
  130,183
  139,129
  148,461
  158,198
  168,363
  178,982
  190,078
  201,680
Depreciation, amort., depletion, $m
  3,556
  4,011
  4,505
  5,037
  5,606
  6,212
  6,852
  7,528
  8,237
  8,981
  8,926
  9,737
  10,581
  11,460
  12,374
  13,324
  14,311
  15,337
  16,403
  17,511
  18,663
  19,862
  21,109
  22,408
  23,761
  25,170
  26,640
  28,174
  29,774
  31,445
Funds from operations, $m
  8,174
  11,635
  15,406
  19,484
  23,861
  28,529
  33,481
  38,711
  44,215
  49,989
  55,807
  62,119
  68,701
  75,560
  82,699
  90,129
  97,858
  105,898
  114,263
  122,967
  132,027
  141,462
  151,292
  161,537
  172,221
  183,368
  195,004
  207,155
  219,852
  233,125
Change in working capital, $m
  638
  699
  758
  817
  874
  929
  984
  1,037
  1,090
  1,141
  1,193
  1,244
  1,296
  1,349
  1,403
  1,458
  1,516
  1,575
  1,637
  1,702
  1,769
  1,840
  1,915
  1,994
  2,077
  2,165
  2,257
  2,354
  2,457
  2,566
Cash from operations, $m
  7,536
  10,936
  14,648
  18,667
  22,987
  27,599
  32,497
  37,674
  43,126
  48,848
  54,614
  60,874
  67,405
  74,210
  81,296
  88,670
  96,342
  104,323
  112,626
  121,265
  130,258
  139,622
  149,377
  159,543
  170,144
  181,203
  192,747
  204,801
  217,395
  230,559
Maintenance CAPEX, $m
  -2,308
  -2,725
  -3,180
  -3,674
  -4,206
  -4,775
  -5,380
  -6,021
  -6,697
  -7,406
  -8,150
  -8,926
  -9,737
  -10,581
  -11,460
  -12,374
  -13,324
  -14,311
  -15,337
  -16,403
  -17,511
  -18,663
  -19,862
  -21,109
  -22,408
  -23,761
  -25,170
  -26,640
  -28,174
  -29,774
New CAPEX, $m
  -4,173
  -4,551
  -4,939
  -5,319
  -5,691
  -6,053
  -6,407
  -6,754
  -7,096
  -7,433
  -7,769
  -8,105
  -8,443
  -8,787
  -9,138
  -9,499
  -9,871
  -10,258
  -10,661
  -11,082
  -11,523
  -11,986
  -12,474
  -12,987
  -13,528
  -14,098
  -14,699
  -15,334
  -16,004
  -16,710
Cash from investing activities, $m
  -6,481
  -7,276
  -8,119
  -8,993
  -9,897
  -10,828
  -11,787
  -12,775
  -13,793
  -14,839
  -15,919
  -17,031
  -18,180
  -19,368
  -20,598
  -21,873
  -23,195
  -24,569
  -25,998
  -27,485
  -29,034
  -30,649
  -32,336
  -34,096
  -35,936
  -37,859
  -39,869
  -41,974
  -44,178
  -46,484
Free cash flow, $m
  1,055
  3,660
  6,529
  9,674
  13,091
  16,771
  20,709
  24,899
  29,333
  34,008
  38,696
  43,843
  49,225
  54,842
  60,698
  66,798
  73,147
  79,754
  86,628
  93,781
  101,224
  108,973
  117,041
  125,447
  134,209
  143,345
  152,877
  162,827
  173,218
  184,075
Issuance/(repayment) of debt, $m
  11,326
  12,445
  13,506
  14,546
  15,561
  16,553
  17,522
  18,471
  19,404
  20,327
  21,245
  22,163
  23,089
  24,029
  24,989
  25,975
  26,994
  28,052
  29,153
  30,304
  31,511
  32,778
  34,110
  35,513
  36,992
  38,552
  40,197
  41,932
  43,763
  45,695
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  11,326
  12,445
  13,506
  14,546
  15,561
  16,553
  17,522
  18,471
  19,404
  20,327
  21,245
  22,163
  23,089
  24,029
  24,989
  25,975
  26,994
  28,052
  29,153
  30,304
  31,511
  32,778
  34,110
  35,513
  36,992
  38,552
  40,197
  41,932
  43,763
  45,695
Total cash flow (excl. dividends), $m
  12,381
  16,105
  20,035
  24,220
  28,652
  33,324
  38,231
  43,369
  48,737
  54,335
  59,940
  66,006
  72,314
  78,871
  85,687
  92,773
  100,141
  107,806
  115,781
  124,085
  132,735
  141,750
  151,152
  160,961
  171,201
  181,897
  193,074
  204,759
  216,981
  229,770
Retained Cash Flow (-), $m
  -2,482
  -2,713
  -2,945
  -3,171
  -3,393
  -3,609
  -3,820
  -4,027
  -4,231
  -4,432
  -4,632
  -4,832
  -5,034
  -5,239
  -5,448
  -5,663
  -5,885
  -6,116
  -6,356
  -6,607
  -6,870
  -7,146
  -7,437
  -7,743
  -8,065
  -8,405
  -8,764
  -9,142
  -9,542
  -9,963
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  9,900
  13,391
  17,090
  21,048
  25,259
  29,715
  34,411
  39,342
  44,507
  49,903
  55,308
  61,174
  67,280
  73,632
  80,239
  87,110
  94,256
  101,690
  109,425
  117,478
  125,865
  134,604
  143,715
  153,218
  163,136
  173,491
  184,310
  195,617
  207,439
  219,807
Discount rate, %
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
  9,183
  11,441
  13,343
  14,895
  16,059
  16,815
  17,158
  17,102
  16,676
  15,924
  14,839
  13,613
  12,239
  10,783
  9,308
  7,867
  6,509
  5,266
  4,165
  3,216
  2,423
  1,779
  1,272
  885
  597
  391
  248
  153
  91
  52
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Caterpillar Inc. is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The Company operates through segments, including Construction Industries, which is engaged in supporting customers using machinery in infrastructure, forestry and building construction; Resource Industries, which is engaged in supporting customers using machinery in mining, quarry, waste and material handling applications; Energy & Transportation, which supports customers in oil and gas, power generation, marine, rail and industrial applications, including Cat machines; Financial Products segment, which provides financing and related services, and All Other operating segments, which includes activities, such as product management and development, and manufacturing of filters and fluids, undercarriage, tires and rims, ground engaging tools, fluid transfer products, and sealing and connecting components for Cat products.

FINANCIAL RATIOS  of  Caterpillar (CAT)

Valuation Ratios
P/E Ratio -1192.8
Price to Sales 2.1
Price to Book 6.1
Price to Tangible Book
Price to Cash Flow 14.3
Price to Free Cash Flow 29.8
Growth Rates
Sales Growth Rate -18%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10.2%
Cap. Spend. - 3 Yr. Gr. Rate -8%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 173.7%
Total Debt to Equity 280%
Interest Coverage 1
Management Effectiveness
Return On Assets -0.6%
Ret/ On Assets - 3 Yr. Avg. 2.4%
Return On Total Capital -0.1%
Ret/ On T. Cap. - 3 Yr. Avg. 2.9%
Return On Equity -0.5%
Return On Equity - 3 Yr. Avg. 9.5%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 27.2%
Gross Margin - 3 Yr. Avg. 27.5%
EBITDA Margin 11%
EBITDA Margin - 3 Yr. Avg. 13.5%
Operating Margin 1.3%
Oper. Margin - 3 Yr. Avg. 5.1%
Pre-Tax Margin 0.4%
Pre-Tax Margin - 3 Yr. Avg. 4.5%
Net Profit Margin -0.2%
Net Profit Margin - 3 Yr. Avg. 3.2%
Effective Tax Rate 138.1%
Eff/ Tax Rate - 3 Yr. Avg. 62.2%
Payout Ratio -2685.1%

CAT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CAT stock intrinsic value calculation we used $45462 million for the last fiscal year's total revenue generated by Caterpillar. The default revenue input number comes from 2017 income statement of Caterpillar. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CAT stock valuation model: a) initial revenue growth rate of 18% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.8%, whose default value for CAT is calculated based on our internal credit rating of Caterpillar, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Caterpillar.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CAT stock the variable cost ratio is equal to 43.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $21718 million in the base year in the intrinsic value calculation for CAT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Caterpillar.

Corporate tax rate of 27% is the nominal tax rate for Caterpillar. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CAT stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CAT are equal to 50.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Caterpillar operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CAT is equal to 7.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $13766 million for Caterpillar - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 592 million for Caterpillar is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Caterpillar at the current share price and the inputted number of shares is $80.7 billion.

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