Intrinsic value of Caterpillar - CAT

Previous Close

$131.36

  Intrinsic Value

$71.95

stock screener

  Rating & Target

sell

-45%

  Value-price divergence*

+63%

Previous close

$131.36

 
Intrinsic value

$71.95

 
Up/down potential

-45%

 
Rating

sell

 
Value-price divergence*

+63%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 2016), $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 78.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -18.03
  9.60
  9.14
  8.73
  8.35
  8.02
  7.72
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
Revenue, $m
  38,537
  42,237
  46,097
  50,119
  54,306
  58,660
  63,187
  67,891
  72,779
  77,859
  83,140
  88,630
  94,341
  100,284
  106,470
  112,914
  119,630
  126,631
  133,934
  141,555
  149,512
  157,824
  166,510
  175,590
  185,085
  195,018
  205,413
  216,294
  227,688
  239,620
  252,120
Variable operating expenses, $m
 
  25,791
  28,093
  30,492
  32,989
  35,586
  38,285
  41,091
  44,006
  47,036
  50,185
  52,857
  56,263
  59,807
  63,497
  67,340
  71,344
  75,520
  79,875
  84,420
  89,166
  94,123
  99,303
  104,718
  110,381
  116,305
  122,504
  128,993
  135,788
  142,904
  150,359
Fixed operating expenses, $m
 
  15,181
  15,561
  15,950
  16,349
  16,757
  17,176
  17,606
  18,046
  18,497
  18,959
  19,433
  19,919
  20,417
  20,928
  21,451
  21,987
  22,537
  23,100
  23,678
  24,270
  24,876
  25,498
  26,136
  26,789
  27,459
  28,145
  28,849
  29,570
  30,309
  31,067
Total operating expenses, $m
  38,039
  40,972
  43,654
  46,442
  49,338
  52,343
  55,461
  58,697
  62,052
  65,533
  69,144
  72,290
  76,182
  80,224
  84,425
  88,791
  93,331
  98,057
  102,975
  108,098
  113,436
  118,999
  124,801
  130,854
  137,170
  143,764
  150,649
  157,842
  165,358
  173,213
  181,426
Operating income, $m
  498
  1,264
  2,443
  3,677
  4,969
  6,317
  7,725
  9,195
  10,727
  12,327
  13,996
  16,340
  18,159
  20,060
  22,046
  24,124
  26,298
  28,574
  30,958
  33,457
  36,077
  38,825
  41,709
  44,736
  47,915
  51,255
  54,764
  58,452
  62,330
  66,406
  70,694
EBITDA, $m
  3,532
  4,343
  5,748
  7,219
  8,755
  10,359
  12,033
  13,778
  15,597
  17,494
  19,473
  21,537
  23,691
  25,940
  28,290
  30,745
  33,313
  36,000
  38,813
  41,758
  44,845
  48,080
  51,473
  55,033
  58,769
  62,691
  66,810
  71,136
  75,682
  80,458
  85,479
Interest expense (income), $m
  1,075
  1,037
  1,217
  1,407
  1,606
  1,812
  2,027
  2,250
  2,483
  2,724
  2,974
  3,235
  3,506
  3,788
  4,081
  4,386
  4,704
  5,035
  5,381
  5,741
  6,117
  6,510
  6,920
  7,349
  7,797
  8,265
  8,755
  9,268
  9,805
  10,367
  10,956
Earnings before tax, $m
  139
  228
  1,226
  2,270
  3,363
  4,505
  5,698
  6,944
  8,245
  9,603
  11,021
  13,105
  14,653
  16,272
  17,965
  19,738
  21,594
  23,539
  25,577
  27,716
  29,960
  32,315
  34,789
  37,387
  40,118
  42,990
  46,009
  49,184
  52,524
  56,039
  59,738
Tax expense, $m
  192
  61
  331
  613
  908
  1,216
  1,539
  1,875
  2,226
  2,593
  2,976
  3,538
  3,956
  4,393
  4,851
  5,329
  5,830
  6,355
  6,906
  7,483
  8,089
  8,725
  9,393
  10,095
  10,832
  11,607
  12,422
  13,280
  14,182
  15,131
  16,129
Net income, $m
  -67
  166
  895
  1,657
  2,455
  3,289
  4,160
  5,069
  6,019
  7,010
  8,045
  9,566
  10,697
  11,878
  13,115
  14,409
  15,764
  17,183
  18,672
  20,233
  21,870
  23,590
  25,396
  27,293
  29,286
  31,382
  33,586
  35,904
  38,343
  40,909
  43,609

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7,168
  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
  74,704
  73,969
  80,730
  87,775
  95,107
  102,733
  110,660
  118,898
  127,459
  136,356
  145,604
  155,219
  165,221
  175,628
  186,463
  197,748
  209,509
  221,770
  234,560
  247,907
  261,843
  276,400
  291,611
  307,512
  324,142
  341,538
  359,743
  378,799
  398,753
  419,650
  441,542
Adjusted assets (=assets-cash), $m
  67,536
  73,969
  80,730
  87,775
  95,107
  102,733
  110,660
  118,898
  127,459
  136,356
  145,604
  155,219
  165,221
  175,628
  186,463
  197,748
  209,509
  221,770
  234,560
  247,907
  261,843
  276,400
  291,611
  307,512
  324,142
  341,538
  359,743
  378,799
  398,753
  419,650
  441,542
Revenue / Adjusted assets
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
Average production assets, $m
  18,291
  20,062
  21,896
  23,807
  25,795
  27,864
  30,014
  32,248
  34,570
  36,983
  39,491
  42,099
  44,812
  47,635
  50,573
  53,634
  56,824
  60,150
  63,619
  67,239
  71,018
  74,967
  79,092
  83,405
  87,915
  92,634
  97,571
  102,740
  108,152
  113,820
  119,757
Working capital, $m
  5,835
  13,854
  15,120
  16,439
  17,812
  19,241
  20,725
  22,268
  23,872
  25,538
  27,270
  29,071
  30,944
  32,893
  34,922
  37,036
  39,238
  41,535
  43,930
  46,430
  49,040
  51,766
  54,615
  57,593
  60,708
  63,966
  67,376
  70,945
  74,682
  78,595
  82,695
Total debt, $m
  36,783
  34,761
  40,204
  45,875
  51,777
  57,916
  64,297
  70,929
  77,820
  84,982
  92,427
  100,167
  108,219
  116,597
  125,319
  134,404
  143,871
  153,741
  164,037
  174,781
  186,000
  197,718
  209,963
  222,764
  236,150
  250,154
  264,809
  280,149
  296,212
  313,034
  330,657
Total liabilities, $m
  61,567
  59,545
  64,988
  70,659
  76,561
  82,700
  89,081
  95,713
  102,604
  109,766
  117,211
  124,951
  133,003
  141,381
  150,103
  159,188
  168,655
  178,525
  188,821
  199,565
  210,784
  222,502
  234,747
  247,548
  260,934
  274,938
  289,593
  304,933
  320,996
  337,818
  355,441
Total equity, $m
  13,137
  14,424
  15,742
  17,116
  18,546
  20,033
  21,579
  23,185
  24,854
  26,589
  28,393
  30,268
  32,218
  34,247
  36,360
  38,561
  40,854
  43,245
  45,739
  48,342
  51,059
  53,898
  56,864
  59,965
  63,208
  66,600
  70,150
  73,866
  77,757
  81,832
  86,101
Total liabilities and equity, $m
  74,704
  73,969
  80,730
  87,775
  95,107
  102,733
  110,660
  118,898
  127,458
  136,355
  145,604
  155,219
  165,221
  175,628
  186,463
  197,749
  209,509
  221,770
  234,560
  247,907
  261,843
  276,400
  291,611
  307,513
  324,142
  341,538
  359,743
  378,799
  398,753
  419,650
  441,542
Debt-to-equity ratio
  2.800
  2.410
  2.550
  2.680
  2.790
  2.890
  2.980
  3.060
  3.130
  3.200
  3.260
  3.310
  3.360
  3.400
  3.450
  3.490
  3.520
  3.560
  3.590
  3.620
  3.640
  3.670
  3.690
  3.710
  3.740
  3.760
  3.770
  3.790
  3.810
  3.830
  3.840
Adjusted equity ratio
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -67
  166
  895
  1,657
  2,455
  3,289
  4,160
  5,069
  6,019
  7,010
  8,045
  9,566
  10,697
  11,878
  13,115
  14,409
  15,764
  17,183
  18,672
  20,233
  21,870
  23,590
  25,396
  27,293
  29,286
  31,382
  33,586
  35,904
  38,343
  40,909
  43,609
Depreciation, amort., depletion, $m
  3,034
  3,079
  3,305
  3,541
  3,787
  4,042
  4,307
  4,583
  4,870
  5,168
  5,477
  5,197
  5,532
  5,881
  6,244
  6,622
  7,015
  7,426
  7,854
  8,301
  8,768
  9,255
  9,764
  10,297
  10,854
  11,436
  12,046
  12,684
  13,352
  14,052
  14,785
Funds from operations, $m
  6,236
  3,245
  4,200
  5,198
  6,242
  7,331
  8,467
  9,652
  10,889
  12,178
  13,523
  14,764
  16,229
  17,759
  19,358
  21,030
  22,779
  24,609
  26,526
  28,534
  30,638
  32,845
  35,160
  37,590
  40,140
  42,819
  45,632
  48,588
  51,695
  54,960
  58,394
Change in working capital, $m
  628
  1,213
  1,266
  1,319
  1,373
  1,428
  1,485
  1,543
  1,603
  1,666
  1,732
  1,801
  1,873
  1,949
  2,029
  2,114
  2,203
  2,296
  2,395
  2,500
  2,610
  2,726
  2,849
  2,978
  3,114
  3,258
  3,410
  3,569
  3,737
  3,914
  4,100
Cash from operations, $m
  5,608
  2,032
  2,934
  3,879
  4,868
  5,902
  6,982
  8,110
  9,285
  10,512
  11,791
  12,963
  14,356
  15,810
  17,329
  18,916
  20,576
  22,313
  24,130
  26,034
  28,028
  30,119
  32,311
  34,612
  37,026
  39,560
  42,223
  45,019
  47,958
  51,046
  54,293
Maintenance CAPEX, $m
  0
  -2,258
  -2,477
  -2,703
  -2,939
  -3,185
  -3,440
  -3,705
  -3,981
  -4,268
  -4,566
  -4,875
  -5,197
  -5,532
  -5,881
  -6,244
  -6,622
  -7,015
  -7,426
  -7,854
  -8,301
  -8,768
  -9,255
  -9,764
  -10,297
  -10,854
  -11,436
  -12,046
  -12,684
  -13,352
  -14,052
New CAPEX, $m
  -2,928
  -1,771
  -1,834
  -1,911
  -1,989
  -2,068
  -2,150
  -2,234
  -2,322
  -2,413
  -2,508
  -2,608
  -2,713
  -2,823
  -2,939
  -3,061
  -3,190
  -3,326
  -3,469
  -3,620
  -3,780
  -3,948
  -4,126
  -4,313
  -4,510
  -4,718
  -4,938
  -5,169
  -5,412
  -5,668
  -5,938
Cash from investing activities, $m
  -1,760
  -4,029
  -4,311
  -4,614
  -4,928
  -5,253
  -5,590
  -5,939
  -6,303
  -6,681
  -7,074
  -7,483
  -7,910
  -8,355
  -8,820
  -9,305
  -9,812
  -10,341
  -10,895
  -11,474
  -12,081
  -12,716
  -13,381
  -14,077
  -14,807
  -15,572
  -16,374
  -17,215
  -18,096
  -19,020
  -19,990
Free cash flow, $m
  3,848
  -1,998
  -1,376
  -735
  -59
  650
  1,392
  2,170
  2,982
  3,831
  4,717
  5,480
  6,446
  7,455
  8,510
  9,612
  10,765
  11,972
  13,236
  14,559
  15,947
  17,403
  18,930
  20,534
  22,219
  23,988
  25,849
  27,805
  29,862
  32,026
  34,304
Issuance/(repayment) of debt, $m
  -1,310
  5,146
  5,442
  5,671
  5,902
  6,139
  6,381
  6,632
  6,891
  7,162
  7,444
  7,741
  8,051
  8,378
  8,722
  9,085
  9,467
  9,870
  10,296
  10,745
  11,218
  11,718
  12,245
  12,801
  13,387
  14,004
  14,655
  15,340
  16,062
  16,823
  17,623
Issuance/(repurchase) of shares, $m
  -23
  1,121
  423
  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  
  -1,313
  6,267
  5,865
  5,671
  5,902
  6,139
  6,381
  6,632
  6,891
  7,162
  7,444
  7,741
  8,051
  8,378
  8,722
  9,085
  9,467
  9,870
  10,296
  10,745
  11,218
  11,718
  12,245
  12,801
  13,387
  14,004
  14,655
  15,340
  16,062
  16,823
  17,623
Total cash flow (excl. dividends), $m
  2,507
  4,269
  4,489
  4,936
  5,843
  6,788
  7,774
  8,802
  9,874
  10,993
  12,161
  13,220
  14,497
  15,833
  17,232
  18,697
  20,232
  21,842
  23,531
  25,304
  27,166
  29,121
  31,175
  33,335
  35,605
  37,993
  40,504
  43,145
  45,924
  48,849
  51,927
Retained Cash Flow (-), $m
  1,672
  -1,287
  -1,318
  -1,374
  -1,430
  -1,487
  -1,546
  -1,606
  -1,669
  -1,735
  -1,803
  -1,875
  -1,950
  -2,029
  -2,113
  -2,201
  -2,293
  -2,391
  -2,494
  -2,603
  -2,717
  -2,839
  -2,966
  -3,101
  -3,243
  -3,392
  -3,550
  -3,716
  -3,891
  -4,075
  -4,269
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
 
  2,982
  3,171
  3,562
  4,413
  5,301
  6,228
  7,195
  8,204
  9,258
  10,358
  11,345
  12,547
  13,804
  15,119
  16,496
  17,939
  19,451
  21,037
  22,701
  24,448
  26,282
  28,209
  30,234
  32,362
  34,600
  36,954
  39,429
  42,034
  44,774
  47,658
Discount rate, %
 
  9.10
  9.56
  10.03
  10.53
  11.06
  11.61
  12.19
  12.80
  13.44
  14.12
  14.82
  15.56
  16.34
  17.16
  18.02
  18.92
  19.86
  20.86
  21.90
  23.00
  24.15
  25.35
  26.62
  27.95
  29.35
  30.82
  32.36
  33.97
  35.67
  37.46
PV of cash for distribution, $m
 
  2,734
  2,642
  2,674
  2,956
  3,137
  3,221
  3,215
  3,129
  2,975
  2,765
  2,480
  2,211
  1,929
  1,647
  1,375
  1,122
  894
  695
  527
  389
  280
  196
  133
  87
  56
  34
  20
  12
  6
  3
Current shareholders' claim on cash, %
  100
  98.6
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1

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 -1149.9
Price to Sales 2
Price to Book 5.9
Price to Tangible Book
Price to Cash Flow 13.7
Price to Free Cash Flow 28.7
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 $38537 million for the last fiscal year's total revenue generated by Caterpillar. The default revenue input number comes from 2016 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 9.6% 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 9.1%, 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 61.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $14811 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 3.5% 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 47.5%.

Life of production assets of 8.1 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 32.8%. 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 - $13137 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 593.932 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 $78.0 billion.

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COMPANY NEWS

▶ International mining group lands headquarters in Phoenix   [Oct-19-17 07:25PM  American City Business Journals]
▶ Caterpillar Inc. Maintains Dividend Rate   [12:45PM  PR Newswire]
▶ Walmart, Coca-Cola Dominate the DJIA Tuesday   [Oct-10-17 04:01PM  24/7 Wall St.]
▶ Goldman's big move on this big name stock   [01:30PM  CNBC Videos]
▶ Cramer's Stop Trading: Caterpillar   [09:55AM  CNBC Videos]
▶ Caterpillar: Buy at the High?   [Oct-09-17 09:32PM  Motley Fool]
▶ The Dow's top 10 drivers from last quarter   [Oct-05-17 07:11PM  CNBC Videos]
▶ Nike, Caterpillar Underpin DJIA on Wednesday   [Oct-04-17 04:01PM  24/7 Wall St.]
▶ ETFs with exposure to Caterpillar, Inc. : October 3, 2017   [Oct-03-17 11:01AM  Capital Cube]
▶ Dow Jones Stock Index Set to Continue Its Unlikely Rally   [Oct-02-17 02:14PM  InvestorPlace]
▶ 3 Short Ideas as China Stocks Rise   [10:04AM  Barrons.com]
▶ Top Stock Picks for the Week of September 25th   [Sep-25-17 03:48PM  Zacks]
▶ Caterpillar May Be Ready to Take a Breather   [11:28AM  TheStreet.com]
▶ US Market Indexes Higher on Monday With Continued Gains   [Sep-19-17 11:21AM  GuruFocus.com]
Financial statements of CAT
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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