Intrinsic value of Caterpillar - CAT

Previous Close

$155.23

  Intrinsic Value

$289.10

stock screener

  Rating & Target

str. buy

+86%

Previous close

$155.23

 
Intrinsic value

$289.10

 
Up/down potential

+86%

 
Rating

str. buy

*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.

Please visit our new site that uses elements of artificial intelligence for stock valuation: artificial intelligence value of Caterpillar (CAT) stock.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  24.60
  22.64
  20.88
  19.29
  17.86
  16.57
  15.42
  14.37
  13.44
  12.59
  11.83
  11.15
  10.54
  9.98
  9.48
  9.04
  8.63
  8.27
  7.94
  7.65
  7.38
  7.14
  6.93
  6.74
  6.56
  6.41
  6.27
  6.14
  6.03
  5.92
Revenue, $m
  38,537
  48,017
  58,888
  71,182
  84,911
  100,076
  116,663
  134,648
  154,003
  174,696
  196,696
  219,974
  244,502
  270,262
  297,240
  325,430
  354,834
  385,463
  417,335
  450,480
  484,931
  520,733
  557,937
  596,603
  636,797
  678,593
  722,071
  767,318
  814,430
  863,505
  914,652
Variable operating expenses, $m
 
  29,238
  35,722
  43,053
  51,241
  60,285
  70,177
  80,903
  92,446
  104,787
  117,908
  131,188
  145,816
  161,179
  177,267
  194,079
  211,615
  229,882
  248,890
  268,656
  289,202
  310,554
  332,742
  355,801
  379,772
  404,698
  430,627
  457,612
  485,708
  514,976
  545,479
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
  44,419
  51,283
  59,003
  67,590
  77,042
  87,353
  98,509
  110,492
  123,284
  136,867
  150,621
  165,735
  181,596
  198,195
  215,530
  233,602
  252,419
  271,990
  292,334
  313,472
  335,430
  358,240
  381,937
  406,561
  432,157
  458,772
  486,461
  515,278
  545,285
  576,546
Operating income, $m
  498
  3,597
  7,606
  12,179
  17,322
  23,034
  29,309
  36,139
  43,511
  51,412
  59,830
  69,353
  78,767
  88,666
  99,045
  109,900
  121,231
  133,044
  145,345
  158,146
  171,459
  185,303
  199,697
  214,666
  230,236
  246,436
  263,298
  280,857
  299,151
  318,220
  338,106
EBITDA, $m
  3,532
  7,015
  11,661
  16,955
  22,903
  29,504
  36,753
  44,637
  53,144
  62,259
  71,966
  82,252
  93,105
  104,515
  116,475
  128,983
  142,040
  155,649
  169,819
  184,563
  199,896
  215,839
  232,416
  249,652
  267,579
  286,230
  305,642
  325,854
  346,911
  368,857
  391,743
Interest expense (income), $m
  1,075
  1,037
  1,502
  2,038
  2,645
  3,322
  4,071
  4,889
  5,777
  6,732
  7,753
  8,838
  9,987
  11,197
  12,468
  13,799
  15,190
  16,641
  18,153
  19,725
  21,361
  23,061
  24,827
  26,663
  28,571
  30,554
  32,617
  34,762
  36,995
  39,319
  41,741
Earnings before tax, $m
  139
  2,561
  6,104
  10,140
  14,677
  19,711
  25,239
  31,250
  37,734
  44,681
  52,077
  60,515
  68,780
  77,469
  86,577
  96,100
  106,041
  116,403
  127,193
  138,420
  150,098
  162,242
  174,870
  188,003
  201,665
  215,882
  230,681
  246,095
  262,157
  278,901
  296,365
Tax expense, $m
  192
  691
  1,648
  2,738
  3,963
  5,322
  6,814
  8,437
  10,188
  12,064
  14,061
  16,339
  18,571
  20,917
  23,376
  25,947
  28,631
  31,429
  34,342
  37,373
  40,527
  43,805
  47,215
  50,761
  54,450
  58,288
  62,284
  66,446
  70,782
  75,303
  80,019
Net income, $m
  -67
  1,869
  4,456
  7,402
  10,714
  14,389
  18,424
  22,812
  27,546
  32,617
  38,016
  44,176
  50,210
  56,553
  63,201
  70,153
  77,410
  84,974
  92,851
  101,047
  109,572
  118,437
  127,655
  137,242
  147,215
  157,593
  168,397
  179,650
  191,374
  203,597
  216,347

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
  84,093
  103,132
  124,661
  148,707
  175,265
  204,313
  235,810
  269,707
  305,948
  344,477
  385,243
  428,200
  473,314
  520,560
  569,929
  621,425
  675,066
  730,885
  788,931
  849,266
  911,966
  977,123
  1,044,839
  1,115,231
  1,188,428
  1,264,572
  1,343,815
  1,426,321
  1,512,268
  1,601,843
Adjusted assets (=assets-cash), $m
  67,536
  84,093
  103,132
  124,661
  148,707
  175,265
  204,313
  235,810
  269,707
  305,948
  344,477
  385,243
  428,200
  473,314
  520,560
  569,929
  621,425
  675,066
  730,885
  788,931
  849,266
  911,966
  977,123
  1,044,839
  1,115,231
  1,188,428
  1,264,572
  1,343,815
  1,426,321
  1,512,268
  1,601,843
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
  22,808
  27,972
  33,811
  40,333
  47,536
  55,415
  63,958
  73,151
  82,981
  93,431
  104,487
  116,139
  128,374
  141,189
  154,579
  168,546
  183,095
  198,234
  213,978
  230,342
  247,348
  265,020
  283,386
  302,479
  322,331
  342,984
  364,476
  386,854
  410,165
  434,460
Working capital, $m
  5,835
  15,750
  19,315
  23,348
  27,851
  32,825
  38,265
  44,164
  50,513
  57,300
  64,516
  72,151
  80,197
  88,646
  97,495
  106,741
  116,385
  126,432
  136,886
  147,757
  159,057
  170,800
  183,003
  195,686
  208,869
  222,578
  236,839
  251,680
  267,133
  283,230
  300,006
Total debt, $m
  36,783
  42,911
  58,237
  75,568
  94,925
  116,304
  139,688
  165,043
  192,330
  221,504
  252,520
  285,336
  319,917
  356,233
  394,267
  434,009
  475,463
  518,644
  563,579
  610,305
  658,875
  709,349
  761,800
  816,311
  872,977
  931,901
  993,196
  1,056,987
  1,123,405
  1,192,592
  1,264,699
Total liabilities, $m
  61,567
  67,695
  83,021
  100,352
  119,709
  141,088
  164,472
  189,827
  217,114
  246,288
  277,304
  310,120
  344,701
  381,017
  419,051
  458,793
  500,247
  543,428
  588,363
  635,089
  683,659
  734,133
  786,584
  841,095
  897,761
  956,685
  1,017,980
  1,081,771
  1,148,189
  1,217,376
  1,289,483
Total equity, $m
  13,137
  16,398
  20,111
  24,309
  28,998
  34,177
  39,841
  45,983
  52,593
  59,660
  67,173
  75,122
  83,499
  92,296
  101,509
  111,136
  121,178
  131,638
  142,523
  153,842
  165,607
  177,833
  190,539
  203,744
  217,470
  231,744
  246,592
  262,044
  278,133
  294,892
  312,359
Total liabilities and equity, $m
  74,704
  84,093
  103,132
  124,661
  148,707
  175,265
  204,313
  235,810
  269,707
  305,948
  344,477
  385,242
  428,200
  473,313
  520,560
  569,929
  621,425
  675,066
  730,886
  788,931
  849,266
  911,966
  977,123
  1,044,839
  1,115,231
  1,188,429
  1,264,572
  1,343,815
  1,426,322
  1,512,268
  1,601,842
Debt-to-equity ratio
  2.800
  2.620
  2.900
  3.110
  3.270
  3.400
  3.510
  3.590
  3.660
  3.710
  3.760
  3.800
  3.830
  3.860
  3.880
  3.910
  3.920
  3.940
  3.950
  3.970
  3.980
  3.990
  4.000
  4.010
  4.010
  4.020
  4.030
  4.030
  4.040
  4.040
  4.050
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
  1,869
  4,456
  7,402
  10,714
  14,389
  18,424
  22,812
  27,546
  32,617
  38,016
  44,176
  50,210
  56,553
  63,201
  70,153
  77,410
  84,974
  92,851
  101,047
  109,572
  118,437
  127,655
  137,242
  147,215
  157,593
  168,397
  179,650
  191,374
  203,597
  216,347
Depreciation, amort., depletion, $m
  3,034
  3,418
  4,055
  4,776
  5,581
  6,471
  7,443
  8,498
  9,633
  10,847
  12,137
  12,900
  14,338
  15,849
  17,431
  19,084
  20,808
  22,604
  24,473
  26,417
  28,437
  30,537
  32,719
  34,986
  37,343
  39,794
  42,344
  44,997
  47,760
  50,638
  53,637
Funds from operations, $m
  6,236
  5,287
  8,511
  12,179
  16,295
  20,860
  25,868
  31,310
  37,179
  43,463
  50,153
  57,075
  64,548
  72,401
  80,632
  89,237
  98,218
  107,579
  117,324
  127,464
  138,009
  148,973
  160,374
  172,228
  184,558
  197,388
  210,741
  224,647
  239,134
  254,235
  269,984
Change in working capital, $m
  628
  3,109
  3,566
  4,032
  4,503
  4,974
  5,440
  5,899
  6,348
  6,787
  7,216
  7,635
  8,045
  8,449
  8,849
  9,246
  9,645
  10,046
  10,454
  10,871
  11,300
  11,743
  12,203
  12,682
  13,184
  13,709
  14,261
  14,841
  15,453
  16,097
  16,776
Cash from operations, $m
  5,608
  2,178
  4,945
  8,146
  11,792
  15,886
  20,427
  25,411
  30,831
  36,676
  42,937
  49,440
  56,502
  63,952
  71,783
  79,991
  88,574
  97,532
  106,870
  116,593
  126,709
  137,230
  148,171
  159,546
  171,375
  183,679
  196,480
  209,805
  223,682
  238,138
  253,207
Maintenance CAPEX, $m
  0
  -2,258
  -2,816
  -3,453
  -4,174
  -4,979
  -5,869
  -6,841
  -7,896
  -9,031
  -10,245
  -11,535
  -12,900
  -14,338
  -15,849
  -17,431
  -19,084
  -20,808
  -22,604
  -24,473
  -26,417
  -28,437
  -30,537
  -32,719
  -34,986
  -37,343
  -39,794
  -42,344
  -44,997
  -47,760
  -50,638
New CAPEX, $m
  -2,928
  -4,517
  -5,164
  -5,839
  -6,522
  -7,203
  -7,878
  -8,543
  -9,194
  -9,829
  -10,450
  -11,057
  -11,651
  -12,236
  -12,814
  -13,390
  -13,967
  -14,549
  -15,140
  -15,743
  -16,364
  -17,006
  -17,672
  -18,366
  -19,092
  -19,853
  -20,652
  -21,493
  -22,378
  -23,311
  -24,295
Cash from investing activities, $m
  -1,760
  -6,775
  -7,980
  -9,292
  -10,696
  -12,182
  -13,747
  -15,384
  -17,090
  -18,860
  -20,695
  -22,592
  -24,551
  -26,574
  -28,663
  -30,821
  -33,051
  -35,357
  -37,744
  -40,216
  -42,781
  -45,443
  -48,209
  -51,085
  -54,078
  -57,196
  -60,446
  -63,837
  -67,375
  -71,071
  -74,933
Free cash flow, $m
  3,848
  -4,597
  -3,034
  -1,146
  1,096
  3,703
  6,680
  10,027
  13,741
  17,815
  22,242
  26,849
  31,952
  37,378
  43,120
  49,170
  55,523
  62,175
  69,126
  76,376
  83,928
  91,787
  99,962
  108,461
  117,297
  126,483
  136,034
  145,969
  156,307
  167,068
  178,275
Issuance/(repayment) of debt, $m
  -1,310
  13,296
  15,326
  17,331
  19,356
  21,379
  23,383
  25,355
  27,287
  29,174
  31,016
  32,816
  34,581
  36,316
  38,033
  39,742
  41,454
  43,181
  44,935
  46,727
  48,570
  50,474
  52,451
  54,511
  56,666
  58,924
  61,296
  63,790
  66,418
  69,187
  72,107
Issuance/(repurchase) of shares, $m
  -23
  1,392
  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  
  -1,313
  14,688
  15,326
  17,331
  19,356
  21,379
  23,383
  25,355
  27,287
  29,174
  31,016
  32,816
  34,581
  36,316
  38,033
  39,742
  41,454
  43,181
  44,935
  46,727
  48,570
  50,474
  52,451
  54,511
  56,666
  58,924
  61,296
  63,790
  66,418
  69,187
  72,107
Total cash flow (excl. dividends), $m
  2,507
  10,090
  12,292
  16,185
  20,452
  25,083
  30,064
  35,383
  41,028
  46,989
  53,258
  59,665
  66,532
  73,694
  81,153
  88,912
  96,977
  105,356
  114,061
  123,103
  132,497
  142,261
  152,413
  162,972
  173,962
  185,406
  197,330
  209,760
  222,724
  236,255
  250,382
Retained Cash Flow (-), $m
  1,672
  -3,261
  -3,713
  -4,198
  -4,689
  -5,179
  -5,664
  -6,142
  -6,610
  -7,067
  -7,513
  -7,949
  -8,377
  -8,797
  -9,213
  -9,627
  -10,042
  -10,460
  -10,885
  -11,319
  -11,765
  -12,227
  -12,706
  -13,205
  -13,726
  -14,273
  -14,848
  -15,452
  -16,089
  -16,760
  -17,467
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
 
  6,829
  8,579
  11,987
  15,764
  19,904
  24,399
  29,241
  34,418
  39,922
  45,745
  51,716
  58,156
  64,897
  71,940
  79,285
  86,935
  94,896
  103,176
  111,784
  120,732
  130,034
  139,707
  149,768
  160,236
  171,133
  182,482
  194,307
  206,636
  219,495
  232,915
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
 
  6,259
  7,148
  8,998
  10,560
  11,779
  12,620
  13,067
  13,127
  12,828
  12,213
  11,306
  10,250
  9,071
  7,836
  6,607
  5,435
  4,360
  3,409
  2,596
  1,923
  1,385
  969
  657
  432
  275
  169
  100
  57
  32
  17
Current shareholders' claim on cash, %
  100
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5

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 -1358.8
Price to Sales 2.4
Price to Book 6.9
Price to Tangible Book
Price to Cash Flow 16.2
Price to Free Cash Flow 34
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 24.6% 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 598.109 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 $92.8 billion.

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Financial statements of CAT
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