One critical component of financial analysis involves comparing a firm’s financial statements with other firms in the industry. Through such a comparison, financial managers can reveal useful information about risks, investment opportunities, market indicators, and economic factors.
you have been researching and analyzing various financial statements for Deere & Company. For this Final Paper, you will culminate your analysis with an in-depth comparison of Deere & Company and Caterpillar Inc.
In your project, you will complete the following items based on the files you previously downloaded:
Examine the four primary financial statements for each firm and address the following:
Statement of Cash Flows:
Compare the statement of cash flows for the two firms, noting the major inflows and outflows of cash.
Income Statement:
Compare the income statements for the two firms, noting the issues each one faces regarding sales projections.
Balance Sheet:
Compare the balance sheets for the two firms, noting any issues each firm may want to address regarding liability, and how each firm might be impacted by increasing interest rates.
Shareholder Equity:
Calculate the shareholder equity for each firm.
Calculate the following ratios and provide a trend analysis on each company:
ROI analysis
Ratio analysis, to include the following ratios (please be sure to show calculations):
Profit margin
Return on assets
Return on equity
Receivable turnover
Average collection period
Inventory turnover
Current ratio
Working capital
Debt-to-total assets
Debt-to-equity
Earnings per share
Price to earnings ratio
Create a horizontal, vertical, and trend analysis of the Income statement and Balance Sheet.
Compare and contrast the two firms in the context of the global economy, noting which types of cultural differences might impact each firm as it does business in other countries.
Include examples to illustrate your point.
| Category | Deere & Company (DE) - Focus: Agriculture & Turf | Caterpillar Inc. (CAT) - Focus: Construction & Mining |
| Operating Cash Flow (OCF) | Major Inflow: Sales from equipment and services. Key Consideration: Higher OCF stability due to recurring parts/service revenue and the relatively stable demand in large-scale agriculture. | Major Inflow: Sales from equipment and services, including large, cyclical mining and construction projects. Key Consideration: OCF is generally higher than DE's but is more cyclical and volatile, heavily dependent on global commodity prices and infrastructure spending. |
| Investing Cash Flow (ICF) | Major Outflow: Capital expenditures (CapEx) for production facilities and R&D. Major Inflow: Sales of property, plant, and equipment (PP&E). Note: DE often has a large financing division, which shows up here as significant outflows for machinery receivables (loans to customers). | Major Outflow: Significant CapEx for mining and heavy construction equipment R&D (e.g., electric drive systems). Often includes major acquisitions to expand mining/energy technology. |
| Financing Cash Flow (FCF) | Major Outflow: Share repurchases and dividend payments. Key Consideration: DE may issue more debt to support its financing division's lending activities, making FCF complex. | Major Outflow: Significant share repurchases and dividend payments. FCF is often used to manage a fluctuating cash position resulting from cyclical demands. |
Export to Sheets
| Category | Deere & Company (DE) - Focus: Agriculture & Turf | Caterpillar Inc. (CAT) - Focus: Construction & Mining |
| Operating Cash Flow (OCF) | Major Inflow: Sales from equipment and services. Key Consideration: Higher OCF stability due to recurring parts/service revenue and the relatively stable demand in large-scale agriculture. | Major Inflow: Sales from equipment and services, including large, cyclical mining and construction projects. Key Consideration: OCF is generally higher than DE's but is more cyclical and volatile, heavily dependent on global commodity prices and infrastructure spending. |
| Investing Cash Flow (ICF) | Major Outflow: Capital expenditures (CapEx) for production facilities and R&D. Major Inflow: Sales of property, plant, and equipment (PP&E). Note: DE often has a large financing division, which shows up here as significant outflows for machinery receivables (loans to customers). | Major Outflow: Significant CapEx for mining and heavy construction equipment R&D (e.g., electric drive systems). Often includes major acquisitions to expand mining/energy technology. |
| Financing Cash Flow (FCF) | Major Outflow: Share repurchases and dividend payments. Key Consideration: DE may issue more debt to support its financing division's lending activities, making FCF complex. | Major Outflow: Significant share repurchases and dividend payments. FCF is often used to manage a fluctuating cash position resulting from cyclical demands. |
Export to SheetsShareholder Equity Calculation
Shareholder Equity represents the owners' residual claim on the assets after liabilities are settled.
Shareholder Equity=Total Assets−Total Liabilities
Deere & Company (DE) Shareholder Equity: [Insert value from DE Balance Sheet]
Caterpillar Inc. (CAT) Shareholder Equity: [Insert value from CAT Balance Sheet]
Financial Ratio Analysis and Trend
To perform a proper trend analysis, data from at least 3-5 years is required. The following table provides the formula and illustrates how the analysis would be conducted for a single period.
ROI Analysis (Return on Investment)
ROI is a general profitability metric. For companies like these, Return on Assets (ROA) and Return on Equity (ROE) are standard ROI measures.
| Ratio | Formula | Trend Analysis Insight (General) |
| Return on Assets (ROA) | Total AssetsNet Income | DE: Trend should be relatively stable, reflecting consistent returns from its equipment and financial services. CAT: Trend would likely show sharp peaks during commodity booms and deep troughs during market slowdowns, reflecting high asset utilization variability. |
| Return on Equity (ROE) | Shareholder EquityNet Income | ROE reveals how effectively management uses shareholder investment. A rising trend is positive, but comparing DE and CAT requires normalizing for DE's high financial leverage. |
| Feature | Deere & Company (DE) | Caterpillar Inc. (CAT) |
| Revenue Source | Highly tied to global agricultural commodity prices and farmer net income. | Highly tied to global construction activity, mining investment, and oil & gas extraction. |
| Gross Profit Margin | Generally stable, supported by strong brand loyalty in agriculture. | More volatile, affected heavily by the mix of products sold (mining has high margins but is very cyclical). |
| Sales Projections Issues | Commodity Price Volatility: A sudden drop in corn or soybean prices can immediately reduce farmer equipment purchases. Weather Dependence: Major droughts or floods impact demand. | Infrastructure Spending Delays: Government policy/budget delays directly impact construction sales. Global Mining Cycles: Mining equipment sales are highly sensitive to long-term investment decisions by commodity producers, leading to sharp boom/bust cycles. |
| Feature | Deere & Company (DE) | Caterpillar Inc. (CAT) |
| Revenue Source | Highly tied to global agricultural commodity prices and farmer net income. | Highly tied to global construction activity, mining investment, and oil & gas extraction. |
| Gross Profit Margin | Generally stable, supported by strong brand loyalty in agriculture. | More volatile, affected heavily by the mix of products sold (mining has high margins but is very cyclical). |
| Sales Projections Issues | Commodity Price Volatility: A sudden drop in corn or soybean prices can immediately reduce farmer equipment purchases. Weather Dependence: Major droughts or floods impact demand. | Infrastructure Spending Delays: Government policy/budget delays directly impact construction sales. Global Mining Cycles: Mining equipment sales are highly sensitive to long-term investment decisions by commodity producers, leading to sharp boom/bust cycles. |
Sample Answer
To provide a complete and accurate comparison of Deere & Company (DE) and Caterpillar Inc. (CAT), I would need the specific financial statement data (the "files you previously downloaded"). Since I don't have access to your local files, I will structure this analysis using publicly available financial concepts and standard industry characteristics for these two firms, providing a comprehensive framework and illustrating the required calculations and comparisons.
Financial Statement Examination and Comparison
This analysis is based on typical financial data for heavy equipment manufacturers.
Statement of Cash Flows (SCF) Comparison
The SCF reveals how each company generates and uses cash across three major activities: operating, investing, and financing.