CASE STUDY OF CATERPILLAR INC

SUBMITTED TO: DR HARSH TULI

SUBMITTED BY: NEHA MALHOTRA (21087)
PAVNI VIG (21086)
MALKEET SINGH (21085)
SHIKHA PATIAL (21084)
ABOUT CATERPILAR INC
Caterpillar is the world’s leading manufacturer of construction and mining
equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric
locomotives. Services offered throughout the product life cycle, cutting-edge
technology and decades of product expertise set Caterpillar apart, providing
exceptional value to help our customers succeed. The company principally operates
through three primary segments – Construction Industries, Resource Industries and
Energy & Transportation – and provides financing and related services through its
Financial Products segment.

A BRIEF HISTORY OF CATERPILLAR

Machines in Wartime
During the First World War, Benjamin Holt caterpillar-style tractors were at first
sent to the bleeding edges in Europe to aid agrarian necessities and development.
When the military saw the potential and flexibility in Holt's tractors, another
alternative got obvious. Notwithstanding being utilized for building and modifying
the harmed countries, their helpfulness got fundamental in moving mounted guns to
the lines of fight.
In this way to Holt's association in World War I, huge numbers of their later
agreements included the military. At the point when the war finished, the peacetime
economy had a negative effect, and about broke up the organization. In 1920,
Benjamin Holt kicked the bucket after a short disease, leaving the fate of the
organization questionable.

Building a better machine

Caterpillar Inc. is a maker of substantial gear and motors. A portion of its items are
bulldozers, excavators, wheel loaders, diesel motors and trucks. The organization
likewise offers administrations, for example, financing and protection, just as
support and preparing administrations. In view of these item contributions,
Caterpillar has a moderate level of enhancement, with business in the substantial
gear industry, motors industry and money related administrations industry.
Headquartered in Illinois, the organization's items and administrations are accessible
around the world. Established in California in 1925, the organization has developed
to turn into the world's driving supplier of development hardware. In any case, the
organization contends with huge firms like Mitsubishi Heavy Industries and Toyota
Industries Corporation (a center organization in the Toyota Group, which is made
out of different organizations like Toyota Motor Corporation). In spite of worldwide
rivalry, Caterpillar Inc. keeps up its situation as among the main organizations in the
development and overwhelming gear showcase.
Therefore, Today, Caterpillar, Inc. is a Fortune 100 partnership, who fabricates the
business standard for development machines, motors and improvements in the field.
External Assessment
 Threat of new entrants
There is a low risk of new contestants in the business on account of the extremely
high capital prerequisite to set up another firm that produces overwhelming gear.
Independent companies could enter the business and give overwhelming apparatus
through little scope creation. Be that as it may, these little new participants have
insignificant impact on firms like Caterpillar Inc.

 Competitive Rivalry
The organization faces high rivalry in the business. In overwhelming hardware
producing, there are critical contenders from nations like Japan and the Netherlands.
These contenders are likewise significant players in the worldwide market. They
have designing aptitude equivalent to that of Caterpillar. In monetary
administrations, rivalry is considerably higher. There are some little, medium, and
enormous budgetary assistance organizations that straightforwardly contend with
firms like Caterpillar.

 Threat of substitutes
The danger of substitution is low. For example, unrefined devices can be utilized as
substitutes to overwhelming gear from the organization. Be that as it may, the
present pattern is toward motorization and computerization. Along these lines,
clients are probably not going to move away from utilizing overwhelming gear like
those from Caterpillar Inc.

 Bargaining Power of Buyer’s

The organization's purchasers incorporate gatherings and associations. For instance,
development firms and government offices buy overwhelming trucks and machines
from firms like Caterpillar. The bartering intensity of purchasers is low a result of
constrained choices. Just a couple of significant organizations offer items with high
calibre and strength contrasted with those of Caterpillar.
  Bargaining Power of Suppliers
The organization's providers are firms that give crude materials and parts to its items.
The organization utilizes different providers for its creation since it has distinctive
assembling areas around the globe. No single provider can apply critical weight on
Caterpillar's matter of fact. In this manner, the bartering intensity of providers is low.

Internal Assessment
 STRENGTH
Caterpillar's qualities incorporate its solid image picture, enormous scope resources,
and its solid worldwide conveyance arrange. The organization's solid image picture
depends on the way that the Caterpillar name is notable around the globe for quality.
The organization likewise has huge scope resources that can be utilized to help
further business development and improvement. What's more, the firm has a huge
worldwide system of wholesalers.

 WEAKNESSES
Caterpillar's shortcomings incorporate its low pace of advancement and restricted
associations in developing markets. The low pace of advancement is regular in the
substantial gear and monetary administrations businesses. This shortcoming makes
the organization defenceless against contenders that forcefully put resources into
mechanical advancement. Restricted business associations in developing markets
keep the firm from amplifying incomes. For instance, while it as of now works in
China, Caterpillar despite everything comes up short on a broad system of merchants
in the Chinese market.

 OPPORTUNITY
Caterpillar's chances incorporate expanding its incomes through development and
extension, and expanding upper hand through advancement. The organization can
develop and grow in rising and creating markets, particularly in Asia. The business
can misuse the development blast in these business sectors. The business can
advance to grow better or new items to catch a greater amount of the worldwide
market.
  THREAT
The dangers to Caterpillar's business are impersonation and forceful rivalry.
Impersonation has become an issue in the coming of nearby or territorial firms that
essentially duplicate the first structures of worldwide firms. For instance, some
Chinese makers could without much of a stretch use Caterpillar plans with certain
alterations to create items that go up against the organization. Then again, forceful
rivalry could come as quick innovative progression of significant contenders. For
instance, Japanese contenders could coordinate apply autonomy in their items to
make them increasingly serious against Caterpillar's items.
CATERPILLARS PAST AND CURRENT
STRATEGIES
Caterpillar is the world’s largest manufacturer of manufacturer of construction and
mining equipment, diesel and natural gas engines and industrial gas turbines. The
organization is serving worldwide and is providing employment to around 104,490
employees. Its products include Bulldozer, Excavator, Wheel Loader, Haul Truck,
Diesel Engine etc. and its services includes Financing, Insurance, Maintenance and
Training. Strategic Planning is about the finding the best solution for future problems
to be faced by the organizations that not only solves the problems but should also
proves to be beneficial to the organization.

STRATEGIC DEVELOPMENT HISTORY OF

CATERPILLAR
It has been more than 85 years that caterpillar is serving its customer and hence
ranked world’s number one in its own industry. The company has been developing
every year and has maintained its position into the market. In 1980s, Caterpillar came
very close to bankruptcy but still it manages to come back as a high tech globally
competitive growth company. The company has now proved itself as the world’s
largest manufacturer of construction and mining equipment, diesel and natural gas
engines and industrial gas turbines.

PAST STRATEGIES OF CATERPILLAR

 1981 – RECESSION PERIOD: During this period Caterpillar faced huge
economic downtown and was very close to bankruptcy. For 3 consecutive
years, the recession costs around $1 million a day to the company which
further forces the company to reduce the employment. There were three
reasons for this crisis i.e. global recession, strikes and unfavourable currency
exchange rates. To overcome this the CEO of company took following
strategic measures – Cutting cost, employee reduction, outsourcing of
machinery parts and their components, introduction of modernisation,
diversification of product lines, reorganization of company’s structure.
 EMPLOYEE SATISFACTION PROGRAM: This employee involvement
program was launched by Schaefer in 1986 that involves employee
satisfaction, quality improvement and increasing efficiency level. This helped
 in reducing the rate of absenteeism, decline in labour grievances, saving in
costs of up to $10 million and increases employee’s loyalty.
 Plant with the future” (PWTF): A modernization program that helped
caterpillar in producing high quality products, increased efficiency level and
high productivity.
 6 sigmas’: In 2001, Caterpillar was the first company that launches 6 Sigma
that helps the organization in improving its quality to the best level.
CURRENT STRATEGIES OF CATERPILLAR INC

Caterpillar’s intensive growth strategies are as follows:

 MARKET PENETRATION AND MARKET DEVELOPMENT:

Caterpillar uses the intensive growth strategies of market penetration and
market development. Different markets have different characteristics that
warrant either market penetration or market development as a major intensive
strategy to grow Caterpillar’s business. Market penetration is the main
intensive growth strategy of Caterpillar Inc. In most of the major markets
around the world, the firm already has a significant presence. In these markets,
the company focuses on growing sales from the current population of
customers, which is the objective of market penetration. On the other hand,
the business uses the intensive strategy of market development in some
markets. In developing countries in Asia and Africa, the company focuses on
establishing significant presence through market development. Caterpillar
uses its current distributors and new distributors for these two intensive
growth strategies.

 PRODUCT DEVELOPMENT: Caterpillar does not rely much on product

development as an intensive strategy for growth. The company mainly focuses
on improving existing products. The firm rarely introduces an entirely new
product. Instead, existing Caterpillar products are modified to provide new
features and improve value for customers.

 DIVERSIFICATION: The company has moderate diversification. Even

with this condition, diversification serves only a minor role in growing
Caterpillar’s business. This intensive growth strategy involves developing
new businesses or entering new industries, spreading business risk across
different markets. The company’s rate of diversification remains minimal
 FUTURE STRATEGIC PLANNING OF
CATERPILLAR
Caterpillar has set various targets for its future and is aggressively involved
into the achievement of those targets. The organization has come up with a
new strategy in 2020 and named it as VISION 2020
NEW VISION 2020 STRATEGY will focus on:
 Improve products and services
 Achieve more advantage by improving Caterpillar’s distribution system
 Build superior Caterpillar business model
 MARKETING STRATEGY OF CATERPILLAR: To treat its customer
like human beings
 GLOBAL STRATEGY OF CATERPILLAR: To provide different product
and service standards with its competitors
Caterpillar’s future strategic visions are like becoming a recognized leader in
its own industry everywhere, the products, services and solutions provided
will helps the customers to succeed, making use of the organization’s
distributions system as their competitive advantage, maintaining good labour
relations and acquiring highly talented people. The organization has set
various targets for its next five years i.e. providing the best return to its
shareholders, hiring and maintaining the best talented people into the
organization and becoming a global leader everywhere they do business.
These targets are already achieved by Caterpillar to great extent. The 100%
achievement of these targets needs more efforts. Caterpillar is now focusing
towards more sustainable development i.e. making the efficient and effective
use of the resources available without impacting the environment and also
works for the society as a whole.
Competitors to caterpillar Inc.
Top competitors to caterpillar are
1) CNH Industrial
2) JHON DEERE
3) HITACHI Construction Machinery
4) HYUNDIA Heavy Industries
5) JCB Excavators Ltd
6) KOMATSU Ltd
7) KUBOTA Corp
8) VOLVO Construction Equipment
CNH Industrial
It is a Dutch-domiciled multinational
corporation with corporate offices
in Amsterdam and London. It is financially
controlled by the investment company Exor,
which in turn is controlled by the Agnelli family.
The company is listed on the New York Stock Exchange and on Borsa Italian
Through its various businesses, CNH Industrial designs, produces, and
sells agricultural equipment and construction equipment (Case and New
Holland brand families), trucks, commercial vehicles, buses, and special vehicles
(Iveco), in addition to powertrains for industrial and marine applications (FPT
Industrial).
Present in all major markets worldwide, CNH Industrial is focused on expanding its
presence in high-growth markets, including through joint ventures. CNH Industrial
currently employs more than 63,000 people in 66 manufacturing plants and 53
research and development centres. The company operates across 180 countries.
There are various brands under CHN Industrial names case IH, New Holland,
Steyr, Case Constructions, New Holland constructions, CNH capital.
John Deere
John Deere is the brand name of Deere & Company, an
American corporation that manufactures agricultural, construction, and
forestry machinery, diesel engines, drivetrains (axles, transmissions,
gearboxes) used in heavy equipment, and lawn care equipment. Deere &
Company is listed on the New York Stock Exchange under the symbol DE. The
company's slogan is "Nothing Runs Like a Deere", and its logo is a leaping deer,
with the words 'JOHN DEERE' under it. Various logos incorporating a leaping deer
have been used by the company for over 155 years. It has many products mainly in
the field of Agricultural equipment (tractors, harvesters, cotton harvesters, planters
etc.), Construction equipment (Excavators, loaders, Tracked loader, graders etc.),
Forestry equipment (Harvesters, forwarders, skidders, log loaders etc.)

Hitachi Construction Machinery

A Japanese construction equipment company which is
into the manufacturing, sales and service of construction
machinery, transportation machinery, and other machines
and devices. It is a subsidiary of the Hitachi Group.
Hitachi Construction Machinery Co., Ltd. was
established in 1970, and was involved in the production
of Japan’s first mechanical excavator, the company has
now become a major construction equipment manufacturer in the world, and it is
listed on the Nikkei 225..
In India it runs as Tata Hitachi Construction Machinery Co. Pvt. Ltd.
Products include Excavators, loaders, Recycle machines, Compaction
equipment’s, Dump trucks.

Hyundai Heavy Industries

is largest shipbuilding company. Its headquarters
are in Ulsan, South Korea. HHI was founded in
1972 by Chung Ju-yung as a division of
the Hyundai Group, and in 1974, completed
building its first ships. In 2002, the company was spun-off from its parent company.
HHI has four core business divisions: Shipbuilding, Offshore & Engineering,
Industrial Plant & Engineering, and Engine & Machinery. HHI also has five non-
core related subsidiaries: Hyundai Electric & Energy Systems, Hyundai
Construction Equipment, Hyundai Robotics, Hyundai Heavy Industries Green
Energy, and Hyundai Global Service
HHI) is the world's largest shipbuilding company. Its headquarters are
in Ulsan, South Korea. HHI was founded in 1972 by Chung Ju-yung as a division of
the Hyundai Group, and in 1974, completed building its first ships.In 2002, the
company was spun-off from its parent company. It has four core business divisions:
Shipbuilding, Offshore & Engineering, Industrial Plant & Engineering, and Engine
& Machinery. HHI also has five non-core related subsidiaries: Hyundai Electric &
Energy Systems, Hyundai Construction Equipment, Hyundai Robotics, Hyundai
Heavy Industries Green Energy, and Hyundai Global Service

Products are Excavators, Fork lifts, Skid loaders

JCB Excavators
Joseph Cyril Bamford Excavators Ltd., is a
British multinational corporation, with headquarters
in Rochester, Staffordshire, manufacturing equipment for
construction, agriculture, waste handling, and demolition. It
produces over 300 types of machines, including diggers
(backhoes), excavators, tractors, and diesel engines. It has 22 factories across Asia,
Europe, North America, and South America; its products are sold in over 150
countries.
JCB was founded in 1945 by Joseph Cyril Bamford, after whom it is named; it
continues to be owned by the Bamford family. In the UK, India, and Ireland, the
word "JCB" is often used colloquially as a generic description for mechanical
diggers and excavators and now appears in the Oxford English Dictionary, although
it is still held as a trademark
Product includes tractors, military vehicles, excavators, wheel loaders etc.

Komatsu Limited
Komatsu is a Japanese multinational corporation that
manufactures construction, mining, forestry,
and military equipment, as well as industrial equipment like
press machines, lasers and thermoelectric generators. Its headquarters are
in Minato, Tokyo, Japan. The corporation was named after the city
of Komatsu, Ishikawa Prefecture, where the company was founded in 1921.
Worldwide, the Komatsu Group consists of Komatsu Ltd. and 258 other companies
(215 consolidated subsidiaries and 42 companies accounted for by the equity
method).Komatsu is the world's second largest manufacturer of construction
equipment and mining equipment after Caterpillar. However, in some areas (Japan,
China), Komatsu has a larger share than Caterpillar. It has manufacturing operations
in Japan, Asia, Americas and Europe.

Kubota Corporation
Kubota Corporation is a tractor and heavy
equipment manufacturer based in Osaka, Japan. One
of its notable contributions was to the construction of
the Solar Ark. The company was established in 1890.
The company produces many products including tractors and agricultural
equipment, engines, construction equipment, vending machines, pipe, valves, cast
metal, pumps and equipment for water purification, sewage
treatment and conditioning. Kubota are in both diesel and gasoline or spark ignition
forms, ranging from the tiny 0.276 litre engine to 6.1 litre engine, in both air-cooled
and-liquid cooled designs, naturally-aspirated and forced induction. Cylinder
configurations are from single cylinder to inline six cylinders, with single cylinder
to four cylinder are the most common. Those engines are widely used in agricultural
equipment, construction equipment, tractors, and marine propulsion.
Volvo Construction Equipment
VCE is a major international company that develops,
manufactures and markets equipment for construction and
related industries. It is a subsidiary and business area of
the Group. Started in 1832 in Sweden by three personals i.e
Johan Theofron Munktell and the brothers Jean Bolinder and
Carl Gerhard Bolinder. Volvo CE's products include a range
of wheel loaders, hydraulic excavators, articulated haulers, motor graders, soil and
asphalt compactors, pavers, backhoe loaders, skid steers and milling machines.
Volvo CE has production facilities in USA, Brazil, Scotland, Sweden, France,
Germany, Poland, India, China, Russia and Korea.
Volvo CE sells machines under four brands: Volvo, SDLG, Blaw-Knox,
and Terex Trucks.
Financials of Caterpillar Inc.
Four types of Sales & Revenue Segments of Caterpillar Inc.

Sales & Revenue segment of

Caterpillar inc.

1.construction
industries

2. Energy & 3.Resources

4. Financials products
Transportion Industries
2018 Performance at glance

INCOME STATEMENT
1. Sales and Revenue

 Caterpillar delivered an outstanding performance in 2018.

 Sales & Revenue for 2018 were $54.7 billion , a 20% increase from 2017 of sales and Revenue of
$45.5 billion.
 Reason – 1. higher sales volume driven by improved demand for equipment across the three
primary segments including favourable changes in dealer inventories.
2.Favorable price realisation across the three segments
3. sales were higher due to currency impacts , primarily from stronger euro.
4. Financial Products’ revenue increased slightly.
 Sales by region
 Sales increased in all region with the largest sales increase

1.North America-the largest sales increased, which improved 23% as strong economic conditions
2.Latin America – 13% increased due to stabilizing economic conditions in several countries in the
region that resulted in improved demand from low levels.
3.Asia/pacific- 28% primarily due to higher demand in several countries across the region , including
favourable changes in dealer inventories and price realisation.
4.EAME- sales increased 16% due to higher demand and impact of a stronger euro and favourable
price realisation.

2. Operating profit
 Operating profit was $8.293 billion in 2018, an increased of $3.833 billion, or 86% compared
with $4.46 billion in 2017.

 The increase was primarily due to higher sales volume and lower restructuring costs.

 Higher manufacturing costs and increased R&D/SG&A expenses were mostly offset by
favourable price realisation.

 Manufacturing costs were higher due to increased material and freight costs partially offset
by lower warranty expense. Material costs were higher primarily due to increases in steel
prices.
 The impact imposed tariffs on material cost was about $110 million during 2018.

 Freight costs were unfavourable primarily due to supply chain inefficiencies as the industry
responds to strong global demand.

 SG&A/R&D expensed increased due to investments aligned with the company’s strategic
growth initiatives.

3. Profit per share

Cash Flow Statement
The cash flow statement provides information about Caterpillar Inc.’s cash receipts and cash
payments during an accounting period. Showing how these cashflaws link the ending cash
balance to the beginning balance sheet shown on Caterpillar Inc. balance sheet
Caterpillar full year and fourth quarter results 2019

Fourth –quarter sales and revenue,

 Sales and revenue for the fourth quarter of 2019 were $13.1 billion an 8% decrease
compare with $14.3 billion in fourth quarter of 2018.
 Fourth quarter 2019 profit per share was $1.97 compared with $1.78 profit per share in
fourth quarter 2018.
 Adjusted profit per share in the fourth quarter of 2019 was $2.63 compared with fourth
quarter 2018 of $2.25.
 In the forth quarter strong cost control more than offset lower than expected end user
demand said jim umpledy caterpillar chairman and CEO “our margin performance
reflected our diligent focus on maintaining a flexible and competitive cost structure”.
Full Year sales and revenue and profit per share
 Sales and revenue in 2019 were $53.8 billion , down 2% compared with $54.7 billion in
2018.
 Profit was $10.74 per share in 2019 compared with profit of $10.26 per share in 2018.

 Adjusted profit per share in 2019 was $11.06 compared with adjusted profit per share of
$ 11.22 in 2018.
 Reason sales declined modestly in 2019, caterpillar delivered an operating margin and
free cash flow consistent with their long term targets and continued to invest in services
and expanded offerings said by chairman.
 Team focus on executing their strategy for profitable growth also allowed to increase
dividend by 20% and return more than $6 billiom in capital to shareholders through
dividends and share repurchases.
 2019 total sales and revenue by segment
Ratio analysis from 2017 to 2019

1. Analysis of Liquidity ratios – measures the adequacy of Caterpillar Inc. cash resources to
meet its near- term cash obligations.

Liquidity ratio Description The company

1. Current Ratio A liquidity ratio calculated Caterpillar Inc.’s ratio
as current assets divided improved from 2017 to
by current liabilities. 2018 and from 2018 to
2019
2. Profitability ratio – It is financial metrics used by analyst and investor to measure and
evaluate the ability of a company to generate income relative to revenue , balance sheet,
operating cost and shareholders’ equity during specified period of time. they show well a
company utilizes its assets to produce profit and value to shareholders.
Profitability Description The company
ratio
1. ROA A profitability ratio calculated as net income Caterpillar Inc.’s ROA
divided total assets. improved from 2017
to 2018 but then
slightly deteriorated
from 2018 to 2019.
2. ROE A profitability ratio calculated as net income ROE improved from
divided by shareholders’ equity. 2017 to 2018 but
then slightly
deteriorated from
2018 to 2019.
 3. Net An indicator of profitability calculated as net Net profit margin
profit income divided by revenue improved from 2017
margin 2018 and from 2018
to 2019
4. Pre tax Also known as EBT (Earnings before tax) is an Improved from 2017
margin operating profitability ratio. Useful to analysing to 2019
the standalone profitability of a company’s
operations as it excludes tax expenses.

3. Efficiency ratio – measure of how well a company is managing its routine affairs.
Conceptually, these analyse how well a company utilizes its assets & how well it manage its
liabilities

Efficiency ratios Description The company

1. Inventory turnover Measures how efficiently a
ratio company manages its
inventory.it is calculated
cost of goods sold divided
by Average inventory.
2. Receivables turnover How caterpillar Inc. collects
ratio bills from its customers. It is
calculated Revenue divided
by average accounts
receivables.
Improved from 2017 to
2018 and from 2018 to 2019
Improved from 2017 to
2018 but then slightly
deteriorated from 2018 to
2019
Stock price performance from 2016 to 2020 of Caterpillar Inc.

Highest stock price in the year 2018 due to some reasons

1. Caterpillar named one of fortune’s world’s most admired companies in 2018 and rank
number 43.
2. U.s tax reforms