Financial ratio analysis
The paper will explore CaterpillarInc. and John Deere Company from which we will deduce the one performing better based on the metrics. It will address various parameters that the success of businesses relies upon. We will consider the years ended 2018, thus deduce the one performing better.
The first difference arises with the profit margin; Caterpillar Inc. recorded a profit of 11.2% while John Deere 6.3%. This indicates that Caterpillar is recording higher sales compared to their expenses.It tries to show that finance handling and market parameters are in line with Caterpillar’s strategies. Second is a return on assets; this indicates how the holdings at a company’s reach can initiate income generation. Caterpillar has 7.8%, while John Deere 3.4%. Therefore, Caterpillar is effectively using its resources to generate more income and contribute to the general profitability. Return on equity, on the other hand, is the percentage of investor dollars that the company has converted to realize some income and shows how efficient the company is using shareholder’s money. Caterpillar recorded an ROE of 43.85 while John Deere 21.0%. ROE values are suitable for both companies; however, Caterpillar still utilizes the shareholder’s money effectively to spur profitability.
On the receivable turnover, Caterpillar recorded 3.1. At the same time, John Deere 1.0, shows that Caterpillar has an excellent customer base who can take credit and pay promptly; thus, it does not compromise the financial capability of the company. On the average collection period, Caterpillar recorded 116.d dates while John Deere 369.7 days. This shows that John Deere is taking a long time to receive collection from their creditors. Their creditors are not obliged to their payments within a shorter period. Don't use plagiarised sources.Get your custom essay just from $11/page
For the working capital, Caterpillar has a value of $ 10,385, while John Deere $22,566. This shows that the difference between the assets and liabilities for John Deere is more significant than Caterpillar, putting them at an advantage of expanding the business. However, compared to the previous year, Caterpillar is improving while John Deere is on a declining trajectory. On inventory turnover, Caterpillar is at 3.3 while John Deere 4.1. This shows that the frequency with which John Deere sells and replaces its inventory is higher compared to Caterpillar. JD’s stock always returned, showing that they have a comprehensive customer base to sell to. On the current ratio, John Deere recorded 1.87 while Caterpillar 1.37 indicating that JD is in a position to meet its debt obligations compared to Caterpillar. JD has 1.87 to account for a debt amounting to 1, while Caterpillar has 1.37 for a similar debt amount.
Comparing debt to total assets ratio, Caterpillar has 0.82 while John Deere 0.84. This parameter shows the volume of commodities that are financed by debt. The debt asset ratio is for the two is almost similar though John Deere has more services funded by debt. Finally, we consider debt to equity ratio; Caterpillar recorded a value of 4.49 while John Deere recorded 5.21. One share finances a large debt for John Deere is larger than Caterpillar thus Caterpillar is in a better position.
From the overall analysis, I believe that Caterpillar is performing better than John Deere is. The high-profit margin with a low working capital indicates Caterpillar management has put into place effective marketing skills and are utilizing the inventories effectively to make a profit for themselves. Moreover, Caterpillar is improving in comparison to the 2017 data. I would, therefore, recommend Caterpillar for any investment decision.
Caterpillar Inc.
The net income from continued operations, Net, revenue, and net income applicable to common shareholders recorded the most significant growth of 715% from the previous value. However, by amount, the cost of revenues recorded the highest increase by 5, 813. Operating income also almost doubled, recording 86% increases from the previous value with $ 3,833. From the balance sheet, Inventory and other assets recorded the highest growth by a percentage, each having 15%. However, by value, total current liabilities had the most significant improvement byan amount of $1,287.
John Deere Company
From the income statement, income tax had the highest growth by 78%, followed by interest expenses at 34%. However, by value, total revenue recorded the highest growth by $7,620, corresponding to 26% of the initial value. The cost of revenue followed at $5, 705. However, for the balance sheet, Intangible assets recorded the highest growth by percentage, having 617% followed by goodwill at a distant 200%. Inventory trailed at a distant third recording a 58% increase. However, by value, total assets recorded the highest growth with a value of $4, 432. Net receivables followed with a value of 3, 414.
Assessing the growth of the two companies, Caterpillar recorded the most substantial percentage growth of the two companies. A 715% growth in net income shows that the company has achieved a lot from the previous year. John Deer, on the other hand, records growth but intangible assets and goodwill, which in totality would not translate to economic upheaval. I, therefore, believe that with the growth of Caterpillar with limited working capital, the company is on a definite pattern thus would recommend it.