Professional Documents
Culture Documents
April 1, 2016
Company Overview
Prospects
Governance Analysis
Currently 12 Directors
Major Shareholders
Major Shareholders
Major Shareholders
Executive Compensation
COMPONENTS
Base salary - smallest component of the
compensation structure
Stock option - has the biggest share as it links
executives compensation to stockholder
expectations
Executive Short Term Incentive Plan (ESTIP)
based on corporate and business unit
performance
Strategic Performance Plan (SPP) long term
incentives - based on company success in the
long-run
Executive Compensation
Executive Compensation
Executive Compensation
CEOs in the S&P 500 list earned
$12.7 million on average in 2014
Thus, Caterpillars CEO
compensation was above average
($14.7 million)
CEO compensation has climbed
14% in 2014
However Caterpillars sales have
dropped about $10 billion in 20132014
Over 2014, the stock has tumbled
19 percent
1. 1. 1. 1. 1.
31 39 40 43 34
Deer 2. 2. 2. 2. 2.
e&
06 17 05 24 07
Com
pany
CMI
Corp
orati
on
Lower
ratio
than
competitors
2. 2. 2. 2. 1.
Higher
risk
09 25 57 29
94 for shortcomings
Dee
re
&
Co
mp
any
2
0
1
4
2
0
1
3
2
0
1
2
2
0
1
1
0. 0. 0. 0. 0.
5 6 6 7 8
8 5 4 7 3
Within
with competitors
0. 0. 0. range
0. 0.
4 6 6 6 7
Relatively
low
turnover
8 0 5 9 0
Higher depreciation and storage
2. 2. 1. 2. 2.
57 35 81 29 69
Deer 5. 4. 3. 4. 3.
e&
47 08 36 74 91
Com
pany
Dee
re
&
2
0
1
4
2
0
1
3
2
0
1
2
2
0
1
1
- 9. 4
1 0. 1 5 1.
4. 8 5. 4 2
8 5 5 % 1
1 % 1
%
%
%
5 2. 3.
3 9 1
Dividend Policy
2
Divid
ends
per
Share
Dividend
based on
1 1 1 1 policy
1
, , , , ,
stability
Total
7 6 4 3 1
Steady
yearly increase
Cash
8 6 9 1 7
regardless of market
Assumptions:
WACC
statement
Year
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
4
2
0
2
5
Profit 27 24 23 22 20 18 16 14 11 87
76 97 87 10 06 62 74 49 85 5.
after
.6 .0 .0 .7 .3 .5 .3 .9 .3 8
tax
Add
30 31 34 38 42 47 52 58 64 71
back
82 93 88 55 60 18 36 08 39 36
depreci .6 .3 .8 .7 .1 .4 .5 .5 .7 .4
ation
Subtra
ct
- - - - - - - increas 22 13 24 24 24 74 77 79 81 84
72 86
2. 4. 7. 9. 1. 5. 8. 3.
e in
.8 .2
5 9 3 5 9 1 9 5
current
assets
Add
back
increas - - 20 21 21 64 66 68 70 72
42 11
8. 0. 2. 4. 3. 3. 3. 4.
e in
76 91
6.3
8%
5.0
0%
Year 10
32
FCF (or
8.3
year 2025)
24
Terminal
97
value
6.5
Present
value of
13
the
45
terminal
6.5
Value
Year
2 2 2 2 2 2
20 20 20 20 0 0 0 0 0 0
16 17 18 19 2 2 2 2 2 2
Capital
Structure
Debt
Inter
est
Cove
Equi rage
ty
Rati
o
(EBI
T/Int
erest
Expe
nse)
Capital Structure
Debt: Rocket Booster or Anchor
Cost of Capital
Cost of capital indicates how the market
views the risk of Caterpillars assets
Assumptions:
Cost of Debt
1.7
Cost of Debt 7%
Cost of Equity
Cost of
Equity Using
Dividend
Growth
10.
Model
94%
Cost
of
Indicates
the return required by equity
Equity
Using 10.
investors
given the risk of the cash
CAPM
57%
flows from
Caterpillar
Used both Dividend Growth, and CAPM
WACC
WACC using
dividend
growth
6.3
model
38%
Indicates the average cost of capital for
Caterpillar.
WACC
using This
6.1 average is the required return
on Caterpillars
CAPM
5% assets based on the market
perception of the risk of those assets
Used Cost of Equity calculated using Dividend
Growth, and CAPM Methods, both resulted in
similar values
Weight of common equity, preferred equity, and
long term debt as 52.5%, 0%, and 47.5%
Beta ()
Recommendation for
Investment
We
competitors ()
High debt ratio while growth in decline