Last update on 2024-06-14

Caterpillar (CAT) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Detailed analysis of Caterpillar (CAT) utilizing Piotroski F-Score for 2023. CAT scores 8/9, showing strong financial health and investment potential.

Short Analysis - Piotroski Score: 8

We're running Caterpillar (CAT) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Caterpillar (CAT) has been evaluated based on the Piotroski F-Score, a system that measures profitability, liquidity, and leverage of a company. Caterpillar scored an 8 out of 9, indicating a strong financial position. **Profitability:** Caterpillar shows positive net income and cash flows for 2023. Additionally, their Return on Assets (ROA) is growing, and they maintain high-quality earnings as their operating cash flow is higher than their net income. **Liquidity:** Although the leverage has slightly increased from 2022 to 2023 and the current ratio has marginally decreased, Caterpillar has generally managed its liquidity well over the years. **Operating Efficiency:** The Gross Margin and Asset Turnover Ratio have grown in 2023, indicating more efficient operations. Caterpillar has also reduced the number of outstanding shares, enhancing shareholder value.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score analysis, Caterpillar (CAT) appears to be a strong investment choice. It demonstrates solid profitability, robust cash flow, and efficient operating metrics. While there are minor concerns with the slightly increased leverage and minor drop in the current ratio, the overall financial health looks promising. If you are an investor seeking a strong, undervalued company, Caterpillar's profile definitely warrants further consideration.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Caterpillar (CAT)

Company has a positive net income?

Net income is the profit of a company after all expenses and taxes have been deducted. It provides a clear picture of a company's profitability and financial health.

For Caterpillar (CAT), the net income in 2023 is $10.34 billion, which is positive. This marks a significant achievement. Over the past 20 years, Caterpillar’s net income experience some fluctuations due to economic cycles, including a notable drop in 2016 with a net loss of $67 million. The positive net income trend seen in 2023 not only signals operational efficiency and successful strategy implementation but also provides investors with confidence in the company's financial stability. Thus, Caterpillar earns 1 point for this criterion.

Company has a positive cash flow?

Cash Flow from Operations (CFO) reflects the amount of cash a company generates from its normal business operations. It is important because it shows the ability of a company to generate sufficient positive cash flow to maintain and grow its operations, pay dividends, and repay debt.

For the year 2023, Caterpillar's Cash Flow from Operations (CFO) is $12.885 billion, which is indeed positive. This marks a significant improvement from previous years and warrants adding a point according to the Piotroski criteria. Historically, the CFO for Caterpillar has shown volatility. For example, in 2004, the CFO was negative at -$3.991 billion, but it generally trended upwards over the last two decades. Such positive cash flows illustrate the company's robust operating efficiency and are indicative of strong financial health. Consequently, in this criterion, Caterpillar scores 1 point.

Return on Assets (ROA) are growing?

Explain the criterion for Caterpillar (CAT) and why it is important to consider

The Return on Assets (ROA) measures how efficient a company is at using its assets to generate profitability. It's calculated by dividing the Net Income by Total Assets. A higher ROA indicates more efficient utilization of assets. It is crucial to consider ROA when investing as it gives insight into management's effectiveness and the company’s financial health. For Caterpillar (CAT), monitoring ROA provides a view of the company’s operational efficiency in the heavy machinery space, reflecting its ability to convert investments into profit.

Operating Cashflow are higher than Netincome?

This ratio examines if the operating cash flow is higher than the net income, signifying the company's earnings quality. Higher operating cash flow than net income suggests that the earnings are backed by cash flow.

For the fiscal year 2023, Caterpillar (CAT) reported an operating cash flow of $12,885,000,000 and a net income of $10,335,000,000. Since the operating cash flow exceeds the net income, this criterion adds 1 point to Caterpillar's F-Score. This situation is indeed favorable as it suggests that the net income is well-supported by actual cash, indicating high-quality earnings. Over the past 20 years, Caterpillar's operating cash flow has generally trended upwards, with significant fluctuations reflecting various business cycles. The noticeable peak in 2023 is indicative of robust operational performance and effective management strategies under challenging market conditions.

Liquidity of Caterpillar (CAT)

Leverage is declining?

Change in leverage assesses the company's usage of financial leverage and changes in its financial risk.

The leverage of Caterpillar (CAT) increased from 0.2798 in 2023 compared to 0.3138 in 2022. This unfavorable shift suggests that the company is taking on more debt, increasing financial risk. As a result, Caterpillar scores 0 points on this Piotroski criterion. Historically, CAT had lower leverage in 2023 compared to most years within the last two decades, but the upward trend from 2022 to 2023 remains concerning.

Current Ratio is growing?

The current ratio is a liquidity ratio that measures a company's ability to cover its short-term liabilities with its short-term assets.

The current ratio for Caterpillar (CAT) has decreased from 1.3886 in 2022 to 1.3519 in 2023, warranting a score of 0 per the Piotroski analysis. While this decrease might seem minor, it still indicates a slight dip in liquidity, whereby current assets covering short-term liabilities have marginally worsened. Despite this, analyzing the 20-year trend shows that Caterpillar has generally managed its liquidity well, maintaining its current ratio close to or above 1.35, even outperforming the industry median in certain years. This consistency may mitigate concerns about the slight decrease in the current ratio for 2023.

Number of shares not diluted?

Change in Shares Outstanding essentially measures if a company is issuing new shares, which can dilute the value of existing shares. A decrease in outstanding shares is typically seen as a positive sign, indicating that the company is buying back shares, thereby increasing shareholder value.

In 2023, the Outstanding Shares for Caterpillar (CAT) stood at 510,600,000, down from 526,900,000 in 2022. This decrease of 16,300,000 shares is a positive indicator, reflecting the company's efforts to buy back shares. Historically, it's consistent with the trend over the last two decades where the number of outstanding shares generally decreased from 702,800,000 in 2003 to 510,600,000 in 2023. This strategic repurchase of shares elevates shareholder value by reducing supply in the market, indicating a healthy financial position and confidence in future earnings. Thus, Caterpillar earns 1 point for this criterion.

Operating of Caterpillar (CAT)

Cross Margin is growing?

Gross Margin refers to the percentage of revenue that exceeds the cost of goods sold. It’s a measure of a company's efficiency at producing its goods. A higher gross margin indicates a more profitable company with better control over its costs relative to its competitors.

The Gross Margin for Caterpillar (CAT) increased from 0.2947 in 2022 to 0.3469 in 2023, which is a notable improvement of 5.22 percentage points. This increase signifies better profitability and cost management. Comparing this to the industry's median Gross Margin for 2023, which is 0.2546, Caterpillar's Gross Margin is significantly higher, underscoring its operational efficiency. Over the last 20 years, Caterpillar's Gross Margin has consistently remained above the industry median, indicating strong performance. In 2023, the Gross Margin reached its highest in the two-decade span. Therefore, Caterpillar earns 1 point for this criteria as per the Piotroski Analysis due to its rising Gross Margin.

Asset Turnover Ratio is growing?

Asset turnover measures a company's efficiency in using its assets to generate sales. It's calculated by dividing sales by total assets. An increasing asset turnover ratio indicates improved efficiency and boosting sales performance relative to the company's asset base.

Comparing the asset turnover of 0.7916 in 2023 to 0.7215 in 2022, there is a clear increase. This rise meets the Piotroski criterion and adds 1 point. Historically, Caterpillar's asset turnover peaked at 0.8477 in 2006 and hit its lowest point at 0.5031 in 2016. The upward trend from 0.7215 in 2022 to 0.7916 in 2023 signals enhanced efficiency and potentially stronger management practices in utilizing assets to generate revenues.