1 / 17

Caterpillar Parsimonious Forecasting and DCF

Caterpillar Parsimonious Forecasting and DCF. Mods 4 and 5 Kevin Lenart. Caterpillar.

holli
Download Presentation

Caterpillar Parsimonious Forecasting and DCF

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Caterpillar Parsimonious Forecasting and DCF Mods 4 and 5 Kevin Lenart

  2. Caterpillar • “With 2012 sales and revenues of $65.875 billion, Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services and Progress Rail Services.” (“Company,” caterpillar.com)

  3. Caterpillar (cont.) • Segments • Construction Industries – infrastructure and building construction • Energy and Power Systems – energy solutions and applications • Resource Industries – mining, lumber • Customer and Dealer Support – support, parts, training • Financial Products – financing • 2012 • Ranked 46 on Fortune 500 list • $2.5 billion spent on R&D • Record sales, revenues, profits

  4. Mod 4 - Forecasting

  5. Terms • RNEA • Return on Net Enterprise Assets • Rate of return on investments in enterprise activities • EPM • Enterprise Profit Margin • Operating profit from each sales dollar, measures profitability • EATO • Enterprise Asset Turnover • Sales from each dollar invested in enterprise assets, measures productivity and efficiency

  6. RNEA

  7. Differences Within Industry • Revenues • All experiencing declines in growth rate except for Joy • EPM from Sales • Komatsu experienced consistent increase, others volatile • EATO • All experiencing decreases in EATO • Each company has specific segments that they specialize in despite diverse offerings • Construction and mining – Caterpillar and Komatsu • Farm – John Deere • Mining – Joy

  8. Basis of Assumptions • Separated Machine & Power Systems and Financial Products for Sales and gave them separate growth rates • More emphasis on 2012 and 2013 results • Reviewed previous results of Caterpillar • Examined trends in companies within the industry • Considered information that influences future company performance • Information in 10-K and Annual Report • Analysts growth estimates as a guide • 5 year average slightly higher than my projection • 2 year growth slightly below my projection

  9. Mod 5 - DCF

  10. DCF Valuation Model • Use forecasted Sales, EPAT and NEA • Calculate year-to-year change in NEA • Subtract change in NEA from EPAT in each year and discount it by the discount factor (1+rEnt)tto calculate PV of FCF • Add these PV of FCFs • Determine PV of Continuing Value • Multiply [FCF of final year x (1+ Growth Rate beyond final year) • Divide this amount by (rEnt – Growth Rate beyond final year) and discount it to PV • Add PV of FCFs and PV of Continuing Value to determine Enterprise Value

  11. ∆ ∆

  12. Explanation • Initially, FCF were all negative • Experienced decline from unexpectedly low sales in mining segment • Customers focused on existing instead of new mining projects • Potential overexpansion that far exceeded demand • Laid off 13,000 workers in past year • Kept NEA constant in this DCF

  13. Sources • "Caterpillar Form 10-K." Caterpillar.com. Caterpillar, 19 Feb. 2013. Web. 14 Jan. 2014. • "Company." Caterpillar.com. Caterpillar, 2013. Web. 14 Jan. 2014. • "Fortune 500 2012: Industry: Construction and Farm Machinery." CNNMoney. Cable News Network, 21 May 2012. Web. 14 Jan. 2014. • Singh, Shruti D. "Caterpillar Cuts Forecast After Sales Fall." Bloomberg.com. Bloomberg, 23 Oct. 2013. Web. 04 Feb. 2014.

More Related