Deere is an American company that is involved in the manufacturing of heavy equipment, farming machinery, diesel engines, forestry machines, and lawn care equipment, among other heavy equipment and tools (Haralayya, 2021). The Company, which is trading as John Deere, is also involved in the provision of financial services. Deere & Company is a publicly traded company that the New York Securities Exchange lists and trading as NYSE: DE (DE, 2022). The Company has been in operation since 1837, and it is a known manufacturer of heavy equipment today. The company headquarters is in Illinois, United States, and some of its products are loaders, excavators, combined harvesters, graders, seed drills, diesel engines, and field sprayers, among others (Erokhin et al. 2019).
Caterpillar Inc. is an American company that is involved in the manufacturing of mining, construction, and other engineering equipment. The Company was ranked top 100 in the Fortune 500, having taken position 73 and was number 265 in the Fortune 500 worldwide. Caterpillar Inc. was established in 1935, and its headquarters is in Texas, United States. The company stock is a component of DJIA and S&P 100 and 500. Caterpillar Inc. is a publicly traded company listed with the New York Securities Exchange and trading as NYSE: CAT (CAT, 2022). Some of the Company’s products are bulldozers, diesel or gasoline engines, wheel loaders, excavators, and haul tracks. The Company also provides financial services, maintenance, training, and insurance.
Financial Statements
The financial analysis of the two companies, Deere & Company and Caterpillar Inc., has been analyzed in order to determine the Company’s financial performance in the past 2 years, 2022 and 2021. The analysis will be useful to investors and other users of accounting information in evaluating the overall performance of the firms and determining which the best Company to invest with is.
Deere & Company Statement of cash flows shows that, the net income increased from 2021 to 2022 by 20%, from $5,965 in 2021 to $7,130 in 2022. However, the net cash provided by operating activities declined by 39% from $7,726 in 2021 to $4,699 in 2022 (DE, 2022). There was an increase in cash used in investing activities by approximately 48% from $5,750 in 2021. The company cash flow used for financing activities increased from ($1,078) in 2021 to $826 in 2022. The Company’s total cash and cash equivalents, including restricted cash, declined by 39% from $8,125 in 2021 to $4,941 in 2022.
Caterpillar Inc.’s statement of cash flow shows that the profit increased by 3% from $6,493 in 2021. The net cash provided by the operating activities also increased from $7,198 in 2021 to $7,766 in 2022 (CAT, 2022). The company cash provided by investing activities slightly improved from 2021 to 2022 same as cash used for financing activities. The overall cash and cash equivalents, including restricted cash of the Company, declined by 24% from $9,263 in 2021 to $7,013 in 2022.
From the income statement of Deere & Company, the revenue increased by 21% in 2022 from $39,737 in 2021 to $47,917 in 2022. The Company’s cost of sales also increased by 21% in 2022 from $29,116 in 2021 to $35,338 in 2022 (DE, 2022). The income before taxes of the Company increased by 20% in 2022 from $7,602 in 2021 to $9,127 in 222, and this is attributed to increased net sales in 2022. The net income of the Company increased by 20% from $5,965 in 2021 to $7,130 in 2022, as it was mentioned in the company statement of cash flows. The company earnings per share improved from $19.14 in 2021 to $23.42 in 2022, and this is a clear indication that the Company was doing well in terms of stock returns (DE, 2022).
Caterpillar Inc.’s total sales and revenue increased from $50,971 in 2021 to $59,427 in 2022, which is a 17% improvement. The Company’s cost of goods sold also increased by 16% from $35,513 in 2021. It was also noted that the Company’s operating profit improved from $6,878 in 2021 to $7,904 in 2022 (CAT, 2022). This is an improvement of 15%, which is a positive performance of the Company in its profitability. The Company’s consolidated profit before taxes increased by 7% from $8,204 in 2021. The profit went up by 3% from $6,489 in 2021.
Deere & Co.’s balance sheet shows that the total assets increased by 7% from $84,114 in 2021 to $90,030 in 2022. The increase in total assets can be attributed to an increase in plant, property, and equipment, financing receivables, and inventories, among other assets. The Company’s total liabilities also increased by 6% from $65,680 in 2021, which is a lower percentage compared to the rate of increase of assets. This shows that the Company is using more of its assets to generate revenue rather than relying on debts. The shareholder equity improved from $18,434 in 2021 to $20,265 in 2021, which is a 10% increase (DE, 2022). This improvement was due to increased retained earnings and common stock from 2021 to 2022. The company shareholder equity was calculated as total assets minus the Company’s total liabilities.
Caterpillar Inc.’s balance sheet reveals that the total assets declined by 10% from $82,793 in 2021. The Company’s total liabilities also went down by 34% from $66,277 in 2021 to $66,052 in 2022. The shareholder equity also went down by 1% from $82,793 in 2021(CAT, 2022).
The general observation using the company statements is that Deere and Company’s performance was better compared to Caterpillar Inc.’s financial performance. Deere & Company’s total revenue, operating profit, net income, total assets, total liabilities, and equity increased from 2021 to 2022, while Caterpillar Inc.’s total assets, liabilities, and shareholder equity decreased from 2021 to 2022. This implies that Deere & Company is a viable company for investment as opposed to Caterpillar Inc.
Financial ratios
In this section, financial ratios have been used in order to clearly tell whether the businesses are profitable, financial leverage, solvency, and liquidity level, among other key performance metrics of the Company.
Profit Margin
Deere & Company profit margin went down from 15.01% in 2021 to $14.88 in 2022. The decline in profitability is due to increased expenses of the Company from 2021 to 2022. The profit margin of Caterpillar Inc. also declined from 12.73% in 2021 to 11.28% in 2022 (CAT,2022), which also shows the declined profitability of the Company. Based on the profitability of the companies, Deere & Company had the highest profitability margin compared to Caterpillar Inc.
Return on Assets
This measures the efficiency of the Company in terms of its use of assets to generate revenue (Hasanaj & Kuqi, 2019). The return on assets of Deere & Company increased from 7% in 2021 to 8% in 2022, which shows improved efficiency in terms of the company’s use of its assets. The returns on assets of Caterpillar Inc. remained constant at 8% from 2021 to 2022, which shows that there was no change in asset efficiency to generate revenue. Generally, Deere & Company showed improved in its assets efficiency compared to Caterpillar Inc.
Return on Equity
This ratio shows the value that investors derive from the invested funds that have been committed to the Company (Kadim et al., 2020). Deere & Company’s return on equity increased from 32% in 2021 to 35% in 2022 (DE, 2022). This is a positive impression to investors and potential investors of the Company. Caterpillar Inc.’s return on equity also improved from 39% in 2021 to 42% in 2022, which is also a good impression of the Company’s performance of its equity.
Receivable Turnover
This ratio shows the rate at which the Company accounts receivables are being paid (Hasanaj & Kuqi, 2019). Deere & Company’s receivable turnover reduced from 9 in 2021 days to 7 days, which implied that the customers paid their debts more quickly. This usually improves company cash flows. Caterpillar Inc.’s receivables turnover was well managed because it was managed at 6 days from 2021 to 2022. Deere & Company performed better than Caterpillar Inc.
Average Collection Period
This measures the rate at which the company collects debts. The average collection period of Deere & Company went up from 38 days to 48 days, which is a negative performance due to its impact on cash flows. Caterpillar Inc.’s average collection period improved from 60 days to 54 days and thus increased cash flow.
Inventory turnover
This measures the efficiency of the Company’s use of its inventories. Deere & Company Inventory turnover maintained at 4.16 average from 2021 to 2022 while Caterpillar Inc. Inventory turnover was also maintained at 2.5 on average from 2021 to 2022 (CAT,2022). This implies that Caterpillar Inc. performed better than Deere & Company Inc.
Current Ratio
This ratio also shows how a business can settle its short-term financial obligations with the use of its current assets (Kadim et al., 2020). Deere & Company declined its current ratio from 2.35 in 2021 to 2.14 in 2022, thus showing a decreased capability to pay up its short-term debts using current assets, which is a negative business performance. Caterpillar Inc. also saw its current ratio go down from 1.46 in 2021 to 1.39 in 2022, which is a poor performance in terms of its ability to manage short-term debts.
Working Capital
This ratio shows the company’s capability to make payments on its short-term financial liabilities. It tells investors and the management whether the business has sufficient cash flow capable of taking care of its financial obligations (Hasanaj & Kuqi, 2019). Deere & Company decreased its working capital from $38,497 in 2021 to $38,478 in 2022. This implies that the Company’s ability to settle short-term debts went down from 2021 to 2022, which is a negative indicator. Caterpillar Inc.’s working capital ratio dropped from $13,608 in 2021 to $12,254 in 2022 (CAT, 2022). This shows that the Company lost its ability to pay short-term financial obligations from 2021 to 2022.
Debt to total assets
This measures how a company is able to raise additional cash from debts for its operations (Hasanaj & Kuqi, 2019). Deere & Company’s debt to total assets went down from 78% in 2021 to 2022, while Caterpillar Inc.’s debt to total assets increased from 80% in 2021 to 81% in 2022. This implies that Deere & Company performed better in terms of debts to total assets compared to Caterpillar Inc.
Debt to total equity
This gives the overall financial health of a company. Caterpillar Inc. has a high debt to equity of 4.16 compared to Deere & Company’s debt to equity of 3.44 in 2022 (DE, 2022). This implies that Caterpillar Inc. is highly exposed to risk compared to the level of exposure of Deere & Company.
Earnings per share
This measures the financial progress of a company. Deere & Company earnings per share went up from $19.14 in 2021 to $23.42 in 2022, which is a positive change in company earnings per share. Caterpillar Inc. earnings per share also improved from $11.93 in 2021 to $12.72 in 2022 (CAT, 2022). This shows that the stocks of Deere & Company had more value compared to the stocks of Caterpillar Inc.
Price-to-earnings ratio
This helps investors and management of the Company to determine whether company stocks have been undervalued or overvalued (Kadim et al 2020). It shows whether the Company has the possibility of growing. Deere & Company price to price-to-earnings ratio went up from 17.97 in 2021 to 18.27 in 2022. Caterpillar Inc. price to price-to-earnings ratio also improved from 17.38 in 2021 to 18.92 in 2022 (CAT, 2022).
Comparison In terms of the Economy
Deere & Company contributes immensely to the growth of farmers through the provision of modern machines and equipment. The company revenue grew by an average of 12.05% in 2022 and its market share is approximated to be 19% globally. The Company has more than 30 locations across the world and has created employment for close to 70,000 (Pallesen, 2023). Caterpillar Inc. has a market share of about 13% in the global market, which is less than that of Deere & Company. Caterpillar Inc.’s revenue has been growing by an average of 17%, and the Company has a presence in more than 500 locations across the world (López‐Pintado et al. 2019). The Company has employed more than 109,000 employees, which implies that it has created more jobs compared to Caterpillar Inc.
Comparison in terms of the Global Strategic Plan
Deere & Company has a global strategy that is aimed at producing highly innovative and quality machines and equipment with great operating efficiency and excellence. It provides industry customer service and a clear strategy for the home or domestic market (Pallesen, 2023). Caterpillar Inc. uses an operating and execution model as its global strategy whereby the Company invests in potential areas to create value (López‐Pintado et al. 2019).
Conclusion & Recommendation
An investor should have a thorough knowledge of the overall performance of the Company. Based on the financial statements and financial ratios that have been performed, Deere & Company has better performance in terms of revenue, net income, total assets, total liabilities, and shareholder equity compared to Caterpillar Inc. The Company has high profitability, return on assets Return on equity, among other financial management metrics, which places Deere & Company as a better company for investment.
References
Caterpillar Inc Annual Report 2022. SEC 10-K Filing
https://www.caterpillar.com/en/investors/reports/annual-report.html
Erokhin, M., Pastukhov, A., & Kazantsev, S. (2019). Operability assessment of drive shafts of John Deere tractors in operational parameters. Engineering for rural development, 18, 28-33.
https://www.tf.lbtu.lv/conference/proceedings2019/Papers/N024.pdf
Haralayya, B. (2021). Study on Trend Analysis at John Deere. Iconic Research And Engineering Journals, 5(1), 171-181.
https://www.researchgate.net/profile/Dr-Haralayya/publication/353143684_Study_On_Trend_Analysis_at_John_Deere/links/60e98681b8c0d5588ce75c8d/Study-On-Trend-Analysis-at-John-Deere.pdf
Hasanaj, P., & Kuqi, B. (2019). Analysis of financial statements. Humanities and Social Science Research, 2(2), p17-p17.
https://j.ideasspread.org/index.php/hssr/article/view/305
John Deere Annual Report, 2022. Investor Relations
https://investor.deere.com/home/default.aspx
Kadim, A., Sunardi, N., & Husain, T. (2020). The modeling firm’s value based on financial ratios, intellectual capital and dividend policy. Accounting, 6(5), 859-870.
http://m.growingscience.com/beta/ac/4052-the-modeling-firms-value-based-on-financial-ratios-intellectual-capital-and-dividend-policy.html
López‐Pintado, O., García‐Bañuelos, L., Dumas, M., Weber, I., & Ponomarev, A. (2019). Caterpillar: A business process execution engine on the Ethereum blockchain. Software: Practice and Experience, 49(7), 1162-1193.
https://onlinelibrary.wiley.com/doi/abs/10.1002/spe.2702
Pallesen, M. (2023). John Deere Construction Equipment-Strategic Audit.
https://digitalcommons.unl.edu/honorstheses/615/
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