A Closer Look at Caterpillar’s Leverage and Liquidity
Caterpillar’s (CAT) interest expenses (excluding financial products) remained nearly consistent over the last ten quarters. For 4Q16, the company reported interest expenses of $120 million compared to $126 million during 4Q15.
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At the end of 4Q16, Caterpillar had an interest coverage ratio1 of 5.9x, which was up from 5.1x at the beginning of 2016. It was lower than Deere & Company’s (DE) ~9.6x, but it was higher than AGCO’s (AGCO) ~5.0x. Astec Industries (ASTE) had an interest coverage ratio of ~44.0x at the end of its most recent quarter.
According to company filings, Caterpillar (CAT) had ~$30.0 billion in the form of long-term debt on its books at the end of 4Q16 compared to ~$31.0 billion at the end of 2015. Notably, more than 40% of the company’s long-term debt is due to mature in the next two years.
At the end of 4Q16, Caterpillar (CAT) had ~$7.2 billion in cash and short-term investments, a decrease of $708 million from the end of 2015. The company’s other external consolidated credit lines with banks totaled ~$3.8 billion.
Caterpillar’s capital allocation policy could prioritize two important decisions—to maintain dividends and to maintain its credit rating. The company’s dividend yield of 3.1% on January 27, 2017, is among the highest in the machinery industry (IYJ).
CAT’s ability to maintain this dividend is something that dividend-based investors should examine closely. Dividends totaled ~$1.4 billion in the first nine months of 2016, representing $0.77 per share paid per quarter.
On December 14, 2016, Caterpillar announced that its board of directors voted to maintain the quarterly cash dividend of $0.77 per share of common stock, payable on February 18, 2017, to stockholders of record at the close of business on January 20, 2017.
In the final part of this series, let’s look at Caterpillar’s fiscal 2017 guidance.
- the number of times interest expenses can be paid with earnings ↩