Market Cap : 103.44 B | Enterprise Value : 134.86 B | PE Ratio : 15.68 | PB Ratio : 6.58 |
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As of today (2022-08-16), Caterpillar's weighted average cost of capital is 6.1%. Caterpillar's ROIC % is 9.47% (calculated using TTM income statement data). Caterpillar generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.
The historical data trend for Caterpillar's WACC % can be seen below:
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
For the Farm & Heavy Construction Machinery subindustry, Caterpillar's WACC %, along with its competitors' market caps and WACC % data, can be viewed below:
* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.
For the Farm & Heavy Construction Machinery industry and Industrials sector, Caterpillar's WACC % distribution charts can be found below:
* The bar in red indicates where Caterpillar's WACC % falls into.
The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm's cost of capital. Generally speaking, a company's assets are financed by debt and equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances.
WACC | = | E | / | (E + D) | * | Cost of Equity | + | D | / | (E + D) | * | Cost of Debt | * | (1 - Tax Rate) |
1. Weights:
Generally speaking, a company's assets are financed by debt and equity. We need to calculate the weight of equity and the weight of debt.
The market value of equity (E) is also called "Market Cap". As of today, Caterpillar's market capitalization (E) is $103443.797 Mil.
The market value of debt is typically difficult to calculate, therefore, GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding the latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together. As of Jun. 2022, Caterpillar's latest two-year average Short-Term Debt & Capital Lease Obligation was $11460 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was $26016 Mil. The total Book Value of Debt (D) is $37476 Mil.
a) weight of equity = E / (E + D) = 103443.797 / (103443.797 + 37476) = 0.7341
b) weight of debt = D / (E + D) = 37476 / (103443.797 + 37476) = 0.2659
2. Cost of Equity:
GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of return. The formula is:
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return)
a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is updated daily. The current risk-free rate is 2.78200000%. Please go to Economic Indicators page for more information. Please note that we use the 10-Year Treasury Constant Maturity Rate of the country/region where the company is headquartered. If the data for that country/region is not available, then we will use the 10-Year Treasury Constant Maturity Rate of the United States as default.
b) Beta is the sensitivity of the expected excess asset returns to the expected excess market returns. Caterpillar's beta is 0.86.
c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.
Cost of Equity = 2.78200000% + 0.86 * 6% = 7.942%
3. Cost of Debt:
GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.
As of Dec. 2021, Caterpillar's interest expense (positive number) was $488 Mil. Its total Book Value of Debt (D) is $37476 Mil.
Cost of Debt = 488 / 37476 = 1.3022%.
4. Multiply by one minus Average Tax Rate:
GuruFocus uses the latest two-year average tax rate to do the calculation. The calculated average tax rate is limited to between 0% and 100%. If the calculated average tax rate is higher than 100%, it is set to 100%. If the calculated average tax rate is less than 0%, it is set to 0%.
The latest Two-year Average Tax Rate is 23.205%.
Caterpillar's Weighted Average Cost Of Capital (WACC) for Today is calculated as:
WACC | = | E / (E + D) | * | Cost of Equity | + | D / (E + D) | * | Cost of Debt | * | (1 - Tax Rate) |
= | 0.7341 | * | 7.942% | + | 0.2659 | * | 1.3022% | * | (1 - 23.205%) | |
= | 6.1% |
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
Because it costs money to raise capital. A firm that generates higher ROIC % than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.
As of today, Caterpillar's weighted average cost of capital is 6.1%. Caterpillar's ROIC % is 9.47% (calculated using TTM income statement data). Caterpillar generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.
1. GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together.
2. The WACC formula discussed above does not include Preferred Stock. Please adjust if preferred stock is considered.
3. (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.
4. GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.
Schaupp William E | officer: Chief Accounting Officer | PPG INDUSTRIES, INC. ONE PPG PLACE PITTSBURGH PA 15272 |
Maclennan David | director | 14701 CHARLSON ROAD EDEN PRAIRIE MN 55347 |
Johnson Gerald | director | 300 RENAISSANCE CENTER M/C: 482-C23-A68 DETROIT MI 48265 |
Fassino Anthony D. | officer: Group President | 510 LAKE COOK ROAD SUITE 100 DEERFIELD IL 60015 |
Marvel Gary Michael | officer: Chief Accounting Officer | 510 LAKE COOK ROAD SUITE 100 DEERFIELD IL 60015 |
Ainsworth William P | officer: Group President | 510 LAKE COOK ROAD SUITE 100 DEERFIELD X1 60015 |
Bonfield Andrew R J | officer: Chief Financial Officer | C/O BRISTOL MYERS SQUIBB CO 345 PARK AVE NEW YORK NY 10164 |
Younessi Ramin | officer: Group President | 510 LAKE COOK ROAD SUITE 100 DEERFIELD IL 60015 |
Creed Joseph E | officer: Interim CFO | 510 LAKE COOK ROAD SUITE 100 DEERFIELD IL 60015 |
Ayotte Kelly | director | C/O NEWS CORPORATION 1211 AVENUE OF THE AMERICAS NEW YORK NY 10036 |
Johnson Cheryl H | officer: Chief Human Resources Officer | 40 WESTMINSTER STREET PROVIDENCE RI 02903 |
Wilkins Rayford Jr | director | 208 S. AKARD ST. -- DALLAS TX 75202 |
Long Suzette M | officer: Int. Executive Vice President | 510 LAKE COOK ROAD SUITE 100 DEERFILED IL 60015 |
De Lange Bob | officer: Group President | 510 LAKE COOK ROAD SUITE 100 DEERFIELD IL 60015 |
Johnson Denise C | officer: Group President | C/O CATERPILLAR, INCORPORATED 901 WEST WASHINGTON, CV41110 EAST PEORIA IL 61630 |
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