COST ACCOUNTING

Cost Accounting: Application of Management Accounting Techniques on Caterpillar

Cost Accounting: Application of Management Accounting Techniques on Caterpillar

Caterpillar

Caterpillar is one of the largest manufacturers of construction and mining equipment, forestry machinery, diesel and natural gas engines, and industrial gas turbines. In addition, the company also offers financial products. The company operates in the United States. It is headquartered in Peoria, Illinois and employs 104,490 people. The company recorded revenues of $ 42,588 million in the financial year ended December 2010 (FY 2010), an increase of 31.5 % over FY 2009. The operating profit of the company was $ 4,877 million in FY 2010, compared to an operating profit of $ 1,622 million in FY 2009. The net profit was $ 2,700 million in FY 2010, compared to a net profit of $ 895 million in FY 2009.

Caterpillar is engaged in three lines of business as of Dec 31 2010. Caterpillar's Machinery business designs, manufactures and sells construction, mining and forestry machinery, and designs, manufactures, remanufactures, maintains and services rail-related products. Caterpillar's Engines business designs, manufactures and sells engines for its machinery; electric power generation systems; locomotives; marine, petroleum, construction, industrial, agricultural and other applications; and related parts. Company's Financial Products business provides financing alternatives, loans and insurance services to customers and dealers for its machinery and engines, gas turbines and other equipment and marine vessels.

Overview

The financial performance of Caterpillar shows that the major portion of the company's assets is comprised of liabilities; which are not a good indication for the company as the company's short term and the long term debts are increasing. However, the company's equity seems good or satisfactory, but it should be high as compare to the liabilities. In addition to this, the total assets per share and net assets per share reflect that the Caterpillar's assets structure is in good shape which shows that the company can meet its financial obligations that is liabilities is some sort of financial loss occur. In addition to this, past studies states that the financial analysis are to determine whether there are liquidity problems, the study of profitability determines the evolution of the company and return on invested capital, management and analysis of related variables involved in the short-term financing, obtaining rotations and time of collection and payment means.

Key Financials

(In USD as of 09/ 30/ 2011)

Income Statement

Revenue

55,702 m

Net Income

4,349 m

EPS from Continuing Operations

6.54

EPS - Net Income - Diluted

6.54

Revenue per Share

86.15

Balance Sheet

Total Assets

77,767 m

Total Liabilities

63,605 m

Shareholders' Equity

14,162 m

Total Assets per Share

120.27

Net Assets per Share

21.90

Cash Flows

Cash from Operations

7,692 m

Cash from Investing

- 9,943 m

Cash from Financing

3,271 m

Capital Expenditures

3,535 m

Cash Flow per Share

11.55

Business Model

Three principles line of business model is followed at Caterpillar, which are the financial products, engines and machinery. The business of machinery includes activities related to design, manufacturing, marketing, and sales of machinery equipments. In addition, the machinery business line also includes Electro-Motive Diesel (EMD), a manufacturer of diesel-electric locomotives (Bragg, 2001). It also offers logistics services for other companies and the design, manufacture, remanufacture, maintenance and services of rail related ...