Caterpillar Finance Report on the Term Paper

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Our cash position is not great, and was better in each of the past two years. This partially explains the growth in the accounts payable. There has not been any substantial growth in receivables but our cash conversion cycle has been affected by excess inventory. Inventory as a percentage of total assets was 17.8% in 2011, compared with 12.8% five years ago. We are simply not selling our inventory as quickly as we need to, and this has led to a situation where we have to stretch our payables.

The company has also taken on more long-term debt last year, adding $4.5 billion in long-term debt. This takes the long-term debt to the highest level it has ever been. Part of this could be related to the cash conversion cycle, but it also hints at spending that is out of control.

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Yet, our margins are better than they have in the past few years and there has been no specific escalation in our operating costs. Our ratio of selling, general and administration expense to revenue has remained largely unchanged in the past five years.

It seems that in absence of a specific internal factor, we simply do not perform as efficiently as our competitors do. We need to find ways to improve our products and our marketing, so that we can not only sell more but sell at higher margins. At some point, the escalation of debt needs to stop, so the company should position its cash flow in a way that will allow for this. After two years of retiring debt, we added….....

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