Caterpillar Inc (CAT)
Financial leverage ratio
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Total assets | US$ in thousands | 87,476,000 | 81,943,000 | 82,793,000 | 78,324,000 | 78,453,000 |
| Total stockholders’ equity | US$ in thousands | 19,503,000 | 15,891,000 | 16,516,000 | 15,378,000 | 14,629,000 |
| Financial leverage ratio | 4.49 | 5.16 | 5.01 | 5.09 | 5.36 |
December 31, 2023 calculation
Financial leverage ratio = Total assets ÷ Total stockholders’ equity
= $87,476,000K ÷ $19,503,000K
= 4.49
The financial leverage ratio of Caterpillar Inc. has exhibited fluctuations over the past five years. The ratio decreased from 5.38 in 2019 to 5.02 in 2021, indicating a reduction in the company's reliance on debt for financing its assets. However, in 2022, there was a notable increase to 5.16 and a further increase to 4.49 in 2023, suggesting a shift towards higher leverage levels.
A financial leverage ratio above 1 indicates that a company relies more on debt than equity for funding its operations and investments. A higher ratio signifies higher financial risk due to increased debt obligations, interest payments, and potential volatility in earnings. Conversely, a lower ratio may indicate a more conservative capital structure with lower risk but potentially limiting growth opportunities.
As such, the recent increase in Caterpillar Inc.'s financial leverage ratio may raise concerns about its financial risk profile and ability to manage debt effectively, especially in periods of economic uncertainty or rising interest rates. Investors and stakeholders should closely monitor how the company manages its leverage levels to ensure sustainable growth and financial stability.
Peer comparison
Dec 31, 2023