Q1. Explore Yahoo Finance to search for the corporation of Caterpillar, Inc. (stock symbol CAT). Based upon CAT's online annual financial statements (see CAT's "Financials"),compute CAT's FCF of the most recent calendar year. Does CAT's FCF look good that year? Include explanation

Q2. Also based upon CAT's online annual financial statements, compute CAT's EVA and ROIC of the most recent calendar year (assuming CAT's WACC input is given as 10%). Do CAT's EVA and ROIC look good that year?

1)When computing EVA & ROIC, you need to know the WACC amount as an input. Here we assume/pretend that WACC is given as 10% per year (hypothetical guessing only, not for real), as we have yet to cover Ch. 10 later about how to actually estimate CAT's WACC.

2) When computing FCF, you need the actual annual tax rate as an input. You can look at the firm's annual income statement, and then estimate the applicable average tax rate, by comparing each year's "Tax Provision" against "Pretax Income".

3) When computing FCF, you need to calculate the operating capital (both current and non-current) of each year and then compare for the increase in OC year-by-year. What kinds of long-term (i.e., non-current, fixed) assets are "operating" related? We define long-term fixed operating assets "such as plant & equipment". For example, the net plant & equipment are the only long-term (fixed) operating assets for company Micro Drive to show in its balance sheet. If the firm also has goodwill & intangible assets, such shall then also be counted as and added into the long-term fixed operating assets when we compute FCF, EVA & ROIC. Common Sense --- Can we imagine a firm successfully operates its core business and sells its products without relying on its goodwill, patents and technology know-how?

Q3. Explore Yahoo Finance and see CAT's "Statistics". From there, observe and quote CAT's "Current Ratio", "Total Debt/Equity Ratio", "Profit Margin", "Return on Equity", and "Price/Book Ratio" of the most up-to-date. Include explanation

Answer rating: 100% (QA)

Q1 To compute Caterpillar Incs CAT Free Cash Flow FCF for the most recent calendar year youll need t... View the full answer