Question

In: Finance

Use the following financial information to answer the question that follows: Deere Caterpillar Revenue $36 billion...

Use the following financial information to answer the question that follows:

Deere Caterpillar

Revenue $36 billion $55 billion

Net Income $3 billion $3.7 billion

Total assets $61 billion $85 billion

Total Debt $52 billion $70 billion

Compare Deere and Caterpillar's asset use efficiency and operating efficiency. (looking for ratios)

Solutions

Expert Solution

The asset use efficiency is determined by the asset turnover ratio
Asset turnover ratio is the efficiency with which the assets are used to generate sales for the company
Formula to calculate Asset turnover ratio
Asset turnover ratio = Sales/Total assets
Calculation of asset efficiency use for Deere
Asset turnover ratio = 36/61 0.5902
Calculation of asset efficiency use for Caterpillar
Asset turnover ratio = 55/85 0.6471
The asset efficiency ratio of Caterpillar is more than that of Deere that is Caterpillar is using its assets more efficiently to generate sales than Deere
Operating efficiency is represented by the net margin ratio
Net profit margin is the percentage of net income generated on the sales made by the company.
Formula to calculate net profit margin
Net profit margin = Net Income/Sales
Calculation of operating efficiency for Deere
Net profit margin = 3/36 8.33%
Calculation of operating efficiency for Catterpillar
Net profit margin = 3.7/55 6.73%
The operational efficiency of Deere is higher than that of Catterpillar which means Deere is able to generate higher net income than Catterpillar.

jeff jeffy answered 1 year ago
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