The Bank of CAT

It would appear that banks are no longer required to finance company or individual spending on industrial hardware.

One of the most successful divisions of industrial behemoth Caterpillar is now its financing arm, which borrows money from banks and investors to loan out to customers at a higher rate — a lucrative business.

 Caterpillar finance division income statement

2013

2012

Change 

Total revenues $680 $668 1.80%
Total expenses $490 $499 -1.80%
Profit $141 $120 17.50%
Margin 20.7% 18.0% 15.43%

Figures in $US millions

This is nothing new, company’s have been financing customer purchases with their own credit for years. However, the new trend is the amount that these finance divisions are now contribution to the company’s overall net income.

Caterpillar consolidated finance division income statement

Q1 2013

Gross income $3,570
Pre-tax income $1,130
Net income $880
Finance income $141
Finance income as a percentage of overall net income 16.02%

Figures in $US millions

Indeed, it is not just Caterpillar benefiting from this lucrative process. Ford has also jumped on the bandwagon and now 1/3 of is net income comes from its financing arm:

Ford consolidated finance division income statement

Q1 2013

Gross income $5,200
Pre-tax income $2,120
Net income $1,610
Finance income $503
Finance income as a percentage of overall net income 31.24%

Figures in $US millions

While the going is good these companies will rake in the cash but what happen when rates rise or, the economy takes a turn for the worse?

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