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?