⚠ Returns That Belong to the CycleModerate threat

Caterpillar (CAT) — threat to the moat

Caterpillar earned less than a 10% return on its capital in four of the last eleven years.

Caterpillar's high returns are recent. Consolidated return on invested capital was 5.9% in 2015, 1.7% in 2016, 7.0% in 2017 and 7.8% in 20201, below a 10% hurdle in each. It exceeded 20% only in 2023 and 20242.

Return on invested capital (%)5.920151.720167.0201715.4201815.020197.8202012.5202113.9202222.9202322.3202416.82025Moat Explorer calculation from SEC EDGAR XBRL
Above 10% in seven of eleven years.

The pattern follows the equipment cycle. Sales and revenues fell 18% from 2015 to 2016 and 22% from 2019 to 20203, and operating profit fell to $1,162 million in 20164.

The business has improved since: the same cycle today starts from higher margins and a $72.1 billion backlog5. But the evidence of the last decade is that Caterpillar earns well above its cost of capital in good years and below it in bad ones.

The company's own history of returns on equity tells the same story more sharply: 15.8% in 2015, minus 0.5% in 2016, 5.6% in 2017, then 44.1% and 42.4% in the following two years6. In the bad years the dealer network and the parts business kept Caterpillar profitable or close to it, which is what a moat does; they did not keep returns high.

ROIC in the next downturn is the verdict. If it stays above 10% when sales fall, the moat has deepened; if it drops below, the high returns of 2023-2025 were the cycle's.

References
  1. Moat Explorer calcConsolidated return on invested capital was 5.9% in 2015, 1.7% in 2016, 7.0% in 2017 and 7.8% in 2020, below a 10% hurdle in each.
    Moat Explorer calculation, a scratch copy of tools_roic_edgar.py on SEC EDGAR XBRL for CIK 18230: return on invested capital 5.9% (2015), 1.7% (2016), 7.0% (2017), 15.4% (2018), 15.0% (2019), 7.8% (2020), 12.5% (2021), 13.9% (2022), 22.9% (2023), 22.3% (2024), 16.8% (2025). Operating profit (OperatingIncomeLoss): 3,785 (2015), 1,162 (2016), 4,460 (2017), 8,293 (2018), 8,290 (2019), 4,553 (2020), 6,878 (2021), 7,904 (2022), 12,966 (2023), 13,072 (2024), 11,151 (2025) $ millions. — 2015-2025 · publ. September 2026 · source ↗
    Method: NOPAT (operating income x (1 - effective tax rate, clamped 0-35%)) divided by average operating invested capital (total assets less current liabilities less cash), from SEC EDGAR XBRL via a scratch copy of tools_roic_edgar.py with CIK 18230 added. For 2015-2019, where Caterpillar's XBRL carries no year-end CashAndCashEquivalentsAtCarryingValue, cash and short-term investments is used; the repo method alone gives the same 2020-2025 values. Invested capital includes about $25bn of Cat Financial finance receivables.
  2. Moat Explorer calcIt exceeded 20% only in 2023 and 2024.
    Moat Explorer calculation, a scratch copy of tools_roic_edgar.py on SEC EDGAR XBRL for CIK 18230: return on invested capital 5.9% (2015), 1.7% (2016), 7.0% (2017), 15.4% (2018), 15.0% (2019), 7.8% (2020), 12.5% (2021), 13.9% (2022), 22.9% (2023), 22.3% (2024), 16.8% (2025). Operating profit (OperatingIncomeLoss): 3,785 (2015), 1,162 (2016), 4,460 (2017), 8,293 (2018), 8,290 (2019), 4,553 (2020), 6,878 (2021), 7,904 (2022), 12,966 (2023), 13,072 (2024), 11,151 (2025) $ millions. — 2015-2025 · publ. September 2026 · source ↗
    Method: NOPAT (operating income x (1 - effective tax rate, clamped 0-35%)) divided by average operating invested capital (total assets less current liabilities less cash), from SEC EDGAR XBRL via a scratch copy of tools_roic_edgar.py with CIK 18230 added. For 2015-2019, where Caterpillar's XBRL carries no year-end CashAndCashEquivalentsAtCarryingValue, cash and short-term investments is used; the repo method alone gives the same 2020-2025 values. Invested capital includes about $25bn of Cat Financial finance receivables.
  3. Moat Explorer calcSales and revenues fell 18% from 2015 to 2016 and 22% from 2019 to 2020, and operating profit fell to $1,162 million in 2016.
    Moat Explorer calculation from Caterpillar's reported figures ($ millions unless stated). Dealers: 41 + 109 = 150 (2025); 43 + 113 = 156 (2022); 46 + 119 = 165 (2019). Segment margins (segment profit / total segment sales, FY2025 10-K basis): Construction Industries 6,975 / 27,418 = 25.4% (2023), 6,165 / 25,455 = 24.2% (2024), 4,675 / 25,060 = 18.7% (2025); Resource Industries 2,836 / 13,669 = 20.7%, 2,538 / 12,471 = 20.4%, 1,988 / 12,474 = 15.9%; Power & Energy 4,936 / 28,001 = 17.6%, 5,736 / 28,854 = 19.9%, 6,418 / 32,201 = 19.9%; Financial Products 909 / 3,785 = 24.0%, 932 / 4,053 = 23.0%, 966 / 4,220 = 22.9%, 590 / 3,044 = 19.4% (2020). Recast (Rail in Resource Industries): 2,151 / 15,920 = 13.5% (2025), 2,676 / 15,745 = 17.0% (2024); Power & Energy 6,256 / 28,624 = 21.9%. Construction Industries H1 2026 3,482 / 15,507 = 22.5%. Implied Rail: sales 15,920 - 12,474 = 3,446 and profit 2,151 - 1,988 = 163, 163 / 3,446 = 4.7% (2025); sales 15,745 - 12,471 = 3,274 and profit 2,676 - 2,538 = 138 (2024). Power generation 10,275 / 3,963 = 2.6 times (2020-2025); 10,275 / 67,589 = 15.2% of sales and revenues; three times the 2024 base 7,756 x 3 = 23,268. Oil and gas 7,502 / 27,143 = 27.6% of Power & Energy external sales; 7,502 / 3,701 = 2.0 times. Services 24 / 67.589 = 35.5%; (30 / 24)^(1/5) - 1 = 4.6% a year. Backlog 72.1 / 30.0 = 2.4 times; long end 29.2 / 19.3 - 1 = 51%. Customer advances 4,777 / 3,314 - 1 = 44%. Price realization H1 2026 426 + 595 = 1,021; 2024 against 2023 1,238 / 5,596 = 22%. Volume H1 2026 2,318 + 3,113 = 5,431. Capex excluding leased equipment 2,821 / 1,597 - 1 = 77%. Pre-tax return on average MP&E net assets (MP&E adjusted operating profit / average MP&E net assets): 4,675 / 20,070 = 23.3% (2020), 6,453 / 19,662 = 32.8% (2021), 8,656 / 19,841 = 43.6% (2022), 13,439 / 19,450 = 69.1% (2023), 13,246 / 19,999 = 66.2% (2024), 11,327 / 21,417 = 52.9% (2025). Profit 8,884 / 6,147 - 1 = 44.5% and diluted EPS 18.81 / 10.26 - 1 = 83.3% (2018-2025). Dividends paid 2,749 / profit 8,884 = 30.9%. Return on average equity 8,884 / ((19,494 + 21,318) / 2) = 43.5%. Price to earnings at year end (market capitalisation $bn / profit $bn): 39.57 / 2.512 = 15.8 (2015); 93.75 / 0.754 = 124.3 (2017); 74.98 / 6.147 = 12.2 (2018); 81.62 / 6.093 = 13.4 (2019); 98.88 / 2.998 = 33.0 (2020); 111.83 / 6.489 = 17.2 (2021); 124.67 / 6.705 = 18.6 (2022); 150.52 / 10.335 = 14.6 (2023); 175.14 / 10.792 = 16.2 (2024); 268.09 / 8.884 = 30.2 (2025); trailing 370.15 / 10.844 = 34.1. Share price 805.25 / 1,073.46 - 1 = -25%. Trailing twelve months to June 2026: sales and revenues 67,589 - 30,818 + 37,958 = 74,729; profit 8,884 - 4,182 + 6,142 = 10,844; diluted EPS 18.81 - 8.82 + 13.23 = 23.22. Debt at 30 June 2026 5,046 + 35 + 8,026 + 10,655 + 21,384 = 45,146; at 31 December 2025 5,514 + 35 + 7,085 + 10,678 + 20,018 = 43,330; Financial Products debt 5,514 + 7,085 + 20,018 = 32,617, 32,617 / 43,330 = 75%. Financial Products segment assets 41,476 / 64,392 = 64%. Downturns: 38,537 / 47,011 - 1 = -18% (2016); 41,748 / 53,800 - 1 = -22% (2020). Construction Industries Asia/Pacific external sales 3,783 / 4,390 - 1 = -14%; North America share 14,064 / 24,800 = 57%. Shares of 2025 sales and revenues of 67,589: Construction Industries 24,800 = 36.7%; Resource Industries 12,185 = 18.0%; Power & Energy 27,143 = 40.2%; Financial Products 4,220 = 6.2%; Construction and Resource together (24,800 + 12,185) / 67,589 = 54.7%. Segment external sum 27,143 + 24,800 + 12,185 + 4,220 = 68,348 against 67,589 (difference 759, All Other +46 and corporate items -805); 2024 25,344 + 12,100 + 24,088 + 4,053 = 65,585 against 64,809 (776); 2023 27,294 + 13,329 + 23,355 + 3,785 = 67,763 against 67,060 (703). Power & Energy share 27,143 / 68,348 = 39.7%. 2030 range: 64,809 x 1.06^6 = 91,933; 64,809 x 1.09^6 = 108,691. RPMGlobal 733 / 67,589 = 1.1%. Autonomous trucks 827 / 690 - 1 = 20%; 690 x 3 = 2,070. Tech-enabled machines 500 / 191 = 2.6 times. Latin America employees 22,300 - 19,700 = 2,600 (EAME 16,700 - 15,900 = 800; Asia/Pacific 26,900 - 25,300 = 1,600; North America 52,100 - 52,000 = 100). Profit 2025 8,884 / 10,792 - 1 = -17.7%. Cost of goods sold 44,752 / 40,199 - 1 = 11.3%. Financial Products segment assets 41,476 / 36,925 - 1 = 12.3%. Power generation growth 7,756 / 6,362 - 1 = 21.9%, 10,275 / 7,756 - 1 = 32.5%. Engine capex at 4% to 5% of 2025 machinery, power and energy sales of 63,980: 2,559 to 3,199. Earnings implied by forward and trailing P/E 34.70 / 28.01 - 1 = 24%. Analyst target 975.61 / 805.25 - 1 = 21%. Segment capex 2025: Construction Industries 358 + Resource Industries 626 = 984, against Financial Products 1,341. Power & Energy Q2 2026 external sales: North America 4,182 against other regions 373 + 1,348 + 892 = 2,613 - segment margins, growth and price realization. — 2015-2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in Caterpillar's Forms 10-K, 10-Q, results releases, the March 2026 recast exhibit, the February 2026 Barclays deck, the earnings calls and market data; operands shown in the source line.
  4. Moat Explorer calcSales and revenues fell 18% from 2015 to 2016 and 22% from 2019 to 2020, and operating profit fell to $1,162 million in 2016.
    Moat Explorer calculation, a scratch copy of tools_roic_edgar.py on SEC EDGAR XBRL for CIK 18230: return on invested capital 5.9% (2015), 1.7% (2016), 7.0% (2017), 15.4% (2018), 15.0% (2019), 7.8% (2020), 12.5% (2021), 13.9% (2022), 22.9% (2023), 22.3% (2024), 16.8% (2025). Operating profit (OperatingIncomeLoss): 3,785 (2015), 1,162 (2016), 4,460 (2017), 8,293 (2018), 8,290 (2019), 4,553 (2020), 6,878 (2021), 7,904 (2022), 12,966 (2023), 13,072 (2024), 11,151 (2025) $ millions. — 2015-2025 · publ. September 2026 · source ↗
    Method: NOPAT (operating income x (1 - effective tax rate, clamped 0-35%)) divided by average operating invested capital (total assets less current liabilities less cash), from SEC EDGAR XBRL via a scratch copy of tools_roic_edgar.py with CIK 18230 added. For 2015-2019, where Caterpillar's XBRL carries no year-end CashAndCashEquivalentsAtCarryingValue, cash and short-term investments is used; the repo method alone gives the same 2020-2025 values. Invested capital includes about $25bn of Cat Financial finance receivables.
  5. ReportedThe business has improved since: the same cycle today starts from higher margins and a $72.1 billion backlog.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  6. ReportedThe company's own history of returns on equity tells the same story more sharply: 15.8% in 2015, minus 0.5% in 2016, 5.6% in 2017, then 44.1% and 42.4% in the following two years.
    Caterpillar Form 10-K for fiscal 2019 - five-year summary 2015-2019, segments 2017-2019, the dealer count and the 2017 Gosselies restructuring. — FY2019 · publ. February 2020 · source ↗
Sources
Generated September 25, 2026