Returns on Capital, Once the Bank Is Set AsideNarrow moat

Caterpillar (CAT) — moat facet

Caterpillar's factories earn about 53% pre-tax on their net assets, but a full cycle, with a bank attached, brings the whole company nearer 13%.

The fourth facet of Caterpillar's moat is how little capital its manufacturing business needs for what it earns. On its own OPACC measure, MP&E adjusted operating profit of $11,327 million in 2025 came from average net assets of $21,417 million1, a pre-tax return of about 53%2 against a capital charge of 13%3. MP&E free cash flow was $9.5 billion4.

Total enterprise OPACC ($M)2,06620203,89720216,077202210,911202310,64720248,5442025Caterpillar Barclays fireside deck, February 2026
Four times 2020, down from the 2023 peak.

The consolidated figures look much less impressive, and the reason is Cat Financial. Return on invested capital, computed from EDGAR the standard way, was 16.8% in 2025, 22.3% in 2024 and 22.9% in 20235. Financial Products held $41,476 million of segment assets at the end of 20256, and its receivables and leases fill the denominator.

The returns go back to owners. Caterpillar returned $5.2 billion through buybacks and $2.7 billion through dividends in 20257, has cut its diluted share count by 21% since 20188, and has raised its dividend for 32 consecutive years9.

The weakness is that high returns are partly a function of the cycle. Consolidated ROIC was below 10% in 2015, 2016, 2017 and 202010. Over a full cycle, the company earns its cost of capital comfortably but not every year.

The two ways of measuring differ by design. OPACC counts MP&E net assets of $22,024 million at the end of 202511; the consolidated balance sheet shows total assets of $98,585 million12. The difference is mostly the finance arm's receivables and leases, the cash held for the manufacturing business, and the pension and other liabilities the company deducts from its manufacturing assets.

The returns are also visible in cash. From 2019 to 2025 Caterpillar generated about $49 billion of MP&E free cash flow13, and it has retired about a fifth of its diluted share count since 201814. A business that needed more capital to grow could not have done both.

This facet is narrow and stable. The consolidated ROIC is the figure to hold it to: above a 10% hurdle through the next downturn would show the returns belong to the business; a fall below it, as in 2020, would show they belonged to the cycle.

Moat trajectory: Holding steady

ROIC 16.8% in 2025 from 22.9% in 2023; MP&E returns still far above the charge.

The number that tests this moat
Reported
Total enterprise OPACC
$8,544M (2025); $10,911M in 2023

Profit after Caterpillar's own capital charge; falling in a record-sales year would mean returns are thinning.

Source: Caterpillar Barclays fireside deck, Feb 2026 ↗
Aspects of the moat
DIG DEEPER 01
OPACC: The Capital Charge Caterpillar Sets Itself
Caterpillar's manufacturing business earned about 53% pre-tax on its net assets in 2025, four times the 13% charge it sets itself.
DIG DEEPER 02
$9.5 Billion of Free Cash Flow
Caterpillar's manufacturing arm generated about $49 billion of free cash flow from 2019 to 2025, and it gives nearly all of it back.
DIG DEEPER 03
A Fifth Fewer Shares Since 2018
Caterpillar has retired a fifth of its shares since 2018, paying $132 each in 2019 and $369 in 2025.
DIG DEEPER 04
Thirty-Two Years of Higher Dividends
Caterpillar has raised its dividend for 32 straight years, including the year it lost money.
⚠ Threats to the moat
⚠ THREAT 01
Nineteen Billion of Equity Under a $370 Billion Company
Caterpillar has bought back $49.5 billion of its own stock, leaving $19 billion of equity under a company worth $370 billion.
⚠ THREAT 02
Returns That Belong to the Cycle
Caterpillar earned less than a 10% return on its capital in four of the last eleven years.
References
  1. ReportedOn its own OPACC measure, MP&E adjusted operating profit of $11,327 million in 2025 came from average net assets of $21,417 million, a pre-tax return of about 53% against a capital charge of 13%.
    Caterpillar presentation for the Barclays fireside chat, 18 February 2026 - Investor Day targets, services, MP&E free cash flow, share count, buyback prices and the OPACC reconciliation. — 2019-2025 · publ. 18 February 2026 · source ↗
  2. Moat Explorer calcOn its own OPACC measure, MP&E adjusted operating profit of $11,327 million in 2025 came from average net assets of $21,417 million, a pre-tax return of about 53% against a capital charge of 13%.
    Moat Explorer calculation from Caterpillar's reported figures ($ 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 - valuation, balance sheet, capital returns and returns on capital. — 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.
  3. ReportedOn its own OPACC measure, MP&E adjusted operating profit of $11,327 million in 2025 came from average net assets of $21,417 million, a pre-tax return of about 53% against a capital charge of 13%.
    Caterpillar presentation for the Barclays fireside chat, 18 February 2026 - Investor Day targets, services, MP&E free cash flow, share count, buyback prices and the OPACC reconciliation. — 2019-2025 · publ. 18 February 2026 · source ↗
  4. ReportedMP&E free cash flow was $9.5 billion.
    Caterpillar fourth-quarter 2025 earnings call transcript (company PDF) - services revenues, tariff headwinds, power generation, autonomous trucks and the AIP order. — Q4 2025 · publ. 29 January 2026 · source ↗
  5. Moat Explorer calcReturn on invested capital, computed from EDGAR the standard way, was 16.8% in 2025, 22.3% in 2024 and 22.9% in 2023.
    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.
  6. ReportedFinancial Products held $41,476 million of segment assets at the end of 2025, and its receivables and leases fill the denominator.
    Caterpillar Form 8-K of 26 March 2026, exhibit 99.1 - segment data for 2024-2025 recast for the move of Rail into Resource Industries (unaudited), including external sales by region and segment assets. — FY2024-FY2025 · publ. 26 March 2026 · source ↗
  7. ReportedCaterpillar returned $5.2 billion through buybacks and $2.7 billion through dividends in 2025, has cut its diluted share count by 21% since 2018, and has raised its dividend for 32 consecutive years.
    Caterpillar fourth-quarter and full-year 2025 results release, Form 8-K exhibit 99.1 - capital returned and Rail inventory write-downs. — FY2025 · publ. 29 January 2026 · source ↗
  8. ReportedCaterpillar returned $5.2 billion through buybacks and $2.7 billion through dividends in 2025, has cut its diluted share count by 21% since 2018, and has raised its dividend for 32 consecutive years.
    Caterpillar presentation for the Barclays fireside chat, 18 February 2026 - Investor Day targets, services, MP&E free cash flow, share count, buyback prices and the OPACC reconciliation. — 2019-2025 · publ. 18 February 2026 · source ↗
  9. ReportedCaterpillar returned $5.2 billion through buybacks and $2.7 billion through dividends in 2025, has cut its diluted share count by 21% since 2018, and has raised its dividend for 32 consecutive years.
    Caterpillar Form 8-K exhibit 99.1, 10 June 2026 - quarterly dividend raised 8% to $1.63; higher annual dividends for 32 consecutive years. — June 2026 · publ. 10 June 2026 · source ↗
  10. Moat Explorer calcConsolidated ROIC was below 10% in 2015, 2016, 2017 and 2020.
    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.
  11. ReportedOPACC counts MP&E net assets of $22,024 million at the end of 2025; the consolidated balance sheet shows total assets of $98,585 million.
    Caterpillar presentation for the Barclays fireside chat, 18 February 2026 - Investor Day targets, services, MP&E free cash flow, share count, buyback prices and the OPACC reconciliation. — 2019-2025 · publ. 18 February 2026 · source ↗
  12. ReportedOPACC counts MP&E net assets of $22,024 million at the end of 2025; the consolidated balance sheet shows total assets of $98,585 million.
    Caterpillar presentation for the Barclays fireside chat, 18 February 2026 - Investor Day targets, services, MP&E free cash flow, share count, buyback prices and the OPACC reconciliation. — 2019-2025 · publ. 18 February 2026 · source ↗
  13. ReportedFrom 2019 to 2025 Caterpillar generated about $49 billion of MP&E free cash flow, and it has retired about a fifth of its diluted share count since 2018.
    Caterpillar presentation for the Barclays fireside chat, 18 February 2026 - Investor Day targets, services, MP&E free cash flow, share count, buyback prices and the OPACC reconciliation. — 2019-2025 · publ. 18 February 2026 · source ↗
  14. ReportedFrom 2019 to 2025 Caterpillar generated about $49 billion of MP&E free cash flow, and it has retired about a fifth of its diluted share count since 2018.
    Caterpillar presentation for the Barclays fireside chat, 18 February 2026 - Investor Day targets, services, MP&E free cash flow, share count, buyback prices and the OPACC reconciliation. — 2019-2025 · publ. 18 February 2026 · source ↗
Sources
Generated September 25, 2026