With respect to short-term solvency, Caterpillar is in no danger. While the firm's inventory and receivables turn have been reduced as a result of the downturn, the current ratio has actually improved. In 2007, Cat's current ratio was 1.14, while at the end of 2008 it was 1.22, both of these being healthy figures. As further evidence of Caterpillar's financial strength, its accounts payable turnover improved during the period. Accounts payable increased just 2.2% while sales increased 14.1%. Caterpillar maintained its payments to suppliers even when its customers were delaying payments and its inventories were building up.

With respect to long-term solvency, long-term debt increased 28.07% and total liabilities increased 30.5%, both rates much faster than the growth in sales. Neither the 2007 nor 2008 income statement highlighted the firm's interest expense. However, it is worth noting that the company is highly levered. Total liabilities to total assets increased from...
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