Income Statements for Caterpillar, Inc., from 1997 to 2001 appear below.

a. Enter the data into your worksheet. Assume that 50% of SG&A expense is a variable cost, with the balance being a fixed cost.

b. Given that Caterpillar is a manufacturing company, would you expect that it would have more operating leverage or financial leverage?

c. Calculate the degree of operating leverage, degree of financial leverage, and the degree of combined leverage for each of the five years. Does it appear that Caterpillarís leverage measures have been increasing or decreasing over this period?

d. Create a chart that shows how the various leverage measures have changed over this five-year period.

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A 1 2 3 B Caterpillar Inc. Annual Income Statements For the Fiscal Years 1997 to 2001 C D E F 4 Dec-01 Dec-00 Dec-99 Dec-98 Dec-97 5 Sales 20,450 20,175 19,702 20,977 18,925 6 Cost of Sales 13,583 13,475 13,536 14,166 12,636 7 Gross Operating Profit 6,867 6,700 6,166 6,811 6,289 8 Selling, General & Admin. Expense 3,730 3,253 3,167 3,204 2,760 9 Depreciation & Amortization 1,169 1,022 945 865 738 10 EBIT 11 Other Income, Net 12 Interest Expense 13 Pre-tax Income 1,968 2,425 2,054 2,742 2,791 146 55 176 189 250 942 980 829 753 580 1,172 1,500 1,401 2,178 2,461 14 Income Taxes 15 Total Net Income 16 17 Dividends Paid per Share 1.38 1.33 1.25 1.10 0.90 18 Preferred Dividends 0.00 0.00 0.00 0.00 0.00 367 447 455 665 796 805 1,053 946 1,513 1,665