PACCAR Inc. manufactures heavy‑duty trucks, parts and related financial services and presents a profile of strong liquidity and cash generation alongside notable volatility in earnings and returns.
The company’s balance sheet and cash generation are clear strengths: the current ratio is 2.1668 and interest coverage is 6.1737, indicating liquidity and comfortable debt service, while trailing operating cash flow exceeded net income historically (operating cash flow TTM $1.59B vs net income TTM $1.04B on 2011-12-31) and the cash conversion ratio is 1.5280, showing consistent conversion of earnings to cash (Earnings Quality Analysis, Strategic Capital Allocation).
Operating efficiency has also been solid at the margin level, with an operating margin around 17.9% (0.1787 reported) and gross margin that rose to roughly 20% in 2010–2011 before moderating (Profit Margin Trends).
Areas of concern center on returns and recent earnings volatility. Return on equity declined markedly from a peak of 23.1% on 2015-12-31 to 9.8% on 2017-09-30, with a trough at 7.7% in 2016-12-31, signaling weaker shareholder returns versus prior years (Return on Equity (ROE)). Trailing net income also fell from $1.60B at 2015-12-31 to $521.7M at 2016-12-31 before a partial recovery to $780.2M by 2017-09-30, reflecting pronounced earnings swings and margin pressure (Revenue & Net Income, Profit Margin Trends).
The foundation of business quality and long-term value creation
Over the most recent three quarters reported, PACCAR INC's net income showed a steady sequential increase from $310.3M (2017-03-31) to $373.0M (2017-06-30) and then to $402.7M (2017-09-30). Revenue in the same span moved from $3.94B (2017-03-31) down sharply to $306.3M (2017-06-30) before a modest rebound to $328.2M (2017-09-30), indicating a pronounced quarter-to-quarter change in top-line figures while the bottom line trended higher.
A clear inflection occurs at 2016-12-31 when PACCAR INC reported a net loss of -$305.8M, after which net income returned to positive and subsequently increased across 2017 quarters. The dataset also contains larger historical revenue points (for example $12.34B on 2015-12-31 and $3.95B on 2016-09-30) showing variability in reported revenue over the full period. The most recent revenue was $328.2M and the most recent net income was $402.7M.
Why Growth Matters
Consistent revenue and earnings growth are the lifeblood of successful long-term investments. Companies that can grow their top line (revenue) and bottom line (net income) over many years demonstrate they have products or services customers value and are willing to pay for repeatedly.
Revenue Growth shows whether the company is expanding its market reach, gaining market share, or successfully launching new products.Net Income Growth demonstrates the company can convert that revenue into actual profits while managing costs effectively.
Look for steady, sustainable growth rather than erratic spikes. The best businesses compound earnings year after year, creating tremendous value for shareholders over time. Companies that can grow earnings faster than revenue are improving their profitability—a sign of operational excellence and competitive strength.
Year-over-year growth rates for revenue and earnings per share
Reading the Growth Rate Chart
This chart converts the absolute per-share figures into year-over-year percentage changes, making it easy to see whether growth is accelerating, decelerating, or reverting to trend — regardless of the company's absolute size.
Revenue per Share Growth (1-year, split-adjusted) measures how quickly the top line is expanding on a per-share basis. Sustained positive growth signals that the company continues to win customers and grow its addressable market.EPS Diluted Growth (1-year, split-adjusted) measures how quickly earnings are compounding for each shareholder. When EPS growth consistently outpaces revenue growth, operating leverage and margin expansion are at work.
Look for consistency, not just magnitude. A company that reliably grows EPS 10–15% per year is far more valuable than one that alternates between 50% spikes and deep contractions. Negative EPS growth during a period of positive revenue growth is a red flag — costs are rising faster than sales. Quarters where both lines converge near zero or go negative deserve close scrutiny.
How revenue converts to net income for the most recent annual period
Over the period Jan 2015 to Dec 2015, Paccar Inc converts approximately 15¢ of every revenue dollar into gross profit (gross margin: 14.8%).After accounting for operating expenses and taxes and expenses, the company retains 8.9% as net profit margin, resulting in $1.60B in net earnings.
Period Information
Report Type: Annual (10-K)
Period: Jan 2015 to Dec 2015
Analyzing long-term margin stability and competitive positioning
PACCAR INC's gross margin shows a clear inflection: it rose sharply from 8.4% at year-end 2009 to roughly 20% through 2010–2011, held around 18.4% in 2011–2012, and then declined to 14.8% by the most recent 2015 year-end. That 2009–2010 improvement and the subsequent downward move into 2013–2015 are the most notable turning points, with the latest data point indicating a lower gross margin compared with the early‑2010s peak.
Net profit margin has trended upward over the same overall period, climbing from 4.4% at year-end 2010 to 8.9% at year-end 2015. Reported operating margins are stable in the mid‑ to high‑teens in the available data (16.5%–17.9% from 2010–2012), with the latest observed operating margin shown at 17.9% (2012). The most recent observed values are:
Understanding Profit Margins
Between Jan 2015 and Dec 2015, Paccar Inc converts every dollar of revenue through the following stages:
Sustainable competitive advantages reveal themselves through consistently superior profit margins over extended periods. Companies with durable economic moats maintain pricing power and operational efficiency that competitors struggle to match.
A sign of durable competitive advantage is earning sustained higher margins than competitors.Look for margins that remain stable or improve over time, especially during economic downturns. Declining margins may signal increasing competition, pricing pressure, or deteriorating business fundamentals.
Comparing reported earnings to actual cash generation
PACCAR INC's trailing twelve-month net income has declined from the mid-2010s peaks around $1.3–$1.65B to lower levels in 2016–2017. There is a clear inflection between 2015-12-31 (Net Income TTM $1.60B) and 2016-12-31 (Net Income TTM $521.7M), followed by a partial recovery through 2017 (2017-03-31 $832.0M, 2017-06-30 $723.7M, 2017-09-30 $780.2M). Recent quarters weigh toward a stabilized, lower earnings level relative to the 2014–2015 highs.
The Earnings vs. Cash Flow Gap
Reported earnings (Net Income) doesn't always reflect actual cash generation. Companies use accrual accounting, which recognizes revenue when earned and expenses when incurred—not when cash actually changes hands. This creates timing differences and opportunities for accounting discretion that can mask underlying business health.
Net Income (the "earnings" number) can be influenced by non-cash items like depreciation, stock-based compensation, and changes in accounting estimates.Operating Cash Flow, however, shows the actual cash the business generates from its core operations—a harder number to manipulate.
Trailing Twelve Months
What to Look For
Key Insight: Companies with durable competitive advantages typically show operating cash flow that meets or exceeds net income over time, demonstrating they convert accounting profits into actual cash that can be returned to shareholders or reinvested in the business.
Measuring management's efficiency at generating profits from shareholder capital
PACCAR INC's return on equity shows a clear downshift from the strong levels seen in 2014–2015. ROE was above 20% across late 2014 and 2015 (20.1% on 2014-12-31, peaking at 23.1% on 2015-12-31) before falling to 7.7% by 2016-12-31, marking a notable inflection from the prior high plateau. Prior to that, there were earlier troughs around 2013-03-31 (10.3%) and 2012-06-30 (8.7%).
In 2017 the metric has shown a modest rebound from the 2016 trough: 11.8% on 2017-03-31, then 9.6% on 2017-06-30 and 9.8% on 2017-09-30, remaining below the 15–20% range often cited as a strong ROE. The most recent quarterly return on equity was 9.8%.
The Gold Standard of Profitability
Return on Equity (ROE) is a powerful measure of how effectively a company's management is using the money shareholders have invested. Calculated by dividing Net Income by Shareholders' Equity, it reveals how much profit is generated for every dollar of equity capital.
A consistently high ROE (typically above 15-20%) is often the signature of a "quality" business with a durable competitive advantage. It indicates that the company can generate high returns on its own capital, which it can then reinvest at these high rates to compound value over time.
What to Look For:
How the company generates and deploys its cash
PACCAR INC's financing cash flow (TTM) shows a clear shift over the sample: a large outflow at the 2010-12-31 TTM of -$960.4M reversed to a large inflow by 2011-12-31 of $946.1M, then moderated over the next two years to $209.5M at 2012-12-31 and most recently to $273.8M at 2013-12-31. The most recent available data in the series is weighted toward this moderation in financing activity through 2013.
Operating cash flow (TTM) is consistently reported at $1.59B for the 2011-12-31 TTM entries in the dataset, while investing cash flow (TTM) is consistently reported at -$467.1M for the 2010-12-31 TTM entries. The latest observed values in the provided data are:
Understanding Company Strategy
Capital allocation refers to how management decides to spend and invest the company's cash. Analyzing the three primary categories of cash flow reveals a company's true operational strategy:
What to look for: Is the company bootstrapping (funding growth solely from operating cash)? Are they borrowing to fund aggressive expansion or dividends? Or are they capital raising by issuing new shares, potentially diluting your ownership? A healthy, mature company typically generates strong operating cash, moderately invests in growth, and returns the surplus to shareholders through financing activities.
Trailing Twelve Months
Net assets attributable to each share — the accounting floor of intrinsic value
Why Book Value per Share Matters
Book value per share is the net worth of the company — total assets minus total liabilities — divided by shares outstanding (split-adjusted). It represents the theoretical liquidation value per share if every asset were sold and every liability repaid at balance-sheet carrying values. It is the accounting foundation upon which much of equity valuation is built.
A steadily rising book value per share is one of the most reliable signals of compounding wealth creation. It means the company is retaining earnings and building net worth faster than it is returning capital or eroding it. Warren Buffett famously tracked Berkshire Hathaway's book value per share for decades as his primary measure of intrinsic value growth.
Context is essential. Asset-heavy businesses (banks, manufacturers, utilities) should be judged by book value more directly than asset-light businesses (software, consumer brands), where intangible assets like intellectual property and customer loyalty may far exceed their balance-sheet carrying values. A company trading at a large premium to book value is not necessarily overvalued — it may simply possess competitive advantages that accounting rules do not capture. Conversely, a declining book value per share — especially over multiple years — is a serious warning sign of capital destruction.
How much of the company is financed by debt versus shareholders' equity
Reading the Debt-to-Equity Ratio
The debt-to-equity (D/E) ratio compares total financial debt to shareholders' equity. A ratio of 1.0 means the company has borrowed one dollar for every dollar of equity; a ratio of 2.0 means it has borrowed twice as much as it owns. Financial leverage amplifies both returns and risk: in good times, debt turbocharges equity returns; in bad times, it accelerates losses and can threaten solvency.
Trends matter more than a single number. A rising D/E ratio can mean the company is taking on debt to fund growth — potentially value-creating if returns exceed the cost of capital. But it can also mean equity is being eroded through losses or that the business is borrowing simply to sustain operations. A falling D/E ratio generally reflects strengthening financial health: earnings are being retained, debt maturities are being paid down, or both.
Industry norms vary enormously. Capital-intensive sectors (utilities, real estate, financials) routinely carry high D/E ratios that would be alarming in, say, a technology company. Always compare against sector peers. As a rough rule of thumb, a D/E above 2× in a cyclical business warrants careful scrutiny of interest coverage and refinancing risk.
Short-term liquidity — can the company cover its near-term obligations?
Liquidity: Can the Business Pay Its Bills?
The current ratio is calculated as current assets divided by current liabilities. A ratio of 1.5 means the company has $1.50 of short-term assets — cash, receivables, inventory — for every $1.00 of obligations due within the next twelve months. It is the most direct measure of near-term financial resilience: can the business meet its obligations without needing to raise new capital or sell long-term assets at a discount?
A ratio above 1.0 is generally healthy, meaning current assets exceed current liabilities. A ratio consistently above 2.0 may indicate the company is holding excess cash or inventory that could be deployed more productively. A ratio below 1.0 is a warning sign — the company is relying on future cash generation or external financing to cover its near-term obligations, which is manageable in normal conditions but dangerous during a downturn.
Trends and context matter.A declining current ratio isn't always alarming — highly efficient businesses (e.g., large retailers with reliable daily cash flows) often run leaner balance sheets intentionally. Conversely, a rapidly rising current ratio can signal slowing sales causing inventory to build, or customers taking longer to pay. Always compare the trend against industry peers and cross-reference with the cash flow statement to assess whether the business is genuinely liquid or just holding non-cash current assets.
How much the market is paying for each dollar of company earnings
What Is the PE Ratio?
The Price-to-Earnings (PE) ratio is one of the most widely used valuation metrics in investing. It divides the current stock price by the company's earnings per share (EPS), revealing how much investors are willing to pay for each dollar of earnings. A high PE can signal that the market expects strong future growth, while a low PE may suggest undervaluation—or reflect genuine concerns about the company's prospects.
Context matters:PE ratios vary significantly across industries. High-growth technology companies routinely trade at PE ratios above 30x or 40x, while mature, low-growth sectors like utilities or financials often trade closer to 10–15x. Always compare a company's PE to its own history and its industry peers, not just an absolute number.
What to Look For:
Key Insight:The PE ratio is a snapshot of market sentiment and expectations. Tracking it over time alongside earnings trends reveals whether the market's valuation has expanded or contracted—and whether that change is justified by fundamentals.