Moody's downgraded the long-term ratings of Caterpillar Inc. and Caterpillar Financial Services Corp. to A3 from A2 and their short-term ratings to Prime-2 from Prime-1 with a stable outlook.

The downgrade is based on parent Caterpillar's higher risk profile and relatively low returns on EBITA margins and returns on assets. Caterpillar Financial Services continues to a strategically important and managed whole sale and retail finance arm of Caterpillar, the rating agency said, adding that the combined liquidity profile of Caterpillar and Caterpillar Financial, supported by $6.1 billion of cash and marketable securities and more than $10.5 billion of committed credit facilities, provides sound coverage of the company's $13.5 billion of consolidated debt obligations that are due during the next 12 months.

The stable outlook takes into account Caterpillar's sufficient financial and operational flexibility which is supported by core competitive strengths and benefits from recent restructuring initiatives, Moody's said.