Cummins Inc. (NYSE:CMI)

The data reflects changes in the valuation of goodwill and other intangible assets over a five-year period. Overall, there is a notable increase in the reported values from 2019 through 2023, indicating significant asset growth or acquisitions during this time frame.

Goodwill

Reported goodwill values remain relatively stable from 2019 to 2021, with a slight fluctuation around 1,286 to 1,293 million US dollars. However, there is a marked increase starting in 2022, with goodwill rising to 2,343 million and further to 2,499 million in 2023. This suggests acquisitions or revaluations leading to a substantial increase in intangible asset value classified as goodwill in the most recent years.

Software

Software assets show a declining trend from 708 million in 2019 to 586 million in 2021, followed by a partial recovery to 679 million in 2022, and a slight decrease again to 622 million in 2023. This indicates some fluctuations possibly due to amortization, impairment, or new capitalizations, but overall a downward trajectory over the period.

Trademarks, patents, customer relationships, and other

This category remains stable from 2019 through 2021, around 956 to 959 million, but then nearly triples to 2,858 million in 2022 and marginally increases to 2,886 million in 2023. This sharp rise aligns with the goodwill trend, suggesting significant intangible asset additions related to intellectual property or customer-related intangible assets in recent years.

Other intangible assets, gross

The gross value of other intangible assets declines gradually from 1,664 million in 2019 down to 1,543 million in 2021, followed by a substantial increase to 3,537 million in 2022 and stabilizing at 3,508 million in 2023. This reflects major new intangible asset recognition during the later years, potentially linked to business expansions or acquisitions.

Accumulated amortization

Accumulated amortization values show a steady upward trend in absolute terms, moving from -661 million in 2019 to -989 million in 2023. This trend indicates the ongoing amortization of intangible assets, increasing the total amortization expense recorded over the periods evaluated.

Other intangible assets, net

Net intangible assets decrease slightly from 1,003 million in 2019 to 900 million in 2021, then sharply increase to 2,687 million in 2022 before slightly declining to 2,519 million in 2023. This pattern mirrors that of gross intangible assets, reflecting the net effect of the recent additions minus accumulated amortization.

Goodwill and other intangible assets (total)

The combined total of goodwill and other intangible assets remains fairly stable between 2,187 million and 2,289 million during 2019-2021. It then more than doubles in 2022 to 5,030 million and slightly decreases to 5,018 million in 2023. This significant increase highlights a major change in the company’s intangible asset base in the most recent years, consistent with large acquisitions or asset revaluations.

Total Assets

Reported total assets exhibited a consistent upward trend from 19,737 million USD in 2019 to 32,005 million USD in 2023, reflecting overall growth in the company's asset base over the five-year period.

The adjusted total assets, which exclude goodwill, followed a similar increasing pattern, rising from 18,451 million USD in 2019 to 29,506 million USD in 2023. This indicates that even after goodwill adjustment, the asset base expanded substantially.

Shareholders’ Equity

Reported total shareholders’ equity increased gradually from 7,507 million USD in 2019 to a peak of 8,975 million USD in 2022, followed by a slight decline to 8,850 million USD in 2023. This demonstrates growth in equity capital with a minor contraction in the most recent year.

Adjusted shareholders’ equity, excluding goodwill, followed an increasing trend from 6,221 million USD in 2019 to a high of 7,187 million USD in 2021. However, it declined noticeably thereafter, reaching 6,351 million USD by 2023. This pattern suggests that the underlying equity capital without goodwill peaked earlier and has weakened somewhat in the last two years.

Comparative Analysis

The disparity between reported and adjusted figures consistently highlights the impact of goodwill on the balance sheet. While both total assets and shareholders’ equity have increased over time, the adjusted figures grow at a slightly lower pace, reflecting the exclusion of acquired intangible assets.

The divergence in the recent years between adjusted and reported shareholders’ equity trends warrants attention, as it may signal impairment or amortization of goodwill affecting adjusted equity more significantly than reported equity.

Overall, the data indicates positive growth in total assets and equity base, though the adjusted equity suggests increased volatility and potential underlying challenges related to intangible asset valuations.

Total Asset Turnover

The reported total asset turnover experienced a notable decline from 1.19 in 2019 to a low of 0.88 in 2020, followed by a gradual recovery reaching 1.06 by 2023. The adjusted total asset turnover shows a similar pattern but with consistently higher values, starting at 1.28 in 2019, dipping to 0.93 in 2020, and ultimately increasing to 1.15 in 2023. This suggests improved efficiency in asset utilization after adjusting for goodwill, with an overall trend of recovery and growth post-2020.

Financial Leverage

Reported financial leverage steadily increased over the five-year period, rising from 2.63 in 2019 to 3.62 in 2023. The adjusted financial leverage follows the same upward trend but at higher levels, moving from 2.97 to 4.65. This indicates an increasing reliance on debt or other forms of financial leverage, which is more pronounced when adjustments for goodwill are considered.

Return on Equity (ROE)

Reported ROE started strong at 30.11% in 2019, declined sharply in 2020 to 22.19%, showed some recovery in 2021 and 2022 reaching around 24-25%, but dropped markedly to 8.31% in 2023. The adjusted ROE also declined from a peak of 36.33% in 2019 to 11.57% in 2023, although the adjusted figures remain consistently higher than reported. The significant decline in the most recent year suggests pressure on profitability from equity holders, with adjustments for goodwill dampening but not eliminating the downturn.

Return on Assets (ROA)

Reported ROA mirrored the ROE trend, decreasing from 11.45% in 2019 to just 2.3% in 2023, with a notable drop in 2020 and some volatility thereafter. The adjusted ROA figures, while higher, also declined from 12.25% to 2.49% over the period. This trend reflects a weakening ability to generate profits from total assets, with the adjusted ROA indicating somewhat better asset profitability margin, yet still contracting in recent years.

Total Assets

Reported total assets have shown a consistent upward trend over the five-year period, increasing from 19,737 million US dollars in 2019 to 32,005 million US dollars in 2023. The adjusted total assets follow a similar trajectory, growing from 18,451 million US dollars in 2019 to 29,506 million US dollars in 2023. This steady increase indicates ongoing asset accumulation or acquisition over time.

Total Asset Turnover

The reported total asset turnover ratio displays variability across the years. It started at 1.19 in 2019, declined sharply to 0.88 in 2020, then gradually improved to reach 1.06 by 2023. The adjusted total asset turnover ratio mirrors this pattern but at generally higher levels. It decreased from 1.28 in 2019 to 0.93 in 2020, recovered to 1.07 in 2021, slightly declined to 1.00 in 2022, and then increased notably to 1.15 in 2023.

Insights on Asset Utilization and Adjustments

The divergence between reported and adjusted figures suggests that goodwill adjustments impact the values of total assets, with adjusted assets consistently lower than reported assets. The adjusted asset turnover ratios are consistently higher than reported ratios, reflecting more efficient use of assets when goodwill is excluded. The initial decline in turnover ratios in 2020 likely reflects external or internal factors affecting efficiency, followed by a recovery period. The improvement in turnover ratios in 2023, particularly the adjusted ratio reaching 1.15, may indicate enhanced operational efficiency or better asset management.

Total Assets

Both reported and adjusted total assets show a consistent upward trend from 2019 through 2023. Reported total assets increased from $19,737 million in 2019 to $32,005 million in 2023, representing a significant growth over the five-year period. Adjusted total assets follow a similar pattern, rising from $18,451 million to $29,506 million over the same timeframe. The gap between reported and adjusted figures remains relatively stable, indicating a consistent impact of goodwill adjustments on asset valuation.

Shareholders’ Equity

Reported shareholders’ equity demonstrates a gradual increase from $7,507 million in 2019 to $8,850 million in 2023, with a peak at $8,975 million in 2022 before experiencing a slight decline in 2023. In contrast, adjusted shareholders’ equity shows growth from $6,221 million in 2019 to a peak of $7,187 million in 2021, followed by a decline to $6,351 million by 2023. This divergence suggests that the goodwill adjustments have an increasing impact on equity valuation, particularly after 2021.

Financial Leverage

Both reported and adjusted financial leverage ratios reveal an upward trajectory throughout the period. Reported financial leverage rises steadily from 2.63 in 2019 to 3.62 in 2023, indicating an increasing proportion of total assets financed by liabilities relative to equity. Adjusted financial leverage shows a similar but more pronounced increase, moving from 2.97 to 4.65 over the same period. This suggests that when goodwill is excluded, the company’s leverage is comparatively higher, particularly in the later years, reflecting potential underlying increases in financial risk or debt financing.

Key Insights

The overall asset base of the company has grown materially over the analyzed period, accompanied by steady but more moderate growth in reported shareholders’ equity. The decline in adjusted equity post-2021 combined with rising adjusted leverage ratios could indicate an increasing reliance on debt or liabilities financing once goodwill is excluded. The widening difference between reported and adjusted financial leverage ratios emphasizes the importance of considering goodwill impacts in the evaluation of the company’s capital structure and financial risk.

Shareholders' Equity Trends

The reported total shareholders' equity exhibited a consistent upward trend from 2019 through 2022, rising from $7,507 million to $8,975 million. However, in 2023, a slight decline was observed, with equity falling to $8,850 million. Conversely, the adjusted total shareholders' equity demonstrated growth from 2019 until 2021, increasing from $6,221 million to $7,187 million, but then decreased notably in 2022 and continued to decline in 2023, reaching $6,351 million. This divergence suggests that adjustments, likely goodwill-related, have a significant impact on the equity trend in the most recent years.

Return on Equity (ROE) Patterns

Reported ROE showed a general decline over the period. Starting at a high of 30.11% in 2019, it dropped to 22.19% in 2020, recovered moderately in the next two years to around 24%-25%, and then declined sharply to 8.31% in 2023. Adjusted ROE followed a similar trajectory but at higher levels, beginning at 36.33% in 2019, decreasing to 26.43% in 2020, improving through 2021 and 2022 to reach 32.43%, before experiencing a considerable drop to 11.57% in 2023. The higher adjusted ROE values indicate that excluding goodwill effects portrays a more favorable return profile, though both reported and adjusted measures display a pronounced dip in the last year.

Overall Financial Insights

The data reveals strong growth in reported equity through 2022 with a modest decline in 2023, contrasting with a less robust and more volatile adjusted equity trend. Both reported and adjusted ROE figures suggest declining profitability or earnings efficiency in 2023, with earlier years demonstrating recovery after the 2020 dip. The consistent outperformance of adjusted ROE over reported ROE underscores the material impact of goodwill adjustments on the company's financial returns. The sharp decreases in 2023 may warrant further investigation into underlying operational or market factors affecting net income and asset valuation.

Total Assets

The reported total assets demonstrate a consistent upward trend over the five-year period, increasing from $19,737 million at the end of 2019 to $32,005 million by the end of 2023. The adjusted total assets, which account for goodwill adjustments, also follow a similar pattern, rising from $18,451 million in 2019 to $29,506 million in 2023. The difference between reported and adjusted figures suggests a notable but stable goodwill component throughout the years.

Return on Assets (ROA)

Both reported and adjusted ROA show a declining trend over the analyzed period. The reported ROA decreases from 11.45% in 2019 to 2.3% in 2023, while the adjusted ROA similarly falls from 12.25% to 2.49% during the same span. Despite the slight differences between the reported and adjusted figures, both indicate a marked reduction in asset profitability over time.

Insights

The data reveals that although the company’s asset base has expanded significantly, its ability to generate returns from these assets has diminished consistently. This decline in ROA may warrant further investigation into operational efficiency, asset utilization, or external market pressures affecting profitability. The relatively close alignment between reported and adjusted figures for both total assets and ROA implies that goodwill adjustments do not drastically alter the overall financial performance trends.