Cummins Inc. (NYSE:CMI)

Current income tax expense

The current income tax expense exhibits an overall upward trend over the five-year period. Starting at US$570 million in 2019, it decreased slightly to US$520 million in 2020. Subsequently, there was a recovery to US$580 million in 2021, followed by a significant increase to US$910 million in 2022. The most notable rise occurred in 2023, reaching US$1,243 million, marking the highest value observed in the series.

Deferred income tax expense (benefit)

The deferred income tax expense shows greater volatility and fluctuates between positive and negative values. In 2019, it was a small benefit of US$ -4 million. This shifted to an expense of US$7 million in both 2020 and 2021. A sharp reversal occurred in 2022 with a substantial benefit of US$ -274 million, which further deepened to US$ -457 million in 2023. This indicates significant deferred tax benefits recognized in the last two years.

Income tax expense (total)

The total income tax expense, combining current and deferred components, generally increased from US$566 million in 2019 to US$786 million in 2023. After a slight dip in 2020 to US$527 million, the figure rose steadily to US$587 million in 2021 and US$636 million in 2022. The increase continued in 2023, though at a moderate rate relative to the rise in current tax expense. The trend suggests rising tax obligations overall, tempered by increasingly large deferred tax benefits in the later years.

Summary of trends

The current income tax expense has significantly increased, almost doubling from 2019 to 2023, reflecting higher taxable income or tax rates. Conversely, the deferred income tax expense shifted from minor fluctuations to substantial tax benefits in the final two years, suggesting changes in temporary differences, tax planning strategies, or adjustments to previous deferred tax assets or liabilities. The net income tax expense shows an overall rising trend despite the increasing deferred tax benefits, indicating stronger underlying tax liabilities.

Statutory U.S. federal income tax rate

The statutory federal tax rate remained constant at 21% throughout the analyzed period from 2019 to 2023, reflecting no changes in the federal tax legislation affecting the company during these years.

State income tax, net of federal effect

The state income tax component showed slight fluctuations, starting at 1.1% in 2019, decreasing to 1.0% in 2020, and then rising slightly to 1.3% in 2022 before turning negative to -0.4% in 2023. The negative value in 2023 suggests a net tax benefit or refund effect from state taxes during that year.

Differences in rates and taxability of foreign subsidiaries and joint ventures

This item displayed notable volatility. It increased from 1.5% in 2019 to 3.6% in 2020, sharply dropped to 0.1% in 2021, then rose again to 3.1% in 2022, followed by a substantial increase to 11.9% in 2023. The significant rise in 2023 indicates a major impact from foreign operations on the overall tax rate, possibly due to changes in foreign tax laws or earnings mix.

Research tax credits

Research tax credits consistently reduced the effective tax rate across all years. The effect diminished from -1.5% in 2019 to -0.6% in 2021 but then intensified to -4.7% in 2023, indicating increased utilization or availability of credits in the most recent year.

Foreign derived intangible income

The benefit from foreign derived intangible income decreased in magnitude over the years, from -1.3% in 2019 to -4.2% in 2023, with a notable step increase in benefit in 2023. This suggests enhanced tax advantages linked to intangible income derived from foreign markets.

Agreement in Principle, federal and state impact

New entries appeared in 2023 with federal and state impacts recorded at 22.4% and 2.1%, respectively. These sizeable increases hint at a one-time tax adjustment or settlement event significantly affecting that year's tax rate.

Impact of India tax law changes

The tax impact from changes in Indian tax laws appeared only in 2020, contributing a -0.7% adjustment, suggesting a localized and temporary tax benefit in that jurisdiction.

Other, net

The "Other, net" category showed a variable but minor impact on the effective tax rate, oscillating around zero with a slight positive trend in recent years, indicating minor adjustments or miscellaneous tax effects.

Effective tax rate

The effective tax rate fluctuated moderately from 20% in 2019 to 22.6% in 2022. However, it increased dramatically to 48.3% in 2023. The sharp rise in the final year appears primarily driven by the "Agreement in Principle" entries and the pronounced increase in foreign subsidiary tax rates, significantly offsetting tax credits and other benefits.

The data reveals several notable trends across multiple financial items over the five-year period ending in 2023.

U.S. and state carryforward benefits

This item shows moderate growth from 2019 to 2023, starting at $207 million and increasing steadily to $272 million in 2022 and remaining flat in 2023. The stability in the last year suggests a plateau in this category.

Foreign carryforward benefits

A marked upward trajectory is evident here, with values rising from $157 million in 2019 to $609 million in 2023. The most significant jump occurred between 2021 and 2022, pointing to a substantial increase in foreign tax attributes during this period.

Employee benefit plans

Reported as a positive figure, this amount shows a slight decline from 2019 ($279 million) through 2021 ($254 million) before rebounding to $347 million in 2023. This suggests some volatility but an overall improvement by the end of the period.

Warranty expenses

This expense category exhibits a consistent slow upward trend, from $427 million in 2019 to $483 million in 2023, indicating gradually increasing warranty costs or provisions.

Lease liabilities

Lease liabilities show a minor decrease during the early years, dipping from $122 million in 2019 to $107 million in 2020, then gradually climbing back to $125 million in 2023, reflecting relatively stable lease obligations with some fluctuation.

Capitalized research and development expenditures

This item appears only in 2022 and 2023, with a significant increase from $238 million to $591 million, suggesting a ramp-up in investment towards capitalized R&D activities over the last two years.

Accrued expenses

Accrued expenses show a strong upward progression from $76 million in 2019 to $253 million in 2023. The sharp increase between 2021 and 2022 indicates heightened liabilities or accrued costs during this time frame.

Other (positive amounts)

This category rises notably to a peak of $126 million in 2022 before decreasing to $78 million in 2023, indicating a spike in miscellaneous assets or receivables in 2022 followed by a partial reversal.

Gross deferred tax assets

A robust increase from $1,312 million in 2019 to $2,758 million in 2023 is observed, with the largest gains occurring after 2021. This signals a growing recognition of deferred tax assets.

Valuation allowance

The valuation allowance, recorded as a negative figure, deepens substantially from -$317 million in 2019 to -$789 million in 2023, indicating an increased provision against deferred tax assets, likely reflecting heightened uncertainty regarding realizability.

Deferred tax assets

Deferred tax assets net of valuation allowance increase steadily from $995 million in 2019 to $1,969 million in 2023, mirroring the growth in gross deferred tax assets, though the rising allowance tempers this growth.

Property, plant and equipment

Reported in negative amounts, this category declines from -$260 million in 2019 to a low of -$369 million in 2022 before a slight improvement to -$367 million in 2023, suggesting ongoing depreciation or impairment with some stabilization.

Unremitted income of foreign subsidiaries and joint ventures

This liability decreases in magnitude from -$181 million in 2019 to -$210 million in 2022, then recovers somewhat to -$179 million in 2023, indicating fluctuations in foreign earnings retained abroad.

Employee benefit plans (liabilities)

These liabilities show a notable increase in absolute terms between 2019 and 2021, reaching -$355 million, then declining to -$278 million by 2023. This suggests some volatility in employee benefit obligations over time.

Lease assets

Lease assets report a steady decrease from -$120 million in 2019 to -$123 million in 2023, after an initial reduction in 2020 and 2021, indicating relatively stable but slightly weakening lease-related asset values.

Intangible assets

This category appears only in 2022 and 2023 with negative values, decreasing slightly in absolute value from -$435 million to -$406 million, which may reflect amortization or impairment activities on intangibles.

Other (liabilities)

The "Other" liabilities show a reduction in negative balance from -$77 million in 2019 to -$50 million in 2022, followed by an increase to -$64 million in 2023, indicating some variability in miscellaneous liabilities.

Deferred tax liabilities

Deferred tax liabilities expand from -$860 million in 2019 to a peak of -$1,483 million in 2022 before retracting slightly to -$1,417 million in 2023, pointing to increased future tax obligations that somewhat declined in the most recent year.

Net deferred tax assets (liabilities)

This key metric fluctuates significantly, increasing slightly from $135 million in 2019 to $154 million in 2020, then sharply declining to $25 million in 2021 and turning negative at -$24 million in 2022, before rebounding strongly to $552 million in 2023. These swings suggest pronounced changes in net deferred tax positions, potentially driven by shifts in valuation allowance, deferred tax asset growth, or liabilities recognition.

Deferred income tax assets

The deferred income tax assets display an overall increasing trend from 2019 through 2023. Starting at 441 million USD at the end of 2019, there is a moderate rise to 479 million USD in 2020, followed by a decline to 428 million USD in 2021. From 2021 onwards, the assets increase substantially, reaching 625 million USD in 2022 and peaking at 1,082 million USD by the end of 2023. This significant growth in the last two years indicates an increasing recognition or timing differences favorable to deferred tax assets.

Deferred income tax liabilities

The deferred income tax liabilities similarly show an upward movement from 2019 to 2022, beginning at 306 million USD in 2019 and rising steadily to 325 million USD in 2020, then advancing further to 403 million USD in 2021 and 649 million USD in 2022. However, in 2023, there is a notable reduction to 530 million USD, marking a decrease after several years of growth. This decline could suggest adjustments in liabilities or changes in related tax positions during that last period.

Overall observations

Both deferred income tax assets and liabilities grew from 2019 to 2022, reflecting increasing temporary differences or tax timing effects. The deferred tax assets grew more significantly in 2023, despite the liabilities decreasing, which may indicate a more favorable tax position or changes in tax planning strategies. The widening gap between assets and liabilities by the end of 2023 suggests an improved net deferred tax asset position.

The data reveals several key trends in the financial position and performance over the five-year period from 2019 through 2023. Both reported and adjusted figures generally follow similar patterns, allowing for consistent comparative analysis.

Total Assets

Reported total assets exhibited steady growth from $19.7 billion in 2019 to $32.0 billion in 2023, representing an approximate 62% increase. Adjusted total assets closely mirrored this trend, rising from $19.3 billion to $30.9 billion during the same period. Notably, asset growth was more pronounced between 2021 and 2022, where reported assets increased by roughly 28%, indicating significant asset accumulation or acquisitions during that year.

Total Liabilities

Total liabilities, both reported and adjusted, increased consistently from 2019 to 2023. Reported liabilities grew from $11.3 billion to $22.1 billion, nearly doubling, while adjusted liabilities rose from $11.0 billion to $21.6 billion. The most substantial jump occurred between 2021 and 2022, with reported liabilities increasing by about 40%, which may suggest increased financing or operating obligations during that timeframe.

Shareholders’ Equity

Reported shareholders’ equity generally increased from $7.5 billion in 2019 to a peak of $9.0 billion in 2022, followed by a slight decline to $8.9 billion in 2023. Adjusted equity followed a similar pattern, peaking slightly higher at $9.0 billion in 2022 but dropping more noticeably to $8.3 billion in 2023. This recent decrease in equity, despite asset growth, may reflect changes in retained earnings, dividend payments, or other equity adjustments.

Net Income

Reported net income showed variability, starting at $2.3 billion in 2019, decreasing in 2020 to $1.8 billion, then recovering to a peak of $2.1 billion in both 2021 and 2022 before plummeting sharply to $735 million in 2023. Adjusted net income followed a similar trajectory but with a more pronounced decline in 2023 to $278 million. This steep drop in profitability in the last year under review is notable and warrants further investigation into underlying causes such as operational issues, non-recurring charges, or tax adjustments.

Overall, the company experienced substantial growth in its asset base and liabilities over the analyzed period, with equity increasing until 2022 then declining marginally in 2023. Net income trends suggest challenges emerged in the most recent year, significantly reducing profitability despite ongoing growth in the balance sheet size. These patterns indicate potential shifts in operational efficiency, cost structure, or external economic factors impacting financial results post-2022.

The analysis of the income tax adjusted financial data over the five-year period reveals several notable trends across profitability, efficiency, leverage, and returns.

Net Profit Margin

Both the reported and adjusted net profit margins exhibit a declining trend from 2019 through 2023. The reported net profit margin decreased from 9.59% in 2019 to 2.16% in 2023, while the adjusted margin declined from 9.57% to a lower 0.82% in the same period. This consistent drop indicates deteriorating profitability, with a particularly sharp decline occurring between 2022 and 2023.

Total Asset Turnover

The total asset turnover ratios, both reported and adjusted, fluctuate but generally trend lower from 2019 to 2020, followed by a recovery through 2023. Reported turnover began at 1.19 in 2019, dropped to 0.88 in 2020, and then gradually rose to 1.06 by 2023. Adjusted turnover follows a very similar pattern, ending at 1.10 in 2023. This suggests a temporary efficiency dip in asset use early in the period with improvement in later years.

Financial Leverage

Financial leverage ratios showed an increasing trend over the analyzed years. Reported leverage rose from 2.63 in 2019 to 3.62 in 2023, while adjusted leverage increased from 2.62 to 3.73. The upward trajectory indicates a growing reliance on debt or other forms of financial obligations relative to equity, implying a potentially higher financial risk profile in recent years.

Return on Equity (ROE)

Reported ROE experienced a significant decrease over the five years, commencing at a robust 30.11% in 2019 and falling to 8.31% in 2023. Adjusted ROE similarly decreased more sharply, from 30.6% to a low 3.35%. The decline mirrors the trend in net profit margins, suggesting diminished profitability impacting equity returns despite increased leverage.

Return on Assets (ROA)

The reported ROA declined from 11.45% in 2019 to 2.3% in 2023; the adjusted ROA also dropped from 11.69% to 0.9%. This downward movement highlights a reduced ability to generate profits from the asset base, aligning with the observed drop in asset turnover efficiency and profitability.

Overall, the data depicts a scenario where profitability ratios have weakened markedly over the period examined, despite a recovery in asset turnover after 2020. Increasing financial leverage suggests a shift toward greater indebtedness, which, combined with lower returns on equity and assets, indicates potential stress on financial performance and possibly increased financial risk.

Net Income Trends

The reported net income attributable to the company showed an initial decline from 2260 million USD in 2019 to 1789 million USD in 2020. This was followed by a recovery phase with increases to 2131 million USD in 2021 and a slight rise to 2151 million USD in 2022. However, in 2023 there was a sharp decrease to 735 million USD, marking a significant drop compared to previous years.

The adjusted net income followed a similar pattern, decreasing from 2256 million USD in 2019 to 1796 million USD in 2020, increasing to 2138 million USD in 2021, but then decreased in 2022 to 1877 million USD. The downturn was more pronounced in 2023, falling further to 278 million USD. The adjusted figures show greater volatility particularly in the latest year.

Net Profit Margin Analysis

The reported net profit margin mirrored the net income trends, declining steadily from 9.59% in 2019 to 9.03% in 2020 and further to 8.87% in 2021. It dropped more sharply to 7.66% in 2022, and then experienced a substantial decline to just 2.16% in 2023. This indicates reduced profitability relative to revenue over the period, with the sharp decline in the most recent year highlighting significant margin pressure.

The adjusted net profit margin was slightly higher than the reported margin in 2019 through 2021, starting at 9.57% and peaking at 8.9% in 2021. However, it declined faster in subsequent years, falling to 6.69% in 2022 and reaching a very low 0.82% in 2023. This suggests that adjustments for income tax effects and other items led to even more conservative profit margin estimates, especially in 2023.

Overall Insights

The data reflects a period of recovery after an initial dip in 2020, with both net income and profitability improving through 2021 and early 2022. However, the company faced a pronounced decline in financial performance in 2023, with reported and adjusted net income and profit margins dropping sharply. The more significant decline in adjusted figures implies that deferred income tax adjustments and other factors had an adverse impact on the profitability metrics. The sharp reduction in profitability ratios in 2023 may warrant further investigation into underlying operational challenges or changes in tax-related accounting.

Total Assets

The reported total assets of the company increased steadily over the five-year period, rising from US$19,737 million in 2019 to US$32,005 million in 2023. This represents a significant growth of approximately 62%, with the most notable increase occurring between 2021 and 2022, where reported total assets grew by nearly 28%. Adjusted total assets follow a similar upward trend, starting at US$19,296 million in 2019 and reaching US$30,923 million by 2023, indicating consistent asset growth after accounting for deferred tax adjustments.

Total Asset Turnover

The reported total asset turnover ratio shows some variability throughout the years. It declined sharply from 1.19 in 2019 to 0.88 in 2020, suggesting decreased efficiency in using assets to generate revenue during that year. The ratio then improved to 1.01 in 2021 but fell again to 0.93 in 2022 before rising to 1.06 in 2023. This fluctuating pattern may indicate operational challenges or varying market conditions impacting asset utilization efficiency. The adjusted total asset turnover ratio mirrors the reported figures closely, with slightly higher values, reflecting the effect of deferred tax adjustments. It decreased from 1.22 in 2019 to 0.89 in 2020, then increased to 1.03 in 2021, dipped to 0.95 in 2022, and recovered to 1.10 in 2023.

Overall Insights

The steady growth in both reported and adjusted total assets over the period signifies expanding asset bases. However, the total asset turnover ratios indicate that the company's efficiency in generating revenue from its assets has experienced volatility, especially with the marked drop in 2020 and the subsequent recovery phases. The alignment between reported and adjusted figures suggests deferred income tax adjustments have a moderate but consistent impact on the financial metrics. Attention to the causes of turnover fluctuations may be warranted to optimize asset utilization moving forward.

The analysis of the financial data over the five-year period reveals several notable trends in the adjusted and reported figures of assets, equity, and financial leverage.

Total Assets

The reported total assets increased progressively from US$19,737 million in 2019 to US$32,005 million in 2023, indicating consistent asset growth. Similarly, the adjusted total assets show a parallel upward trajectory, rising from US$19,296 million to US$30,923 million over the same period. This consistent increase suggests expansion in the company's asset base, albeit adjusted figures remain slightly below the reported values each year.

Shareholders’ Equity

Reported shareholders’ equity exhibited an increasing trend from US$7,507 million in 2019 to a peak of US$8,975 million in 2022, followed by a decrease to US$8,850 million in 2023. Adjusted equity mirrors this pattern, rising from US$7,372 million in 2019 to US$8,999 million in 2022, then falling more notably to US$8,298 million in 2023. The decline in 2023 adjusted equity may point to internal adjustments affecting retained earnings or other components, impacting the equity base more significantly than reflected in reported figures.

Financial Leverage

Financial leverage, both reported and adjusted, shows an increasing trend throughout the period. Reported leverage increased from 2.63 in 2019 to 3.62 in 2023, while adjusted leverage rose from 2.62 to 3.73. The consistent rise in leverage ratios suggests an increasing reliance on debt or liabilities relative to equity. Notably, the adjusted leverage ratio surpasses the reported ratio in 2023, indicating that adjustments may reflect a higher risk profile or greater financial obligations not entirely captured in the reported metrics.

Overall, the data presents a company experiencing growth in total assets coupled with an increasing financial leverage, which may imply a strategic choice to finance growth through debt. The peak and subsequent decline in adjusted shareholders’ equity in 2023 warrant closer examination to understand underlying drivers such as accounting adjustments or operational impacts. The divergence between reported and adjusted values underscores the importance of considering both perspectives for a comprehensive financial assessment.

Net Income Trends

The reported net income attributable to the company experienced a decline from 2260 million US dollars in 2019 to 1789 million in 2020. This was followed by a recovery phase with increases to 2131 million in 2021 and 2151 million in 2022. However, a significant drop occurred in 2023, bringing reported net income down to 735 million. The adjusted net income mirrored these movements closely, showing a decline in 2020, a rebound through 2021, but then a fall beginning in 2022 and reaching a much lower level of 278 million in 2023 compared to prior years.

Shareholders’ Equity Trends

Reported total shareholders' equity displayed a steady upward trend from 7507 million US dollars in 2019 to a peak of 8975 million in 2022, then a slight decrease to 8850 million in 2023. Adjusted shareholders' equity followed a similar pattern, increasing from 7372 million in 2019 to 8999 million in 2022 before falling more notably to 8298 million in 2023. This indicates a general growth in equity over the earlier years, with a mild decline or stabilization occurring in the most recent year.

Return on Equity (ROE) Analysis

Both reported and adjusted ROE percentages declined substantially over the five-year span. Reported ROE started at 30.11% in 2019, declined to 22.19% in 2020, then modestly recovered to above 23% in 2021 and 2022, before a major reduction to 8.31% in 2023. Adjusted ROE showed a somewhat similar trajectory but ended with an even more pronounced drop, moving from 30.6% in 2019 down to 3.35% in 2023. The decreasing ROE levels reflect diminished profitability relative to shareholders' equity, particularly downturned in 2023.

Overall Observations

The financial data reveals that while the company experienced recovery in net income and equity following declines in 2020, both profitability and equity growth weakened in the latest period. The sharp decline in reported and adjusted net income in 2023, accompanied by falling ROE, suggests significant challenges impacting earnings power that year. Equity levels remain relatively high but the dip in adjusted equity indicates possible factors affecting underlying equity strength or accounting adjustments. The divergence between adjusted and reported figures, especially in net income and ROE, highlights the impact of tax adjustments or other non-recurring items on financial performance assessment.

The financial data over the period from 2019 to 2023 reveals distinct trends in profitability, asset base, and return on assets (ROA), both on a reported and adjusted basis.

Net Income Trends

Reported net income showed a decline from 2019 to 2020, dropping from 2,260 million USD to 1,789 million USD. This was followed by a recovery in 2021 and 2022, reaching 2,131 million USD and 2,151 million USD respectively. However, there was a significant decrease in 2023, with reported net income falling sharply to 735 million USD.

Adjusted net income mirrored this pattern closely, with a slight divergence in 2022 when the adjusted figure (1,877 million USD) was notably lower than the reported net income (2,151 million USD). In 2023, adjusted net income also declined more dramatically than the reported figure, falling to 278 million USD.

Asset Base Evolution

The company's reported total assets expanded steadily over the entire period, increasing from 19,737 million USD in 2019 to 32,005 million USD in 2023. This growth reflects a consistent buildup in asset holdings.

Adjusted total assets followed a similar upward trend but remained slightly lower than reported assets at each period, reflecting adjustments related to deferred income taxes or other factors. The increase from 19,296 million USD in 2019 to 30,923 million USD in 2023 supports the observation of steady asset growth.

Return on Assets (ROA) Analysis

Reported ROA displayed a downward trend overall. Beginning with a strong 11.45% in 2019, it declined to 7.91% in 2020, slightly recovered to 8.99% in 2021, then fell again to 7.1% in 2022 before dropping sharply to 2.3% in 2023.

Adjusted ROA demonstrated a similar trajectory but with relatively lower values in later years. Starting at 11.69% in 2019, adjusted ROA decreased to 8.11% in 2020, peaked slightly at 9.18% in 2021, then dropped to 6.33% in 2022 and reached a low of 0.9% in 2023.

Key Insights

The data indicates that despite an expanding asset base, both reported and adjusted profitability figures and efficiency ratios such as ROA have weakened, particularly in 2023. The substantial declines in net income and ROA in the final year suggest challenges affecting profitability, potentially linked to operational issues, market conditions, or tax-related adjustments.

The divergence between reported and adjusted figures, especially noticeable in the latest year, points to significant factors excluded or adjusted for in the latter that materially affect earnings and return metrics. This indicates an increased impact of deferred tax adjustments or other non-operational considerations on net income.