Cummins Inc. (NYSE:CMI)

Finished Products

The value of finished products showed a steady increase from 2019 to 2022, rising from 2,214 million US dollars in 2019 to 2,917 million US dollars in 2022. However, in 2023, there was a slight decline to 2,770 million US dollars, indicating a potential slowdown or inventory adjustment after consistent growth.

Work-in-Process and Raw Materials

The figures for work-in-process and raw materials exhibited substantial growth over the period. Starting at 1,395 million US dollars in 2019, the value dipped slightly in 2020 to 1,346 million US dollars, possibly reflecting operational impacts. From 2021 onwards, there was a marked increase, reaching 3,156 million US dollars in 2023, which more than doubled the 2019 level. This trend suggests an expanding investment in inventory components, possibly in anticipation of increased production or sales.

Inventories at FIFO Cost

Inventories valued at FIFO cost increased consistently throughout the period, from 3,609 million US dollars in 2019 to 5,926 million US dollars in 2023. This represents a significant accumulation of inventory, indicating higher stock levels or increasing costs over time.

Excess of FIFO over LIFO

The negative balance reflecting the excess of FIFO over LIFO inventory cost increased in magnitude gradually, moving from -123 million US dollars in 2019 to -249 million US dollars in 2023. This rising absolute value suggests increasing differences between the two accounting methods, likely driven by price changes or inventory valuation effects.

Inventories (Net)

Net inventories showed a consistent upward trend, rising from 3,486 million US dollars in 2019 to 5,677 million US dollars in 2023. The growth was particularly notable between 2020 and 2022, indicating an expansion of stockholding. The increase slowed somewhat in 2023, aligning with the slight reduction in finished products, possibly signaling more efficient inventory management or adjustment to demand.

The financial data over the five-year period exhibit several notable trends and adjustments related to inventory valuation using the LIFO reserve and their effects on reported figures.

Inventories

Reported inventories show a general increasing trend from 3,486 million in 2019 to 5,677 million in 2023, with a significant jump between 2020 and 2021 and continuing growth thereafter. Adjusted inventories, which factor in the LIFO reserve, are consistently higher than reported inventories by approximately 3-4%, reflecting the amount of the LIFO reserve adjustment. Adjusted inventories rise from 3,609 million in 2019 to 5,926 million in 2023, mirroring the upward trend observed in reported inventories.

Current Assets

Reported current assets increase steadily from 9,387 million in 2019 to 15,198 million in 2023, indicating growth in liquidity or short-term asset holdings. Adjusted current assets are similarly higher than reported values due to inventory adjustments, ranging from 9,510 million in 2019 to 15,447 million in 2023. This pattern suggests that inventory adjustments have a material impact on the short-term asset base of the company.

Total Assets

Total assets reported show substantial growth, rising from 19,737 million in 2019 to 32,005 million in 2023. Adjusted total assets, which include the inventory LIFO reserve adjustment, are higher by about 100-250 million each year, increasing from 19,860 million in 2019 to 32,254 million in 2023. The growing asset base reflects ongoing investments or asset accumulation consistent with business expansion.

Shareholders’ Equity

The shareholders’ equity reported increases gradually from 7,507 million in 2019 to 8,850 million in 2023, demonstrating steady capital growth. Adjusted equity values are slightly higher, reflecting the inventory adjustment, and trend upward from 7,630 million in 2019 to 9,099 million in 2023. The trajectory indicates stable equity financing over the period with modest increases annually.

Net Income

Reported net income attributable to the company fluctuates, starting at 2,260 million in 2019, decreasing to 1,789 million in 2020, then recovering to over 2,100 million in 2021 and 2022, before dropping sharply to 735 million in 2023. Adjusted net income reflects a similar pattern with slightly higher values due to the inventory adjustment, ranging from 2,250 million in 2019 to 744 million in 2023. The significant decline in net income in 2023 suggests operational challenges or nonrecurring factors impacting profitability during that year.

Overall, the LIFO reserve adjustments consistently increase asset and equity figures versus reported amounts, highlighting the inventory valuation impact. The asset and equity base expanded progressively, while net income displayed variability with a marked downturn in the latest year. This suggests steady growth in the company’s asset base and equity financing, tempered by recent profitability pressures.

The financial ratios exhibit a range of trends over the five-year period analyzed. Current liquidity, as measured by both the reported and adjusted current ratios, shows a steady decline from 2019 through 2023. The reported current ratio decreased from 1.5 in 2019 to 1.18 in 2023, while the adjusted current ratio followed a similar downward pattern, from 1.52 to 1.2. This indicates a gradual reduction in the company's short-term liquidity position over time, although the adjustment for inventory LIFO reserve does not materially alter the trend.

Profitability ratios reveal a marked decline throughout the timeline. The reported net profit margin decreased significantly from 9.59% in 2019 to 2.16% in 2023, with the adjusted net profit margin showing a parallel decline from 9.55% to 2.18%. This decline suggests that the company’s ability to generate profit from sales has deteriorated notably in the latest year.

Total asset turnover ratios demonstrate fluctuations rather than a clear trend. The reported ratio dropped considerably from 1.19 in 2019 to 0.88 in 2020 but then partially recovered to 1.06 by 2023. The adjusted total asset turnover ratios show a similar pattern, moving from 1.19 in 2019 down to 0.87 in 2020 and then rebounding to 1.06 in 2023. This pattern indicates a temporary decline in asset utilization efficiency around 2020, followed by a gradual improvement.

Financial leverage ratios have increased over the period, suggesting growing use of debt financing. The reported financial leverage rose from 2.63 in 2019 to 3.62 in 2023. Adjusted leverage ratios mirror this upward movement, increasing from 2.6 to 3.54. This trend could imply higher financial risk due to greater leverage.

Return on equity (ROE) trends mirror those in profitability and leverage metrics. Reported ROE dropped sharply from 30.11% in 2019 to 8.31% in 2023, while adjusted ROE declined similarly from 29.49% to 8.18%. This suggests a significant reduction in the efficiency with which the company generates returns for shareholders. The substantial fall in ROE is likely influenced by the marked reduction in net profit margin combined with rising financial leverage.

Return on assets (ROA) followed a comparable pattern, with reported ROA decreasing from 11.45% in 2019 to 2.3% in 2023, and adjusted ROA slightly higher but still declining from 11.33% to 2.31%. The decline in ROA reflects diminished profitability relative to total assets over the period measured.

Overall, the data reflect a weakening liquidity position, significantly reduced profitability, and increased leverage. While asset utilization showed some recovery after an initial decline, the combined effect has been a pronounced reduction in both ROA and ROE in the most recent year. The inventory LIFO reserve adjustments do not materially change these interpretations, as adjusted ratios closely track their reported counterparts throughout the timeline.

Liquidity Trends

Declining current ratios indicate reduced short-term financial flexibility from 2019 to 2023.

Profitability

Net profit margins and returns on equity and assets have fallen significantly, highlighting deteriorating profitability.

Asset Efficiency

Total asset turnover experienced a dip around 2020 but showed recovery toward 2023.

Leverage

Increasing financial leverage suggests heightened reliance on debt financing and potential risk.

Impact of Inventory LIFO Reserve

Adjustments for the LIFO reserve do not materially alter the trends observed in reported metrics.

Current Assets (Reported and Adjusted)

Reported current assets demonstrate a consistent upward trend over the analyzed periods, increasing from 9,387 million USD at the end of 2019 to 15,198 million USD by the end of 2023. The adjusted current assets, which account for LIFO reserve adjustments, similarly follow this increasing pattern, beginning at 9,510 million USD in 2019 and rising steadily to 15,447 million USD in 2023. The adjustment slightly increases the reported asset values, with the difference between adjusted and reported current assets remaining relatively stable over time.

Current Ratio (Reported and Adjusted)

The reported current ratio indicates a peak in liquidity in 2020 at 1.88, followed by a gradual decline in subsequent years to 1.18 in 2023. The adjusted current ratio mimics this trend, peaking at 1.90 in 2020 and declining to 1.20 in 2023. Despite the decrease, both versions of the current ratio remain above 1, suggesting the company maintains assets exceeding current liabilities. The narrowing gap between reported and adjusted ratios suggests that inventory reserve adjustments have a minor impact on liquidity ratios, although the overall decline may warrant monitoring to ensure continued short-term financial health.

The financial data reveals discernible trends in both reported and adjusted net income and net profit margins over the five-year period from 2019 to 2023. Overall, the figures suggest fluctuating corporate profitability with a notable decline in the latest reported year.

Net Income Trends

Reported net income attributable to the entity showed an initial decline from 2,260 million US dollars in 2019 to 1,789 million in 2020, followed by a recovery phase with increases reaching 2,151 million in 2022. However, in 2023, a substantial decrease is evident, with reported net income falling sharply to 735 million.

Adjusted net income follows a slightly different path, starting from 2,250 million in 2019 and increasing marginally to peak at 2,199 million in 2022. The adjustment seems to smooth some year-over-year variation, but the 2023 figure also exhibits a significant decline to 744 million, closely mirroring the reported figure’s downward trend.

Net Profit Margin Analysis

Both reported and adjusted net profit margins reflect a gradual decrease across the years. Reported net profit margin declined from 9.59% in 2019 to 7.66% in 2022 before dropping steeply to 2.16% in 2023. The adjusted net profit margin behaves similarly, although the figures are slightly higher in some years, starting at 9.55% in 2019, maintaining near 9.1% in 2020 and 2021, then decreasing to 7.83% in 2022 and finally falling to 2.18% in 2023.

Overall Observations

The data illustrates a period of relative earnings stability with moderate fluctuations from 2019 through 2022, followed by a marked deterioration in profitability in 2023. The sharp decline in net income and profit margins in the last year could indicate operational challenges, market conditions, or other external factors adversely impacting financial performance.

The closeness of reported and adjusted figures suggests that inventory LIFO reserve adjustments had limited impact on net income and margin calculations, implying that the core earnings trends are robust to such adjustments.

The financial data reveals distinct trends in both total assets and asset turnover ratios over the five-year period analyzed.

Total Assets

The reported total assets increased consistently from US$19,737 million in 2019 to US$32,005 million in 2023. This represents a steady asset base expansion over the timeframe. When adjusted for the inventory LIFO reserve, the total assets values are slightly higher each year, ranging from US$19,860 million in 2019 to US$32,254 million in 2023. The difference between adjusted and reported assets remains relatively constant, indicating a stable impact of the inventory LIFO adjustment during this period.

Total Asset Turnover

The reported total asset turnover ratio exhibited some volatility. It started at 1.19 in 2019, dropped sharply to 0.88 in 2020, then partially recovered to 1.01 in 2021. It declined again to 0.93 in 2022 before increasing to 1.06 in 2023. Adjusted total asset turnover ratios follow a virtually identical pattern, with marginally lower values in 2020 through 2022, and matching the reported ratio in 2019 and 2023. This suggests that LIFO inventory reserve adjustments have minimal effect on asset turnover calculations in most years.

Insights

The decrease in asset turnover in 2020 aligns with typical economic disruptions during that year, followed by partial recovery in subsequent years. Despite growth in asset base, efficiency in asset utilization fluctuated, indicating potential challenges in optimizing asset deployment or variations in sales relative to assets. The near convergence of reported and adjusted ratios confirms that the inventory accounting adjustment has limited influence on asset efficiency measures.

Total Assets

The total assets exhibit a consistent upward trend throughout the five-year period. Reported total assets increased from $19,737 million at the end of 2019 to $32,005 million by the end of 2023. When adjusted for the inventory LIFO reserve, total assets are slightly higher each year, starting at $19,860 million in 2019 and growing to $32,254 million in 2023. This indicates steady expansion in the company's asset base both before and after adjustments.

Shareholders’ Equity

The reported shareholders’ equity rose from $7,507 million in 2019 to a peak of $8,975 million in 2022, followed by a slight decrease to $8,850 million in 2023. The adjusted shareholders’ equity, which accounts for inventory valuation adjustments, follows a similar trajectory, increasing from $7,630 million in 2019 to $9,215 million in 2022, then slightly declining to $9,099 million in 2023. Despite minor fluctuations at the end of the period, overall equity strengthened during the analyzed years.

Financial Leverage

Both reported and adjusted financial leverage ratios demonstrate an increasing pattern over the period. Reported financial leverage rose from 2.63 in 2019 to 3.62 in 2023, while adjusted financial leverage increased from 2.60 to 3.54 over the same timeframe. This indicates that the company has progressively increased its relative use of debt financing compared to equity, especially notable after 2021, suggesting a higher financial risk profile linked to greater leverage.

Comparative Observations on Adjusted vs. Reported Data

The adjusted figures, reflecting inventory LIFO reserve adjustments, consistently show slightly higher total assets and shareholders’ equity than the reported numbers. The differences are relatively stable, and the trends in both adjusted and reported data closely align, indicating that the inventory valuation adjustments have not materially altered the overall financial trend but provide a marginally more conservative basis for analysis.

The financial data over the five-year period demonstrates several notable trends in profitability, equity, and returns on equity (ROE) for the company.

Net Income (Reported and Adjusted)

Reported net income exhibited a decline from 2260 million US dollars in 2019 to 1789 million in 2020, followed by a recovery to 2131 million in 2021 and a slight increase to 2151 million in 2022. However, in 2023, net income dropped markedly to 735 million, indicating a significant reduction in profitability in the most recent year.

Adjusted net income, accounting for inventory LIFO reserve adjustments, follows a similar pattern: declining from 2250 million in 2019 to 1803 million in 2020, rising steadily through 2021 and 2022 to 2199 million, but then falling sharply to 744 million in 2023. The adjusted figures are consistently close to the reported ones, suggesting limited impact from LIFO adjustments on net income trends.

Total Shareholders’ Equity (Reported and Adjusted)

Reported shareholders’ equity increased steadily from 7507 million in 2019 to a peak of 8975 million in 2022 before slightly declining to 8850 million in 2023. This upward trend reflects a general strengthening of the company's equity base over most of the period, with a minor decrease in the latest year.

The adjusted shareholders’ equity figures, which include inventory related adjustments, mirror the reported equity's trend, rising from 7630 million in 2019 to 9215 million in 2022 and then decreasing to 9099 million in 2023. The adjusted equity levels remain marginally higher than the reported values each year, indicating a positive inventory reserve adjustment effect on equity.

Return on Equity (Reported and Adjusted)

Reported ROE declined from a high of 30.11% in 2019 to 22.19% in 2020, then improved to 25.15% in 2021 before slightly decreasing again to 23.97% in 2022. In 2023, it fell sharply to 8.31%, reflecting the significant drop in net income relative to shareholders’ equity this year.

Adjusted ROE follows a closely similar pattern, showing 29.49% in 2019, dipping to 21.99% in 2020, rising to 25.23% in 2021, decreasing slightly to 23.86% in 2022, and then falling abruptly to 8.18% in 2023. This consistency further confirms that the inventory LIFO adjustments have minimal effect on the ROE trend.

Overall, the data reflects a stable or improving financial position from 2019 to 2022, followed by a noticeable downturn in 2023. The sharp decrease in net income and ROE in 2023 contrasts with previously maintained equity levels and suggests challenges impacting profitability despite relatively stable equity. The minimal differences between reported and adjusted figures indicate that LIFO reserve adjustments have not materially altered the understanding of the company's financial performance and position over the analyzed timeframe.

The financial data reveals several noteworthy trends concerning profitability, asset base, and return on assets (ROA) over the five-year period analyzed.

Net Income Trends

Both reported and adjusted net income show a declining trend from 2019 through 2020, with reported net income decreasing from 2,260 million US dollars to 1,789 million US dollars, and adjusted net income similarly dropping from 2,250 million to 1,803 million US dollars. A recovery is observed in 2021, as net incomes rise to 2,131 million (reported) and 2,186 million (adjusted). This upward trend continues faintly in 2022. However, in 2023, a substantial decline is noted, with reported net income falling sharply to 735 million and adjusted net income similarly dropping to 744 million. This represents a significant contraction compared to previous years.

Total Assets

The asset base consistently expands across the analyzed years. Reported total assets increased steadily from 19,737 million US dollars in 2019 to 32,005 million in 2023. The adjusted total assets follow a similar upward trajectory, growing from 19,860 million to 32,254 million over the same period. This steady growth suggests ongoing investment or accumulation of assets despite fluctuations in profitability.

Return on Assets (ROA)

The reported ROA experiences a notable decline from 11.45% in 2019 to 7.91% in 2020, reflecting lower profitability efficiency in generating returns from assets. A partial recovery occurs in 2021 with an increase to 8.99%, slightly improving in 2022 to 7.1%. By 2023, the ROA plunges substantially to 2.3%, indicating a significant reduction in asset utilization effectiveness. Adjusted ROA numbers closely follow the reported trends, reinforcing the conclusion.

Overall, the analysis highlights a situation where net income and profitability efficiency have deteriorated markedly by the end of the period, especially in 2023. This contrasts with a continual expansion of the asset base. The discrepancy between growing assets and diminishing returns suggests challenges in converting asset growth into proportional income gains, potentially signaling operational or market difficulties impacting profitability.