Return on Capital (ROC)
Return on capital (ROC) is after tax rate of return on net business assets. ROIC is unaffected by changes in interest rates or company debt and equity structure. It measures business productivity performance.
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- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Reportable Segments
- Price to FCFE (P/FCFE)
- Selected Financial Data since 2005
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Debt
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Return on Invested Capital (ROIC)
Cummins Inc., ROIC calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| ROIC3 | ||||||
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Invested capital. See details »
3 2023 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Net operating profit after taxes (NOPAT)
- The NOPAT displayed a declining trend from 2019 through 2020, dropping from 2,609 million US dollars to 2,018 million US dollars. It rebounded in 2021 to 2,585 million US dollars but declined again in 2022 to 2,348 million US dollars. In 2023, there was a sharp decrease to 1,014 million US dollars, representing the lowest value in the observed period.
- Invested capital
- The invested capital steadily increased from 15,235 million US dollars in 2019 to 17,479 million US dollars in 2020 and remained relatively stable in 2021 at 17,518 million US dollars. A significant rise occurred in 2022, reaching 22,657 million US dollars, followed by a slight decline to 20,768 million US dollars in 2023.
- Return on invested capital (ROIC)
- The ROIC exhibited a decreasing trend overall. It started at a high of 17.13% in 2019, dropped sharply to 11.55% in 2020, increased to 14.75% in 2021, then fell to 10.36% in 2022, and reached its lowest level at 4.88% in 2023. This pattern indicates a reduction in efficiency in generating returns from invested capital over time.
- Summary and insights
- The data indicates a concerning trend in profitability and returns. Despite the increase in invested capital over the years, the NOPAT has seen a general downward trajectory, with a pronounced decline in 2023. The ROIC corroborates this by showing reduced effectiveness in utilizing capital to generate profits. The combination of rising invested capital and decreasing returns suggests a potential challenge in maintaining operational efficiency or profitability in recent periods.
Decomposition of ROIC
Cummins Inc., decomposition of ROIC
| ROIC | = | OPM1 | × | TO2 | × | 1 – CTR3 | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2023 | = | × | × | ||||
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Operating profit margin (OPM). See calculations »
2 Turnover of capital (TO). See calculations »
3 Effective cash tax rate (CTR). See calculations »
- Operating Profit Margin (OPM)
- The operating profit margin exhibited a downward trend over the five-year period. Starting at 13.49% in 2019, the margin showed slight fluctuations but remained above 11% through 2022, before declining sharply to 6.8% in 2023. This indicates a notable reduction in profitability from core operations in the latest year.
- Turnover of Capital (TO)
- The turnover of capital ratio displayed instability but with an overall recovery by the end of the period. After a decline from 1.56 in 2019 to 1.14 in 2020, it improved to 1.38 in 2021, followed by a minor decrease to 1.25 in 2022, and then a significant increase to 1.66 in 2023. This suggests enhanced efficiency in utilizing invested capital during the final year examined.
- 1 – Effective Cash Tax Rate (CTR)
- This metric showed a decreasing trend throughout the period. It started at 81.4% in 2019, then gradually declined with some fluctuations to 43.33% in 2023. The reduction indicates a considerable increase in effective cash taxes paid or a relative decrease in tax shields or benefits over time.
- Return on Invested Capital (ROIC)
- Return on invested capital followed a downward trajectory, beginning at 17.13% in 2019 with a notable dip to 11.55% in 2020. It recovered somewhat to 14.75% in 2021 before falling again to 10.36% in 2022 and plunging to 4.88% in 2023. This pattern suggests diminishing returns on the capital invested, raising concerns about overall capital efficiency and profitability in recent years.
Operating Profit Margin (OPM)
Cummins Inc., OPM calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Add: Cash operating taxes2 | ||||||
| Net operating profit before taxes (NOPBT) | ||||||
| Net sales | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted net sales | ||||||
| Profitability Ratio | ||||||
| OPM3 | ||||||
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2023 Calculation
OPM = 100 × NOPBT ÷ Adjusted net sales
= 100 × ÷ =
4 Click competitor name to see calculations.
- Net Operating Profit Before Taxes (NOPBT)
- The net operating profit before taxes shows a fluctuating trend over the five-year period. It decreased from 3206 million USD in 2019 to 2562 million USD in 2020. Afterwards, it recovered to 3191 million USD in 2021 and further increased slightly to 3304 million USD in 2022. However, in 2023, it experienced a significant decline to 2341 million USD, representing the lowest value within the observed timeframe.
- Adjusted Net Sales
- Adjusted net sales have demonstrated a consistent upward trend throughout the period. Starting from 23,769 million USD in 2019, sales decreased to 19,988 million USD in 2020, likely impacted by external factors during that year. From 2020 onwards, sales increased steadily, reaching 24,195 million USD in 2021, 28,217 million USD in 2022, and peaking at 34,403 million USD in 2023, showing robust growth over the last three years.
- Operating Profit Margin (OPM)
- The operating profit margin exhibits a general decline over the five-year span. Initially at 13.49% in 2019, it slightly dropped to 12.82% in 2020 and remained relatively stable at 13.19% in 2021. In 2022, a more notable decrease to 11.71% is observed, followed by a sharp drop to 6.8% in 2023, which is approximately half of the margin recorded in 2019.
Turnover of Capital (TO)
Cummins Inc., TO calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net sales | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted net sales | ||||||
| Invested capital1 | ||||||
| Efficiency Ratio | ||||||
| TO2 | ||||||
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Invested capital. See details »
2 2023 Calculation
TO = Adjusted net sales ÷ Invested capital
= ÷ =
3 Click competitor name to see calculations.
- Adjusted Net Sales
- The adjusted net sales exhibited a decreasing trend from 2019 to 2020, declining from $23,769 million to $19,988 million. Subsequently, sales increased steadily over the next three years, reaching $24,195 million in 2021, $28,217 million in 2022, and $34,403 million in 2023. This represents a strong recovery and growth in sales after the initial decline.
- Invested Capital
- Invested capital increased from $15,235 million in 2019 to $17,479 million in 2020, stabilizing slightly at $17,518 million in 2021. There was a notable rise to $22,657 million in 2022, followed by a decrease to $20,768 million in 2023. Overall, invested capital shows an upward trend with fluctuations, reflecting possible changes in capital allocation or asset base adjustments.
- Turnover of Capital (TO)
- Turnover of capital showed variability over the period. It declined sharply from 1.56 in 2019 to 1.14 in 2020, indicating less efficient use of capital during that year. It improved to 1.38 in 2021 but fell slightly again to 1.25 in 2022. In 2023, there was a significant increase to 1.66, surpassing the 2019 level and suggesting enhanced efficiency in utilizing invested capital to generate sales.
- Overall Insights
- The financial data reveal an initial impact on the company’s sales and capital turnover in 2020, likely due to external economic factors. Following recovery from 2021 onward, sales growth has been strong and consistent. Invested capital shows a pattern of gradual increase with adjustments, while turnover of capital indicates improvements in capital efficiency, particularly in the most recent year. This suggests enhanced operational performance and better capital management over the analyzed timeframe.
Effective Cash Tax Rate (CTR)
Cummins Inc., CTR calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Add: Cash operating taxes2 | ||||||
| Net operating profit before taxes (NOPBT) | ||||||
| Tax Rate | ||||||
| CTR3 | ||||||
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2023 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × ÷ =
4 Click competitor name to see calculations.
- Cash Operating Taxes
- The cash operating taxes exhibit a generally increasing trend over the five-year period. Beginning at $596 million in 2019, the taxes slightly decreased to $544 million in 2020. Subsequently, there was a consistent rise from $606 million in 2021 to a notable increase in 2022 with $956 million, reaching $1,326 million by the end of 2023. This upward trend suggests a growing tax expense burden over the period, particularly significant in the last two years.
- Net Operating Profit Before Taxes (NOPBT)
- The net operating profit before taxes shows some volatility. It starts at $3,206 million in 2019 and declines to $2,562 million in 2020, reflecting a downturn in operating performance. A recovery is observed in 2021 and 2022 with profits of $3,191 million and $3,304 million respectively, nearing the initial 2019 level. However, in 2023, NOPBT decreases substantially to $2,341 million, the lowest point in the five years.
- Effective Cash Tax Rate (CTR)
- The effective cash tax rate exhibits a significant upward trajectory. Starting at 18.6% in 2019, it rises moderately to 21.24% in 2020 and falls slightly to 18.99% in 2021. From there, the rate increases sharply to 28.93% in 2022 and surges dramatically to 56.67% in 2023. This indicates a substantially higher proportion of operating profit being paid in cash taxes in the most recent year compared to previous years.
- Summary Insights
- Over the period analyzed, cash operating taxes have increased markedly, especially in the last two years, which coincides with a notable rise in the effective cash tax rate. Despite fluctuations in net operating profit before taxes, the profit peaked in 2022 but then dropped significantly in 2023. The combination of rising taxes and decreasing pre-tax profit in the latest year suggests growing tax pressure and potentially declining operational efficiency or profitability before tax. These trends underline the importance of tax management and operational improvements moving forward.