Cummins Inc. (NYSE:CMI)

Asset Turnover Ratios

Both reported and adjusted total asset turnover ratios show a decline from 2019 to 2020, indicating reduced efficiency in using assets to generate sales during that period. Subsequently, there is a moderate recovery through 2021 to 2023, with ratios trending upward but not reaching the 2019 level. The adjusted ratios remain consistently slightly higher than the reported figures, suggesting adjustments improve the assessment of asset utilization efficiency.

Liquidity Ratios

The reported current ratio increased sharply from 2019 to 2020, signaling improved short-term liquidity, then gradually declined each year through 2023, dropping below the 2019 level. A similar pattern is seen in the adjusted current ratio, which starts higher and peaks in 2020, but also declines through 2023. This decreasing trend indicates weakening liquidity position after the initial improvement.

Leverage Ratios

The reported debt to equity ratio shows an increase from 2019 to 2020, followed by a slight decrease in 2021, then a sharp rise in 2022 before declining again in 2023 but remaining above the 2019 level. The adjusted debt to equity ratio reveals a consistent increase between 2019 and 2022, followed by some reduction in 2023. Similarly, debt to capital ratios reflect increasing leverage up to 2022 with a mild decline in 2023. Financial leverage rises steadily over the period in both reported and adjusted data, indicating that the company is increasingly relying on debt financing relative to equity over these years.

Profitability Margins

Net profit margins, both reported and adjusted, decline progressively from 2019 to 2023. While the adjusted margin was higher in 2021 compared to 2019, there is a significant drop from 2021 onwards, reaching notably low values in 2023. This downward trend points to diminishing profitability margins and suggests increased cost pressures or declining operational efficiency.

Return on Equity (ROE)

Reported ROE decreases from a high of over 30% in 2019 to just above 8% in 2023, with a notable dip in 2020 and some recovery in subsequent years before the decline accelerates again in 2022 and 2023. Adjusted ROE follows a similar trajectory but with lower absolute values and a more pronounced decline in the last two years. This pattern reflects weakening returns to shareholders over time.

Return on Assets (ROA)

Both reported and adjusted ROA indicate a decline in asset profitability across the period. Starting at around 11-12% in 2019, ROA falls steadily to near 2% or below by 2023, with a temporary rise in 2021 noted in the adjusted figures. The trend illustrates that asset utilization for generating profits has substantially deteriorated.

Overall Summary

The data depicts a company experiencing a gradual decline in operational efficiency and profitability from 2019 to 2023. While asset turnover partially recovers after an initial drop, liquidity ratios weaken over time, and leverage increases significantly, suggesting increased reliance on debt. Profit margins, ROE, and ROA all present downward trends, indicating pressures on profitability and returns. Adjusted figures generally align with reported values but often provide a more conservative perspective on financial performance. The combination of increasing leverage and declining profitability warrants attention to financial risk and operational efficiency going forward.

The analyzed data reveals notable trends in net sales, total assets, and asset turnover ratios over the five-year period ending December 31, 2023. The financial metrics present fluctuations and recovery patterns that highlight the company's operational dynamics and asset management efficiency.

Net Sales

Net sales experienced a decline between 2019 and 2020, decreasing from $23,571 million to $19,811 million, reflecting a reduction likely due to external market challenges or operational disruptions in 2020. Subsequently, net sales recovered and expanded steadily, rising to $24,021 million in 2021, $28,074 million in 2022, and reaching a peak of $34,065 million in 2023. This upward trajectory indicates a strong recovery and significant growth momentum in sales over the last three years.

Total Assets

Total assets exhibited continuous growth throughout the period. Starting at $19,737 million in 2019, assets increased to $22,624 million in 2020 and further to $23,710 million in 2021. The growth accelerated in the subsequent years, with total assets reaching $30,299 million in 2022 and $32,005 million in 2023. This consistent asset base expansion may reflect investments in operational capacity, acquisitions, or capital expenditures aimed at supporting business growth.

Reported Total Asset Turnover

The reported total asset turnover ratio showed a decline from 1.19 in 2019 to 0.88 in 2020, indicating reduced efficiency in generating sales from assets during that year. It partially recovered to 1.01 in 2021 but decreased again to 0.93 in 2022 before rising to 1.06 in 2023. Despite fluctuations, the ratio suggests the company’s asset utilization efficiency has slightly improved towards the end of the period but has not yet returned to the 2019 level.

Adjusted Net Sales and Adjusted Total Assets

The adjusted figures mirror the trends observed in net sales and total assets, with adjusted net sales declining from $23,769 million in 2019 to $19,988 million in 2020, then increasing continuously to $34,403 million in 2023. Adjusted total assets also rose from $19,438 million in 2019 to $31,247 million in 2023. These adjusted metrics provide a consistent view of growth and recovery over the period.

Adjusted Total Asset Turnover

Adjusted total asset turnover followed a similar pattern to the reported ratio, declining from 1.22 in 2019 to 0.90 in 2020, improving to 1.03 in 2021, then dipping to 0.94 in 2022 and increasing again to 1.10 in 2023. The adjusted ratios consistently indicate improved asset utilization over time, particularly evident in the rise during 2023.

In summary, the data illustrates a period of downturn in 2020, probably linked to external factors affecting sales and asset efficiency. Growth in net sales and asset base resumed and accelerated from 2021 onwards, accompanied by recovering asset turnover ratios. These trends suggest an overall enhancement in operational performance and asset management efficiency by the end of 2023, although asset turnover ratios have not fully returned to peak 2019 levels consistently.

Current Assets and Liabilities

Current assets demonstrated a consistent upward trend over the five-year period, rising from $9,387 million in 2019 to $15,198 million in 2023. Current liabilities also increased, from $6,260 million in 2019 to $12,903 million by the end of 2023, with a particularly sharp rise observed between 2021 and 2023.

Reported Current Ratio

The reported current ratio showed a peak in 2020 at 1.88, indicating improved short-term liquidity compared to 1.5 in 2019. However, from 2021 onward, the ratio consistently declined, falling to 1.18 in 2023, which suggests a weakening in the company’s ability to cover current liabilities with current assets based on reported figures.

Adjusted Current Assets and Liabilities

Adjusted current assets and liabilities follow a similar trajectory to the reported figures but at different magnitudes. Adjusted current assets grew from $9,529 million in 2019 to $15,522 million in 2023, while adjusted current liabilities rose from $4,924 million to $11,016 million in the same period. The more conservative adjustment results in a larger gap between assets and liabilities compared to reported numbers.

Adjusted Current Ratio

The adjusted current ratio exhibits a pattern analogous to the reported ratio, peaking in 2020 at 2.43 and subsequently declining year-over-year to 1.41 in 2023. Despite the decline, the adjusted ratios remain higher than the reported ratios throughout the period, indicating that the adjustments improve the perceived liquidity position but reveal a downward trend in short-term financial strength over recent years.

Overall Trends and Insights

The data indicates that while both assets and liabilities have increased over the five-year span, liabilities have grown at a faster rate, particularly in the last two years. This has resulted in decreasing liquidity ratios, signaling a potential strain on the company's ability to meet short-term obligations. The adjustments made to assets and liabilities provide a more favorable liquidity position but reinforce the declining trend. This pattern may warrant further investigation into the causes of the rising liabilities and the sustainability of the current asset base.

Total Debt

The total debt showed a substantial increase from 2019 to 2022, rising from approximately $2.4 billion to nearly $7.9 billion. This represents more than a threefold increase over this period. In 2023, a decline to around $6.7 billion was observed, indicating a moderate reduction from the previous year.

Total Shareholders' Equity

Shareholders' equity exhibited a consistent upward trend from 2019 through 2022, increasing from roughly $7.5 billion to about $9.0 billion. However, in 2023, a slight decrease occurred, returning equity to approximately $8.9 billion, slightly below the 2022 level.

Reported Debt to Equity Ratio

This ratio increased from 0.32 in 2019 to a peak of 0.88 in 2022, reflecting a significant rise in leverage. By 2023, the ratio decreased to 0.76, indicating some deleveraging but still higher leverage compared to the initial year.

Adjusted Total Debt

The adjusted total debt mirrored the trend of the reported total debt, with growth from nearly $2.9 billion in 2019 to $8.4 billion in 2022. In 2023, adjusted debt receded to about $7.2 billion, continuing the pattern of moderate reduction following a significant increase.

Adjusted Total Equity

Adjusted shareholders' equity rose steadily from approximately $11.3 billion in 2019 to $13.9 billion in 2022. In 2023, a slight decline to $13.3 billion occurred, consistent with the trend observed in reported equity figures.

Adjusted Debt to Equity Ratio

The adjusted debt to equity ratio rose notably from 0.25 in 2019 to 0.60 in 2022, indicating increased leverage on an adjusted basis as well. It subsequently decreased to 0.54 in 2023, reflecting a modest reduction in leverage but remaining elevated compared to earlier years.

Total debt

The total debt exhibited a substantial increase from 2,367 million USD at the end of 2019 to a peak of 7,855 million USD in 2022. Following this peak, there was a decline to 6,696 million USD in 2023, indicating some debt reduction efforts after significant borrowing in the preceding year.

Total capital

Total capital consistently grew over the period, rising from 9,874 million USD in 2019 to a high of 16,830 million USD in 2022 before slightly declining to 15,546 million USD in 2023. This trend suggests overall capital expansion with a minor contraction in the most recent year.

Reported debt to capital ratio

The reported debt to capital ratio increased from 0.24 in 2019 to 0.47 in 2022, reflecting a rising proportion of debt financing relative to total capital. In 2023, this ratio decreased to 0.43, indicating a slight improvement in capital structure with less reliance on debt.

Adjusted total debt

Adjusted total debt followed a similar pattern to reported total debt, starting at 2,868 million USD in 2019 and ascending to 8,355 million USD in 2022. It then decreased to 7,208 million USD in 2023. This adjustment likely accounts for additional liabilities or financial instruments influencing the debt level.

Adjusted total capital

Adjusted total capital showed steady growth from 14,142 million USD in 2019 to 22,240 million USD in 2022, followed by a decrease to 20,514 million USD in 2023. This trend aligns with total capital movements but reflects a higher overall base due to adjustments.

Adjusted debt to capital ratio

The adjusted debt to capital ratio rose from 0.20 in 2019 to 0.38 in 2022, signifying an increasing debt load relative to adjusted capital. Similar to the reported ratio, it decreased to 0.35 in 2023, pointing to a marginal improvement in the financial leverage post-2022 peak.

The analysis of the financial data over the five-year period reveals several key trends concerning the company's asset base, equity, and financial leverage ratios.

Total Assets

The total assets of the company have shown consistent growth each year, increasing from US$19,737 million in 2019 to US$32,005 million in 2023. This represents a significant expansion in the asset base, with the most notable increases occurring between 2021 and 2022.

Total Shareholders’ Equity

Shareholders' equity has generally increased from US$7,507 million in 2019 to a peak of US$8,975 million in 2022, before a slight decline to US$8,850 million in 2023. The overall upward trend indicates retention of earnings or additional equity injections over the majority of the period.

Reported Financial Leverage

The reported financial leverage ratio has progressively risen from 2.63 in 2019 to 3.62 in 2023. This suggests an increasing reliance on debt financing relative to equity, with the steepest growth occurring between 2021 and 2023, indicating a strategic shift towards higher leverage or increased borrowing.

Adjusted Total Assets

The adjusted total assets mirror the trend of total assets, growing steadily from US$19,438 million in 2019 to US$31,247 million in 2023. The similarity in growth pattern underscores the consistency in asset base appraisal even after adjustments.

Adjusted Total Equity

Adjusted total equity rises from US$11,274 million in 2019 to US$13,885 million in 2022, followed by a slight decrease to US$13,306 million in 2023. This pattern reflects a generally favorable capitalization trend with a minor reversal in the final year measured.

Adjusted Financial Leverage

The adjusted financial leverage ratio also shows an increasing trend from 1.72 in 2019 to 2.35 in 2023. This increase indicates a growing degree of leverage when considering adjustments, although the values remain lower than the reported leverage ratios, suggesting adjustments may account for factors that reduce perceived risk or borrowing levels.

Overall, the data indicates a growing asset base with gradually increasing financial leverage over the period. The rising leverage ratios imply a higher proportion of debt financing relative to equity, which may affect the company’s risk profile. The slight declines in equity figures in 2023 suggest a potential change in capital structure or retained earnings dynamics requiring further monitoring.

Net Income and Adjusted Net Income Trends

The net income attributable to Cummins Inc. experienced fluctuations over the five-year period. Starting at $2,260 million in 2019, it declined to $1,789 million in 2020 before rising again to $2,131 million in 2021 and slightly increasing to $2,151 million in 2022. However, there was a significant drop to $735 million in 2023. Adjusted consolidated net income followed a somewhat similar pattern, increasing from $2,279 million in 2019 to a peak of $2,888 million in 2021, dropping sharply to $1,777 million in 2022, and then falling further to $379 million in 2023. This indicates a notable decline in profitability in the most recent year after a period of relative strength in prior years.

Net Sales and Adjusted Net Sales Trends

Net sales showed a generally upward trajectory throughout the period, growing from $23,571 million in 2019 to $34,065 million in 2023. Adjusted net sales mirrored this growth trend, rising from $23,769 million in 2019 to $34,403 million in 2023. The steady increase in sales over the years suggests expansion in revenue generation capacity despite some volatility in profitability metrics.

Profit Margin Analysis

The reported net profit margin declined consistently over the period, starting at 9.59% in 2019 and decreasing to 2.16% in 2023. Adjusted net profit margin initially rose, reaching a peak of 11.94% in 2021, indicating a period of improved operational efficiency or lower one-off charges. However, after 2021, the adjusted margin sharply decreased to 6.3% in 2022 and further declined to 1.1% in 2023. This downward trend highlights increased cost pressures or reduced profitability despite the growth in sales.

Overall Insights

While the company experienced steady growth in sales over the five-year span, profitability showed signs of stress particularly in the last two years. The decline in both reported and adjusted net profit margins, coupled with the sharp decreases in net income and adjusted net income in 2023, may indicate external challenges such as increased costs, market conditions, or other operational difficulties impacting profitability. The divergence between growing revenues and falling profit margins suggests a need for focused analysis on cost management and efficiency improvements going forward.

The financial results over the periods under review reveal several notable trends and shifts in profitability and equity metrics.

Net Income Attributable to Cummins Inc.

Net income experienced a general decline from 2019 to 2020, dropping from $2,260 million to $1,789 million. It subsequently increased in 2021 and 2022, reaching $2,151 million. However, there was a sharp decrease in 2023, with net income falling significantly to $735 million.

Total Cummins Inc. Shareholders’ Equity

The total shareholders’ equity demonstrated a steady upward trajectory from $7,507 million in 2019 to $8,975 million in 2022. In 2023, the equity slightly declined to $8,850 million, indicating a minor setback following the previous years' growth.

Reported Return on Equity (ROE)

The reported ROE followed the pattern of net income, with a strong level of 30.11% in 2019, declining to 22.19% in 2020, then rebounding somewhat in 2021 to 25.15%, and slightly decreasing to 23.97% in 2022. In 2023, the reported ROE experienced a marked reduction to 8.31%, which contrasts sharply with earlier periods and reflects the decline in net income.

Adjusted Consolidated Net Income

Adjusted net income values were somewhat higher compared to the reported net income, indicating adjustments that may smooth underlying income trends. From 2019’s $2,279 million, adjusted income increased to $2,888 million in 2021 but showed volatility thereafter. It declined notably in 2022 to $1,777 million and further plummeted to $379 million in 2023, highlighting substantial earnings pressure in recent years.

Adjusted Total Equity

Adjusted total equity consistently increased from $11,274 million in 2019 to $13,885 million in 2022, suggesting ongoing capital growth or retained earnings accumulation. However, 2023 saw a decrease to $13,306 million, signaling a reversal in that growth trend.

Adjusted Return on Equity (Adjusted ROE)

The adjusted ROE mirrored adjusted net income trends, starting at 20.21% in 2019 and declining steadily to 16.43% in 2020. It rose to 22.66% in 2021 but then sharply declined to 12.8% in 2022 and dropped further to a low of 2.85% in 2023. This significant fall points to reduced profitability relative to shareholders’ equity after adjustments.

Overall, the data indicate a period of initial growth and resilience through 2021, followed by a pronounced downturn in 2022 and a much deeper decline in 2023. Key profitability metrics, including both reported and adjusted net income and ROE, have experienced substantial reductions in the latest year. Shareholders’ equity, both reported and adjusted, showed steady increases until 2022 but then slightly diminished in 2023, suggesting potential challenges in sustaining equity value amidst declining earnings.

The financial data reveals key trends in profitability, asset growth, and return metrics over the five-year period.

Net Income Trends

Net income attributable to the company shows variability, beginning at $2,260 million in 2019 and declining to $1,789 million in 2020. It then recovered to $2,131 million in 2021 and remained relatively stable at $2,151 million in 2022, before experiencing a sharp decline to $735 million in 2023. This indicates a significant decrease in profitability in the most recent year.

Total Assets

Total assets increased steadily over the period from $19.7 billion in 2019 to $32.0 billion in 2023. The most notable jump occurred between 2021 and 2022, where assets rose from $23.7 billion to $30.3 billion, showing substantial asset growth and expansion.

Reported Return on Assets (ROA)

Reported ROA exhibited a downward trend overall. Starting at 11.45% in 2019, it dropped sharply to 7.91% in 2020, shifted slightly upward to 8.99% in 2021, then moved down again to 7.1% in 2022, followed by a pronounced decline to 2.3% in 2023. This trend suggests diminishing efficiency in using assets to generate earnings, especially in the latest year.

Adjusted Consolidated Net Income

Adjusted net income displays a similar pattern to reported net income but with some variation. The figure rose from $2,279 million in 2019 to a peak of $2,888 million in 2021, declined significantly to $1,777 million in 2022, and further dropped to $379 million in 2023. This indicates a more pronounced reduction in adjusted profitability recently.

Adjusted Total Assets

Adjusted total assets track closely with reported total assets, increasing from $19.4 billion in 2019 to $31.2 billion in 2023. The asset base expanded consistently, reflecting ongoing investments or asset accumulation despite profit contractions.

Adjusted ROA

Adjusted ROA follows a fluctuating yet declining pattern. From 11.72% in 2019, it decreased to 8.75% in 2020, climbed sharply to 12.29% in 2021, then plunged to 5.92% in 2022, and further fell to 1.21% in 2023. This volatility, culminating in a steep drop, signals deteriorating asset utilization efficiency under adjusted measures in recent years.

Overall, the data indicates a consistent increase in asset holdings over the period, juxtaposed with fluctuating but generally declining returns on these assets. Profitability, both reported and adjusted, peaked around 2021 before decreasing sharply by 2023, suggesting challenges impacting earnings amid an expanding asset base. The steep declines in ROA and adjusted ROA in the latest year highlight a significant reduction in operational efficiency or profitability relative to assets.