Analysis of Solvency Ratios
Solvency ratios also known as long-term debt ratios measure a company ability to meet long-term obligations.
Solvency Ratios (Summary)
Debt Ratios
Coverage Ratios
Cummins Inc., solvency ratios
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).
An evaluation of the solvency metrics from 2019 to 2023 reveals a general trend of increasing financial leverage and a simultaneous decline in the capacity to cover interest and fixed charges. While several debt-to-equity and debt-to-asset ratios peaked in 2022 and saw a slight correction in 2023, the overall capital structure has become more reliant on debt compared to the 2019 baseline.
- Leverage Ratios
- A significant increase in leverage is observed across multiple metrics. The debt to equity ratio rose from 0.32 in 2019 to a peak of 0.88 in 2022, ending the period at 0.76 in 2023. Similarly, the debt to capital ratio increased from 0.24 in 2019 to 0.43 in 2023. The debt to assets ratio followed a similar trajectory, peaking at 0.26 in 2022 before moderating to 0.21 in 2023. Notably, financial leverage demonstrated a consistent upward trend throughout the five-year period, rising from 2.63 to 3.62.
- Coverage Ratios
- A marked deterioration in coverage capacity is evident. The interest coverage ratio, which stood at 27.00 in 2019, declined sharply to 5.34 by the end of 2023. This downward trend is mirrored in the fixed charge coverage ratio, which decreased from 9.94 in 2019 to 4.01 in 2023. The most acute decline in both metrics occurred between 2022 and 2023, indicating a reduced margin of safety for meeting financial obligations.
- Operating Lease Impact
- The inclusion of operating lease liabilities consistently elevates all debt-related ratios. For instance, the debt to equity ratio including leases peaked at 0.93 in 2022 compared to the 0.88 observed when excluding leases. This indicates that lease obligations contribute a consistent additional layer of financial liability to the overall solvency profile.
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Debt to Equity
Cummins Inc., debt to equity 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) | ||||||
| Loans payable | 280) | 210) | 208) | 169) | 100) | |
| Commercial paper | 1,496) | 2,574) | 313) | 323) | 660) | |
| Current maturities of long-term debt | 118) | 573) | 59) | 62) | 31) | |
| Long-term debt | 4,802) | 4,498) | 3,579) | 3,610) | 1,576) | |
| Total debt | 6,696) | 7,855) | 4,159) | 4,164) | 2,367) | |
| Total Cummins Inc. shareholders’ equity | 8,850) | 8,975) | 8,474) | 8,062) | 7,507) | |
| Solvency Ratio | ||||||
| Debt to equity1 | 0.76 | 0.88 | 0.49 | 0.52 | 0.32 | |
| Benchmarks | ||||||
| Debt to Equity, Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 1.94 | 2.33 | 2.29 | — | — | |
| Eaton Corp. plc | 0.49 | 0.51 | 0.52 | — | — | |
| GE Aerospace | 0.77 | 0.89 | 0.87 | — | — | |
| Honeywell International Inc. | 1.29 | 1.17 | 1.06 | — | — | |
| Lockheed Martin Corp. | 2.55 | 1.68 | 1.07 | — | — | |
| RTX Corp. | 0.73 | 0.44 | 0.43 | — | — | |
| Debt to Equity, Sector | ||||||
| Capital Goods | 1.54 | 1.33 | 1.26 | — | — | |
| Debt to Equity, Industry | ||||||
| Industrials | 1.52 | 1.42 | 1.37 | — | — | |
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 2023 Calculation
Debt to equity = Total debt ÷ Total Cummins Inc. shareholders’ equity
= 6,696 ÷ 8,850 = 0.76
2 Click competitor name to see calculations.
The solvency profile of the organization demonstrates a period of increased leverage between 2019 and 2023, characterized by significant fluctuations in total debt relative to a steadily maintained equity base.
- Debt Accumulation and Reduction
- Total debt exhibited a volatile trajectory, starting at 2,367 million US dollars in 2019 and peaking at 7,855 million US dollars in 2022. A notable surge occurred between 2019 and 2020, followed by a period of stability in 2021. The most substantial increase took place in 2022, after which a reduction to 6,696 million US dollars was recorded by the end of 2023.
- Shareholders' Equity Trends
- Shareholders' equity showed a consistent upward trend from 2019 to 2022, increasing from 7,507 million US dollars to 8,975 million US dollars. This gradual growth provided a partial offset to the rising debt levels, although a marginal decline to 8,850 million US dollars was observed in 2023.
- Debt to Equity Ratio Analysis
- The debt to equity ratio rose from 0.32 in 2019 to a peak of 0.88 in 2022, indicating a shift toward higher financial leverage. While the ratio remained relatively stable at 0.49 in 2021, the sharp climb in 2022 represents the maximum leverage point in the analyzed period. A corrective trend is evident in 2023, where the ratio decreased to 0.76, reflecting a reduction in total liabilities relative to the equity position.
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Debt to Equity (including Operating Lease Liability)
Cummins Inc., debt to equity (including operating lease liability) 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) | ||||||
| Loans payable | 280) | 210) | 208) | 169) | 100) | |
| Commercial paper | 1,496) | 2,574) | 313) | 323) | 660) | |
| Current maturities of long-term debt | 118) | 573) | 59) | 62) | 31) | |
| Long-term debt | 4,802) | 4,498) | 3,579) | 3,610) | 1,576) | |
| Total debt | 6,696) | 7,855) | 4,159) | 4,164) | 2,367) | |
| Current portion of operating lease liabilities | 138) | 132) | 128) | 128) | 131) | |
| Long-term portion of operating lease liabilities | 374) | 368) | 326) | 325) | 370) | |
| Total debt (including operating lease liability) | 7,208) | 8,355) | 4,613) | 4,617) | 2,868) | |
| Total Cummins Inc. shareholders’ equity | 8,850) | 8,975) | 8,474) | 8,062) | 7,507) | |
| Solvency Ratio | ||||||
| Debt to equity (including operating lease liability)1 | 0.81 | 0.93 | 0.54 | 0.57 | 0.38 | |
| Benchmarks | ||||||
| Debt to Equity (including Operating Lease Liability), Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 1.97 | 2.37 | 2.33 | — | — | |
| Eaton Corp. plc | 0.52 | 0.54 | 0.55 | — | — | |
| GE Aerospace | 0.84 | 0.96 | 0.94 | — | — | |
| Honeywell International Inc. | 1.36 | 1.23 | 1.11 | — | — | |
| Lockheed Martin Corp. | 2.73 | 1.81 | 1.19 | — | — | |
| RTX Corp. | 0.76 | 0.47 | 0.46 | — | — | |
| Debt to Equity (including Operating Lease Liability), Sector | ||||||
| Capital Goods | 1.61 | 1.39 | 1.32 | — | — | |
| Debt to Equity (including Operating Lease Liability), Industry | ||||||
| Industrials | 1.71 | 1.59 | 1.54 | — | — | |
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 2023 Calculation
Debt to equity (including operating lease liability) = Total debt (including operating lease liability) ÷ Total Cummins Inc. shareholders’ equity
= 7,208 ÷ 8,850 = 0.81
2 Click competitor name to see calculations.
Between 2019 and 2023, a notable shift in the capital structure occurred, characterized by a significant increase in leverage. While shareholders' equity grew steadily for the majority of the period, the accumulation of total debt, including operating lease liabilities, accelerated at a disproportionate rate, leading to a higher reliance on borrowed funds relative to equity.
- Total Debt Trends
- Total debt experienced a substantial increase from US$ 2,868 million in 2019 to a peak of US$ 8,355 million in 2022. The most significant surge occurred between 2021 and 2022, where debt nearly doubled. A moderate reduction was observed in 2023, with total debt declining to US$ 7,208 million.
- Shareholders' Equity Trends
- Total shareholders' equity demonstrated consistent growth from 2019 through 2022, rising from US$ 7,507 million to US$ 8,975 million. This upward trend suggests a steady accumulation of retained earnings or capital contributions until a slight contraction to US$ 8,850 million occurred in 2023.
- Debt to Equity Ratio Analysis
- The debt to equity ratio reflects the volatility observed in total debt levels. The ratio rose from a conservative 0.38 in 2019 to 0.57 in 2020, remained relatively stable in 2021 at 0.54, and spiked to 0.93 in 2022. By the end of 2023, the ratio moderated to 0.81. The overall trajectory indicates that while the company has reduced its leverage from the 2022 peak, its solvency profile remains more leveraged than it was at the start of the five-year period.
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Debt to Capital
Cummins Inc., debt to capital 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) | ||||||
| Loans payable | 280) | 210) | 208) | 169) | 100) | |
| Commercial paper | 1,496) | 2,574) | 313) | 323) | 660) | |
| Current maturities of long-term debt | 118) | 573) | 59) | 62) | 31) | |
| Long-term debt | 4,802) | 4,498) | 3,579) | 3,610) | 1,576) | |
| Total debt | 6,696) | 7,855) | 4,159) | 4,164) | 2,367) | |
| Total Cummins Inc. shareholders’ equity | 8,850) | 8,975) | 8,474) | 8,062) | 7,507) | |
| Total capital | 15,546) | 16,830) | 12,633) | 12,226) | 9,874) | |
| Solvency Ratio | ||||||
| Debt to capital1 | 0.43 | 0.47 | 0.33 | 0.34 | 0.24 | |
| Benchmarks | ||||||
| Debt to Capital, Competitors2 | ||||||
| Boeing Co. | 1.49 | 1.39 | 1.35 | — | — | |
| Caterpillar Inc. | 0.66 | 0.70 | 0.70 | — | — | |
| Eaton Corp. plc | 0.33 | 0.34 | 0.34 | — | — | |
| GE Aerospace | 0.43 | 0.47 | 0.47 | — | — | |
| Honeywell International Inc. | 0.56 | 0.54 | 0.51 | — | — | |
| Lockheed Martin Corp. | 0.72 | 0.63 | 0.52 | — | — | |
| RTX Corp. | 0.42 | 0.31 | 0.30 | — | — | |
| Debt to Capital, Sector | ||||||
| Capital Goods | 0.61 | 0.57 | 0.56 | — | — | |
| Debt to Capital, Industry | ||||||
| Industrials | 0.60 | 0.59 | 0.58 | — | — | |
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 2023 Calculation
Debt to capital = Total debt ÷ Total capital
= 6,696 ÷ 15,546 = 0.43
2 Click competitor name to see calculations.
An analysis of the solvency profile between 2019 and 2023 reveals a significant expansion in leverage, followed by a moderate correction in the final year. The company transitioned from a conservative capital structure to a more debt-reliant position, with the debt to capital ratio nearly doubling from its 2019 baseline before stabilizing slightly in 2023.
- Debt Accumulation Trends
- Total debt experienced a substantial increase from US$ 2,367 million in 2019 to US$ 4,164 million in 2020, remaining relatively stagnant through 2021. A sharp escalation occurred in 2022, where total debt reached a peak of US$ 7,855 million, representing more than a three-fold increase compared to the 2019 levels.
- Capital Base Evolution
- Total capital grew steadily from US$ 9,874 million in 2019 to US$ 16,830 million in 2022. This growth occurred in tandem with the increase in debt, although the pace of debt accumulation outstripped the growth of the overall capital base during peak borrowing periods.
- Debt to Capital Ratio Fluctuations
- The debt to capital ratio rose from 0.24 in 2019 to 0.34 in 2020, holding steady at 0.33 in 2021. The ratio reached its maximum value of 0.47 in 2022, indicating that nearly half of the total capital was comprised of debt. By December 31, 2023, the ratio declined to 0.43, coinciding with a reduction in total debt to US$ 6,696 million and a decrease in total capital to US$ 15,546 million.
The overall trajectory indicates a strategic shift toward higher leverage peaking in 2022, followed by a period of deleveraging in 2023. Despite the recent decline, the solvency position remains significantly more leveraged than the levels observed at the start of the five-year period.
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Debt to Capital (including Operating Lease Liability)
Cummins Inc., debt to capital (including operating lease liability) 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) | ||||||
| Loans payable | 280) | 210) | 208) | 169) | 100) | |
| Commercial paper | 1,496) | 2,574) | 313) | 323) | 660) | |
| Current maturities of long-term debt | 118) | 573) | 59) | 62) | 31) | |
| Long-term debt | 4,802) | 4,498) | 3,579) | 3,610) | 1,576) | |
| Total debt | 6,696) | 7,855) | 4,159) | 4,164) | 2,367) | |
| Current portion of operating lease liabilities | 138) | 132) | 128) | 128) | 131) | |
| Long-term portion of operating lease liabilities | 374) | 368) | 326) | 325) | 370) | |
| Total debt (including operating lease liability) | 7,208) | 8,355) | 4,613) | 4,617) | 2,868) | |
| Total Cummins Inc. shareholders’ equity | 8,850) | 8,975) | 8,474) | 8,062) | 7,507) | |
| Total capital (including operating lease liability) | 16,058) | 17,330) | 13,087) | 12,679) | 10,375) | |
| Solvency Ratio | ||||||
| Debt to capital (including operating lease liability)1 | 0.45 | 0.48 | 0.35 | 0.36 | 0.28 | |
| Benchmarks | ||||||
| Debt to Capital (including Operating Lease Liability), Competitors2 | ||||||
| Boeing Co. | 1.47 | 1.37 | 1.34 | — | — | |
| Caterpillar Inc. | 0.66 | 0.70 | 0.70 | — | — | |
| Eaton Corp. plc | 0.34 | 0.35 | 0.36 | — | — | |
| GE Aerospace | 0.46 | 0.49 | 0.49 | — | — | |
| Honeywell International Inc. | 0.58 | 0.55 | 0.53 | — | — | |
| Lockheed Martin Corp. | 0.73 | 0.64 | 0.54 | — | — | |
| RTX Corp. | 0.43 | 0.32 | 0.31 | — | — | |
| Debt to Capital (including Operating Lease Liability), Sector | ||||||
| Capital Goods | 0.62 | 0.58 | 0.57 | — | — | |
| Debt to Capital (including Operating Lease Liability), Industry | ||||||
| Industrials | 0.63 | 0.61 | 0.61 | — | — | |
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 2023 Calculation
Debt to capital (including operating lease liability) = Total debt (including operating lease liability) ÷ Total capital (including operating lease liability)
= 7,208 ÷ 16,058 = 0.45
2 Click competitor name to see calculations.
The solvency profile of the organization experienced a notable shift between 2019 and 2023, characterized by an overall increase in leverage and a corresponding expansion of the capital base. While a slight reduction in both debt and capital occurred in the final year of the period, the structural reliance on borrowed funds remained elevated compared to the 2019 baseline.
- Total Debt including Operating Lease Liability
- A substantial upward trend in total debt was observed from December 31, 2019, through December 31, 2022. Debt levels rose from 2,868 million US$ to a peak of 8,355 million US$, representing a significant increase in financial obligations. This growth was most pronounced between 2021 and 2022. A subsequent decrease to 7,208 million US$ was recorded by the end of 2023.
- Total Capital including Operating Lease Liability
- Total capital grew steadily from 10,375 million US$ in 2019 to 17,330 million US$ in 2022. This expansion suggests that the capital base grew in tandem with the increase in borrowed funds. Similar to the trend seen in total debt, total capital contracted in 2023, ending the period at 16,058 million US$.
- Debt to Capital Ratio
- The debt to capital ratio climbed from 0.28 in 2019 to a peak of 0.48 in 2022, indicating a shift toward a more leveraged capital structure. Despite a marginal decline to 0.45 in 2023, the ratio reflects a long-term increase in the proportion of debt used to finance the organization's assets and operations over the five-year period.
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Debt to Assets
Cummins Inc., debt to assets calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Loans payable | 280) | 210) | 208) | 169) | 100) | |
| Commercial paper | 1,496) | 2,574) | 313) | 323) | 660) | |
| Current maturities of long-term debt | 118) | 573) | 59) | 62) | 31) | |
| Long-term debt | 4,802) | 4,498) | 3,579) | 3,610) | 1,576) | |
| Total debt | 6,696) | 7,855) | 4,159) | 4,164) | 2,367) | |
| Total assets | 32,005) | 30,299) | 23,710) | 22,624) | 19,737) | |
| Solvency Ratio | ||||||
| Debt to assets1 | 0.21 | 0.26 | 0.18 | 0.18 | 0.12 | |
| Benchmarks | ||||||
| Debt to Assets, Competitors2 | ||||||
| Boeing Co. | 0.38 | 0.42 | 0.42 | — | — | |
| Caterpillar Inc. | 0.43 | 0.45 | 0.46 | — | — | |
| Eaton Corp. plc | 0.24 | 0.25 | 0.25 | — | — | |
| GE Aerospace | 0.13 | 0.17 | 0.18 | — | — | |
| Honeywell International Inc. | 0.33 | 0.31 | 0.30 | — | — | |
| Lockheed Martin Corp. | 0.33 | 0.29 | 0.23 | — | — | |
| RTX Corp. | 0.27 | 0.20 | 0.20 | — | — | |
| Debt to Assets, Sector | ||||||
| Capital Goods | 0.29 | 0.28 | 0.28 | — | — | |
| Debt to Assets, Industry | ||||||
| Industrials | 0.31 | 0.31 | 0.30 | — | — | |
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 2023 Calculation
Debt to assets = Total debt ÷ Total assets
= 6,696 ÷ 32,005 = 0.21
2 Click competitor name to see calculations.
The analysis of solvency ratios between 2019 and 2023 reveals a period of consistent asset expansion coupled with fluctuating debt levels, resulting in a net increase in financial leverage over the five-year horizon.
- Asset Growth Pattern
- Total assets exhibited a steady and uninterrupted upward trend, growing from 19,737 million US dollars in 2019 to 32,005 million US dollars by the end of 2023. This represents a substantial increase in the organization's total resource base.
- Debt Accumulation and Reduction
- Total debt experienced significant volatility, nearly doubling between 2019 and 2020, moving from 2,367 million US dollars to 4,164 million US dollars. Debt levels reached a peak in 2022 at 7,855 million US dollars before undergoing a reduction to 6,696 million US dollars in 2023.
- Debt to Assets Ratio Analysis
- The debt to assets ratio reflects the correlation between asset growth and borrowing. The ratio rose from 0.12 in 2019 to a peak of 0.26 in 2022, indicating that debt grew at a faster rate than assets during this interval. A subsequent decline to 0.21 in 2023 suggests a movement toward a more conservative solvency position, although the leverage remains higher than the 2019 baseline.
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Debt to Assets (including Operating Lease Liability)
Cummins Inc., debt to assets (including operating lease liability) 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) | ||||||
| Loans payable | 280) | 210) | 208) | 169) | 100) | |
| Commercial paper | 1,496) | 2,574) | 313) | 323) | 660) | |
| Current maturities of long-term debt | 118) | 573) | 59) | 62) | 31) | |
| Long-term debt | 4,802) | 4,498) | 3,579) | 3,610) | 1,576) | |
| Total debt | 6,696) | 7,855) | 4,159) | 4,164) | 2,367) | |
| Current portion of operating lease liabilities | 138) | 132) | 128) | 128) | 131) | |
| Long-term portion of operating lease liabilities | 374) | 368) | 326) | 325) | 370) | |
| Total debt (including operating lease liability) | 7,208) | 8,355) | 4,613) | 4,617) | 2,868) | |
| Total assets | 32,005) | 30,299) | 23,710) | 22,624) | 19,737) | |
| Solvency Ratio | ||||||
| Debt to assets (including operating lease liability)1 | 0.23 | 0.28 | 0.19 | 0.20 | 0.15 | |
| Benchmarks | ||||||
| Debt to Assets (including Operating Lease Liability), Competitors2 | ||||||
| Boeing Co. | 0.40 | 0.43 | 0.43 | — | — | |
| Caterpillar Inc. | 0.44 | 0.46 | 0.46 | — | — | |
| Eaton Corp. plc | 0.26 | 0.26 | 0.27 | — | — | |
| GE Aerospace | 0.14 | 0.19 | 0.19 | — | — | |
| Honeywell International Inc. | 0.35 | 0.33 | 0.32 | — | — | |
| Lockheed Martin Corp. | 0.36 | 0.32 | 0.26 | — | — | |
| RTX Corp. | 0.28 | 0.21 | 0.21 | — | — | |
| Debt to Assets (including Operating Lease Liability), Sector | ||||||
| Capital Goods | 0.30 | 0.30 | 0.29 | — | — | |
| Debt to Assets (including Operating Lease Liability), Industry | ||||||
| Industrials | 0.35 | 0.34 | 0.34 | — | — | |
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 2023 Calculation
Debt to assets (including operating lease liability) = Total debt (including operating lease liability) ÷ Total assets
= 7,208 ÷ 32,005 = 0.23
2 Click competitor name to see calculations.
The analysis of solvency metrics between 2019 and 2023 reveals a period of increasing financial leverage that peaked in 2022, followed by a moderate reduction in the most recent fiscal year. While total assets grew consistently throughout the five-year period, total debt, including operating lease liabilities, experienced more volatile fluctuations.
- Total Debt and Asset Growth
- Total assets exhibited a steady upward trajectory, increasing from 19,737 million US dollars in 2019 to 32,005 million US dollars in 2023. In contrast, total debt increased more aggressively, rising from 2,868 million US dollars in 2019 to a peak of 8,355 million US dollars in 2022. A subsequent reduction occurred in 2023, bringing total debt down to 7,208 million US dollars.
- Debt to Assets Ratio Trends
- The debt to assets ratio reflects the volatility of debt levels relative to the steady growth of assets. The ratio rose from 0.15 in 2019 to 0.20 in 2020, remained relatively stable at 0.19 in 2021, and spiked to a five-year high of 0.28 in 2022. This peak indicates that 28% of the asset base was financed through debt and lease liabilities during that period.
- Recent Solvency Improvement
- A corrective trend emerged in 2023, where the debt to assets ratio declined to 0.23. This improvement was driven by the dual effect of a reduction in total debt and a continued increase in total assets, suggesting a shift toward a more conservative capital structure compared to the peak observed in 2022.
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Financial Leverage
Cummins Inc., financial leverage 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) | ||||||
| Total assets | 32,005) | 30,299) | 23,710) | 22,624) | 19,737) | |
| Total Cummins Inc. shareholders’ equity | 8,850) | 8,975) | 8,474) | 8,062) | 7,507) | |
| Solvency Ratio | ||||||
| Financial leverage1 | 3.62 | 3.38 | 2.80 | 2.81 | 2.63 | |
| Benchmarks | ||||||
| Financial Leverage, Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 4.49 | 5.16 | 5.02 | — | — | |
| Eaton Corp. plc | 2.02 | 2.06 | 2.07 | — | — | |
| GE Aerospace | 5.96 | 5.16 | 4.93 | — | — | |
| Honeywell International Inc. | 3.88 | 3.73 | 3.47 | — | — | |
| Lockheed Martin Corp. | 7.67 | 5.71 | 4.64 | — | — | |
| RTX Corp. | 2.71 | 2.19 | 2.21 | — | — | |
| Financial Leverage, Sector | ||||||
| Capital Goods | 5.35 | 4.71 | 4.55 | — | — | |
| Financial Leverage, Industry | ||||||
| Industrials | 4.94 | 4.65 | 4.52 | — | — | |
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 2023 Calculation
Financial leverage = Total assets ÷ Total Cummins Inc. shareholders’ equity
= 32,005 ÷ 8,850 = 3.62
2 Click competitor name to see calculations.
A consistent upward trend in financial leverage is observed from 2019 to 2023, indicating an increasing reliance on debt or external liabilities to finance the growth of the asset base. While total assets grew substantially over the five-year period, shareholders' equity did not scale at a proportional rate, leading to a deterioration in the solvency profile as measured by the leverage ratio.
- Asset Expansion
- Total assets exhibited significant growth, rising from 19,737 million USD in 2019 to 32,005 million USD by the end of 2023. A notable acceleration occurred between 2021 and 2022, where assets increased from 23,710 million USD to 30,299 million USD, representing a substantial expansion of the company's resource base.
- Equity Trends
- Shareholders' equity showed moderate growth between 2019 and 2022, moving from 7,507 million USD to a peak of 8,975 million USD. However, a slight contraction was recorded in 2023, with equity declining to 8,850 million USD, which contributed to the further increase in the leverage ratio during the final year of the analyzed period.
- Financial Leverage Analysis
- The financial leverage ratio increased from 2.63 in 2019 to 3.62 in 2023. The ratio remained relatively stable between 2020 and 2021, fluctuating around 2.80. However, a sharp increase began in 2022, rising to 3.38 and continuing upward to 3.62 in 2023. This trend suggests that the growth in total assets is being funded primarily through liabilities rather than through retained earnings or new equity contributions.
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Interest Coverage
Cummins Inc., interest coverage 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 income attributable to Cummins Inc. | 735) | 2,151) | 2,131) | 1,789) | 2,260) | |
| Add: Net income attributable to noncontrolling interest | 105) | 32) | 33) | 22) | 8) | |
| Add: Income tax expense | 786) | 636) | 587) | 527) | 566) | |
| Add: Interest expense | 375) | 199) | 111) | 100) | 109) | |
| Earnings before interest and tax (EBIT) | 2,001) | 3,018) | 2,862) | 2,438) | 2,943) | |
| Solvency Ratio | ||||||
| Interest coverage1 | 5.34 | 15.17 | 25.78 | 24.38 | 27.00 | |
| Benchmarks | ||||||
| Interest Coverage, Competitors2 | ||||||
| Boeing Co. | 0.18 | -0.98 | -0.88 | — | — | |
| Caterpillar Inc. | 26.66 | 20.80 | 17.88 | — | — | |
| Eaton Corp. plc | 26.34 | 21.22 | 21.11 | — | — | |
| GE Aerospace | 10.12 | 1.88 | -0.96 | — | — | |
| Honeywell International Inc. | 10.36 | 16.41 | 22.09 | — | — | |
| Lockheed Martin Corp. | 9.84 | 11.72 | 14.27 | — | — | |
| RTX Corp. | 3.32 | 5.64 | 4.71 | — | — | |
| Interest Coverage, Sector | ||||||
| Capital Goods | 6.84 | 4.84 | 3.98 | — | — | |
| Interest Coverage, Industry | ||||||
| Industrials | 6.64 | 4.98 | 5.14 | — | — | |
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 2023 Calculation
Interest coverage = EBIT ÷ Interest expense
= 2,001 ÷ 375 = 5.34
2 Click competitor name to see calculations.
The interest coverage capacity of the organization has undergone a substantial decline from 2019 to 2023, signaling a weakening in the margin of safety available to meet interest obligations. While solvency remained robust through 2021, a compounding effect of declining operational earnings and rising finance costs has significantly compressed the coverage ratio in the final two years of the observed period.
- Earnings Before Interest and Tax (EBIT)
- Operating profitability remained relatively stable between 2019 and 2022, reaching a peak of 3,018 million US$ in 2022. However, a notable contraction occurred in 2023, where EBIT fell to 2,001 million US$, representing a significant decrease from the previous year's peak.
- Interest Expense
- Interest costs were stable from 2019 to 2021, fluctuating minimally between 100 and 111 million US$. A sharp upward trend emerged in 2022, with expenses rising to 199 million US$, followed by a substantial increase to 375 million US$ in 2023. This indicates a rapid escalation in the cost of debt servicing.
- Interest Coverage Ratio
- The ratio exhibited a severe downward trajectory, falling from 27.00 in 2019 to 5.34 in 2023. The most aggressive deterioration occurred between 2021 and 2023, as the ratio dropped from 25.78 to 5.34. This trend is the direct result of the simultaneous decline in operating income and the sharp rise in interest expenditures, which together have reduced the company's ability to cover its interest payments from its operating profits.
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Fixed Charge Coverage
Cummins Inc., fixed charge coverage 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 income attributable to Cummins Inc. | 735) | 2,151) | 2,131) | 1,789) | 2,260) | |
| Add: Net income attributable to noncontrolling interest | 105) | 32) | 33) | 22) | 8) | |
| Add: Income tax expense | 786) | 636) | 587) | 527) | 566) | |
| Add: Interest expense | 375) | 199) | 111) | 100) | 109) | |
| Earnings before interest and tax (EBIT) | 2,001) | 3,018) | 2,862) | 2,438) | 2,943) | |
| Add: Operating lease cost | 165) | 160) | 172) | 172) | 208) | |
| Earnings before fixed charges and tax | 2,166) | 3,178) | 3,034) | 2,610) | 3,151) | |
| Interest expense | 375) | 199) | 111) | 100) | 109) | |
| Operating lease cost | 165) | 160) | 172) | 172) | 208) | |
| Fixed charges | 540) | 359) | 283) | 272) | 317) | |
| Solvency Ratio | ||||||
| Fixed charge coverage1 | 4.01 | 8.85 | 10.72 | 9.60 | 9.94 | |
| Benchmarks | ||||||
| Fixed Charge Coverage, Competitors2 | ||||||
| Boeing Co. | 0.31 | -0.70 | -0.64 | — | — | |
| Caterpillar Inc. | 19.73 | 14.92 | 12.73 | — | — | |
| Eaton Corp. plc | 11.90 | 10.01 | 10.40 | — | — | |
| GE Aerospace | 5.25 | 1.35 | -0.22 | — | — | |
| Honeywell International Inc. | 8.13 | 11.00 | 13.67 | — | — | |
| Lockheed Martin Corp. | 7.81 | 8.44 | 9.95 | — | — | |
| RTX Corp. | 2.81 | 4.40 | 3.66 | — | — | |
| Fixed Charge Coverage, Sector | ||||||
| Capital Goods | 5.14 | 3.61 | 3.06 | — | — | |
| Fixed Charge Coverage, Industry | ||||||
| Industrials | 4.32 | 3.30 | 3.44 | — | — | |
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 2023 Calculation
Fixed charge coverage = Earnings before fixed charges and tax ÷ Fixed charges
= 2,166 ÷ 540 = 4.01
2 Click competitor name to see calculations.
The analysis of fixed charge coverage from 2019 to 2023 reveals a significant deterioration in the company's solvency margin. While the organization maintained a high capacity to service its fixed obligations for the majority of the period, the most recent fiscal year shows a marked contraction in financial headroom.
- Earnings Before Fixed Charges and Tax
- Earnings exhibited volatility throughout the observed period. A dip occurred in 2020, with values falling to US$ 2,610 million, followed by a recovery phase that peaked in 2022 at US$ 3,178 million. However, 2023 recorded a substantial decline to US$ 2,166 million, representing the lowest earnings level across the five-year span.
- Fixed Charges
- Fixed charges remained relatively stable between 2019 and 2021, fluctuating within a narrow range between US$ 272 million and US$ 317 million. An upward trend emerged in 2022 as charges rose to US$ 359 million, followed by a sharp increase to US$ 540 million in 2023. This represents a significant escalation in the company's fixed financial commitments.
- Fixed Charge Coverage Ratio
- The coverage ratio maintained a strong position from 2019 through 2021, reaching a peak of 10.72. A decline began in 2022, with the ratio sliding to 8.85. This downward momentum accelerated sharply in 2023, resulting in a ratio of 4.01. The compression of this ratio is attributable to the simultaneous impact of decreasing earnings and rapidly increasing fixed charges.
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