Analysis of Profitability Ratios
Profitability ratios measure the company ability to generate profitable sales from its resources (assets).
Profitability Ratios (Summary)
Return on Sales
Return on Investment
Cummins Inc., profitability 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 analysis of profitability metrics from 2019 to 2023 reveals a significant deterioration in bottom-line performance, characterized by a severe contraction in margins and returns during the final reporting period.
- Profit Margin Trends
- The gross profit margin demonstrated relative resilience, fluctuating within a narrow range from a high of 25.37% in 2019 to a low of 23.71% in 2021, before recovering slightly to 24.22% by 2023. In contrast, the operating profit margin remained stable until 2021, after which it entered a sharp decline, falling from 10.43% in 2022 to 5.17% in 2023. The net profit margin exhibited a consistent downward trajectory throughout the five-year period, decreasing from 9.59% in 2019 to 2.16% in 2023. The widening gap between the stable gross margin and the plummeting net margin suggests that operating expenses or non-operating costs increased substantially toward the end of the period.
- Efficiency and Return Metrics
- Return on Equity (ROE) showed significant volatility, starting at 30.11% in 2019 and maintaining a range between 22.19% and 25.15% from 2020 to 2022, before experiencing a precipitous drop to 8.31% in 2023. Similarly, Return on Assets (ROA) followed a general downward trend, declining from 11.45% in 2019 to 2.30% in 2023. The simultaneous collapse of ROE and ROA in 2023 aligns with the degradation of the net profit margin, indicating a marked reduction in the company's ability to generate profit from its asset base and shareholder investments.
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Gross Profit Margin
Cummins Inc., gross profit margin 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) | ||||||
| Gross margin | 8,249) | 6,719) | 5,695) | 4,894) | 5,980) | |
| Net sales | 34,065) | 28,074) | 24,021) | 19,811) | 23,571) | |
| Profitability Ratio | ||||||
| Gross profit margin1 | 24.22% | 23.93% | 23.71% | 24.70% | 25.37% | |
| Benchmarks | ||||||
| Gross Profit Margin, Competitors2 | ||||||
| Boeing Co. | 9.93% | 5.26% | 4.84% | — | — | |
| Caterpillar Inc. | 33.04% | 26.91% | 26.30% | — | — | |
| Eaton Corp. plc | 36.36% | 33.19% | 32.28% | — | — | |
| GE Aerospace | 21.95% | 24.55% | 24.19% | — | — | |
| Honeywell International Inc. | 37.28% | 36.99% | 35.85% | — | — | |
| Lockheed Martin Corp. | 12.55% | 12.56% | 13.52% | — | — | |
| RTX Corp. | 17.54% | 20.38% | 19.40% | — | — | |
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
Gross profit margin = 100 × Gross margin ÷ Net sales
= 100 × 8,249 ÷ 34,065 = 24.22%
2 Click competitor name to see calculations.
Net sales and absolute gross margin exhibited a synchronized pattern of volatility followed by sustained growth over the five-year period. A notable contraction occurred in 2020, after which both metrics entered a strong expansion phase, culminating in peak values by the end of 2023.
- Net Sales Performance
- Revenue experienced a decline between 2019 and 2020, falling from 23,571 million to 19,811 million. This was followed by a consistent upward trajectory, with sales increasing to 34,065 million by December 31, 2023, representing a significant overall expansion in top-line volume.
- Gross Profit Absolute Trends
- Gross margin in absolute dollar terms mirrored the revenue trend, decreasing to 4,894 million in 2020 before rising steadily to 8,249 million in 2023. The growth in absolute gross profit since 2021 indicates a successful expansion of the total volume of profitable sales.
- Gross Profit Margin Percentage Analysis
- The gross profit margin percentage demonstrated a slight downward trend in the early part of the period, moving from 25.37% in 2019 to a low of 23.71% in 2021. Since 2021, a gradual recovery has been observed, with the margin improving to 23.93% in 2022 and reaching 24.22% in 2023. While the percentage is trending upward, it remains below the 2019 baseline, suggesting that absolute growth has outpaced the recovery of the margin percentage.
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Operating Profit Margin
Cummins Inc., operating profit margin 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) | ||||||
| Operating income | 1,761) | 2,929) | 2,706) | 2,269) | 2,700) | |
| Net sales | 34,065) | 28,074) | 24,021) | 19,811) | 23,571) | |
| Profitability Ratio | ||||||
| Operating profit margin1 | 5.17% | 10.43% | 11.27% | 11.45% | 11.45% | |
| Benchmarks | ||||||
| Operating Profit Margin, Competitors2 | ||||||
| Boeing Co. | -0.99% | -5.33% | -4.66% | — | — | |
| Caterpillar Inc. | 20.30% | 13.97% | 14.27% | — | — | |
| Eaton Corp. plc | 16.75% | 14.55% | 15.69% | — | — | |
| GE Aerospace | 8.49% | 6.05% | 8.58% | — | — | |
| Honeywell International Inc. | 19.32% | 18.12% | 18.03% | — | — | |
| Lockheed Martin Corp. | 12.59% | 12.65% | 13.61% | — | — | |
| RTX Corp. | 5.17% | 8.07% | 7.70% | — | — | |
| Operating Profit Margin, Sector | ||||||
| Capital Goods | 10.11% | 8.29% | 9.11% | — | — | |
| Operating Profit Margin, Industry | ||||||
| Industrials | 9.90% | 9.06% | 9.24% | — | — | |
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
Operating profit margin = 100 × Operating income ÷ Net sales
= 100 × 1,761 ÷ 34,065 = 5.17%
2 Click competitor name to see calculations.
An analysis of the financial performance from 2019 to 2023 reveals a significant divergence between revenue growth and operational profitability. While net sales demonstrated a strong upward trajectory in the latter part of the period, operating income and the associated profit margins experienced a severe contraction by the end of 2023.
- Net Sales Trends
- Revenue experienced a temporary decline in 2020, dropping to 19,811 million US dollars. However, a consistent growth phase followed, with sales increasing to 24,021 million in 2021 and 28,074 million in 2022. This growth accelerated sharply in 2023, reaching a peak of 34,065 million US dollars, representing a substantial increase in market reach or pricing volume.
- Operating Income Performance
- Operating income remained relatively resilient between 2019 and 2022, peaking at 2,929 million US dollars in 2022. However, 2023 marked a critical inflection point where operating income plummeted to 1,761 million US dollars. This decline occurred despite the record high in net sales, indicating that operating expenses grew at a rate far exceeding revenue gains.
- Operating Profit Margin Analysis
- The operating profit margin exhibited stability early in the period, maintaining a level of 11.45% across 2019 and 2020. A gradual erosion began in 2021 (11.27%) and continued into 2022 (10.43%). A precipitous drop is observed in 2023, where the margin fell to 5.17%. This represents a reduction of more than half of the operational profitability compared to the previous year, highlighting a significant decrease in operational efficiency or a sharp increase in the cost of goods sold and operating expenses.
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Net Profit Margin
Cummins Inc., net profit margin 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) | |
| Net sales | 34,065) | 28,074) | 24,021) | 19,811) | 23,571) | |
| Profitability Ratio | ||||||
| Net profit margin1 | 2.16% | 7.66% | 8.87% | 9.03% | 9.59% | |
| Benchmarks | ||||||
| Net Profit Margin, Competitors2 | ||||||
| Boeing Co. | -2.86% | -7.41% | -6.75% | — | — | |
| Caterpillar Inc. | 16.18% | 11.85% | 13.47% | — | — | |
| Eaton Corp. plc | 13.87% | 11.86% | 10.92% | — | — | |
| GE Aerospace | 14.68% | 0.31% | -9.17% | — | — | |
| Honeywell International Inc. | 15.43% | 14.00% | 16.11% | — | — | |
| Lockheed Martin Corp. | 10.24% | 8.69% | 9.42% | — | — | |
| RTX Corp. | 4.64% | 7.75% | 6.00% | — | — | |
| Net Profit Margin, Sector | ||||||
| Capital Goods | 9.09% | 5.27% | 3.71% | — | — | |
| Net Profit Margin, Industry | ||||||
| Industrials | 8.32% | 5.04% | 5.85% | — | — | |
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
Net profit margin = 100 × Net income attributable to Cummins Inc. ÷ Net sales
= 100 × 735 ÷ 34,065 = 2.16%
2 Click competitor name to see calculations.
Analysis of the profitability metrics from 2019 to 2023 reveals a significant divergence between revenue growth and bottom-line profitability. While top-line performance demonstrated strong expansion, the net profit margin experienced a consistent decline, culminating in a sharp contraction in the final year of the period.
- Revenue Trends
- Net sales exhibited a volatile but overall upward trajectory. After a decline in 2020 to 19,811 million US$, sales grew steadily, reaching a five-year peak of 34,065 million US$ by December 31, 2023. This indicates substantial growth in sales volume or pricing during the latter half of the period.
- Net Income Performance
- Net income remained relatively resilient between 2019 and 2022, maintaining a range between 1,789 million US$ and 2,260 million US$. However, a precipitous decline occurred in 2023, with net income falling to 735 million US$. This drop is particularly notable as it occurred simultaneously with the highest recorded net sales in the provided timeframe.
- Net Profit Margin Erosion
- The net profit margin shows a continuous downward trend. Starting at 9.59% in 2019, the margin declined steadily to 8.87% in 2021 and 7.66% in 2022. The most severe contraction occurred in 2023, where the margin dropped to 2.16%. This pattern suggests that operational costs or non-operating expenses increased disproportionately to revenue, significantly eroding the company's ability to convert sales into profit.
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Return on Equity (ROE)
Cummins Inc., ROE 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) | |
| Total Cummins Inc. shareholders’ equity | 8,850) | 8,975) | 8,474) | 8,062) | 7,507) | |
| Profitability Ratio | ||||||
| ROE1 | 8.31% | 23.97% | 25.15% | 22.19% | 30.11% | |
| Benchmarks | ||||||
| ROE, Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 53.02% | 42.25% | 39.37% | — | — | |
| Eaton Corp. plc | 16.90% | 14.45% | 13.06% | — | — | |
| GE Aerospace | 34.63% | 0.62% | -16.17% | — | — | |
| Honeywell International Inc. | 35.68% | 29.74% | 29.85% | — | — | |
| Lockheed Martin Corp. | 101.24% | 61.86% | 57.62% | — | — | |
| RTX Corp. | 5.34% | 7.16% | 5.29% | — | — | |
| ROE, Sector | ||||||
| Capital Goods | 27.89% | 13.39% | 8.48% | — | — | |
| ROE, Industry | ||||||
| Industrials | 27.70% | 15.38% | 15.38% | — | — | |
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
ROE = 100 × Net income attributable to Cummins Inc. ÷ Total Cummins Inc. shareholders’ equity
= 100 × 735 ÷ 8,850 = 8.31%
2 Click competitor name to see calculations.
The financial performance from 2019 to 2023 demonstrates a significant degradation in profitability efficiency, culminating in a sharp decline during the final year of the analyzed period. While the equity base expanded steadily for the majority of the timeframe, the volatility and subsequent contraction in net income severely impacted the Return on Equity (ROE).
- Net Income Trajectory
- Net income experienced fluctuations between 2019 and 2022, falling to US$ 1,789 million in 2020 before recovering to a peak of US$ 2,151 million by 2022. A substantial contraction occurred in 2023, with net income dropping to US$ 735 million, marking a significant departure from the earnings levels maintained in the preceding four years.
- Shareholders' Equity Evolution
- Total shareholders' equity showed a consistent upward trend from 2019 through 2022, rising from US$ 7,507 million to US$ 8,975 million. This indicates a steady growth in the company's book value over this period, although a slight reduction to US$ 8,850 million was observed in 2023.
- Return on Equity (ROE) Interpretation
- ROE reached its highest point in 2019 at 30.11% and remained relatively stable, ranging between 22.19% and 25.15%, from 2020 to 2022. The collapse in net income in 2023, occurring alongside a high equity base, resulted in a precipitous decline in ROE to 8.31%. This suggests a marked decrease in the effectiveness of capital utilization to generate profit for shareholders during the final year.
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Return on Assets (ROA)
Cummins Inc., ROA 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) | |
| Total assets | 32,005) | 30,299) | 23,710) | 22,624) | 19,737) | |
| Profitability Ratio | ||||||
| ROA1 | 2.30% | 7.10% | 8.99% | 7.91% | 11.45% | |
| Benchmarks | ||||||
| ROA, Competitors2 | ||||||
| Boeing Co. | -1.62% | -3.60% | -3.03% | — | — | |
| Caterpillar Inc. | 11.81% | 8.18% | 7.84% | — | — | |
| Eaton Corp. plc | 8.37% | 7.03% | 6.30% | — | — | |
| GE Aerospace | 5.81% | 0.12% | -3.28% | — | — | |
| Honeywell International Inc. | 9.20% | 7.97% | 8.60% | — | — | |
| Lockheed Martin Corp. | 13.19% | 10.84% | 12.41% | — | — | |
| RTX Corp. | 1.97% | 3.27% | 2.39% | — | — | |
| ROA, Sector | ||||||
| Capital Goods | 5.21% | 2.84% | 1.86% | — | — | |
| ROA, Industry | ||||||
| Industrials | 5.61% | 3.31% | 3.40% | — | — | |
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
ROA = 100 × Net income attributable to Cummins Inc. ÷ Total assets
= 100 × 735 ÷ 32,005 = 2.30%
2 Click competitor name to see calculations.
The profitability efficiency of the organization, as measured by the Return on Assets (ROA), has experienced a marked decline over the five-year period from 2019 to 2023. This downward trajectory reflects a widening divergence between the expansion of the asset base and the generation of net income.
- Return on Assets Trend
- A consistent downward trend in ROA is observed, falling from a peak of 11.45% in 2019 to a period low of 2.30% by December 31, 2023. Although a temporary recovery to 8.99% occurred in 2021, the metric failed to sustain previous levels, indicating a diminishing capacity to extract profit from the total asset investment.
- Asset Base Expansion
- Total assets exhibited continuous growth throughout the analyzed period, increasing from US$ 19,737 million in 2019 to US$ 32,005 million in 2023. The steady accumulation of assets has created a larger denominator for the ROA calculation, which puts downward pressure on the ratio unless accompanied by proportional increases in net income.
- Net Income Performance
- Net income remained relatively stable between 2019 and 2022, fluctuating between US$ 1,789 million and US$ 2,260 million. However, a precipitous decline is noted in 2023, where net income dropped to US$ 735 million. This sharp contraction in earnings, coinciding with the highest asset level in the five-year period, is the primary driver for the significant compression of the ROA to 2.30%.
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