Cummins Inc. (NYSE:CMI)

Inventory Turnover

The inventory turnover ratio showed a declining trend from early 2020 through late 2022, decreasing from 4.7 to a low of 3.6. However, beginning in 2023, the ratio began to recover, rising steadily to 4.55 by the end of 2023 before slightly decreasing to 4.47 in early 2024. This indicates a gradual improvement in inventory management efficiency after a period of increased inventory holding.

Receivables Turnover

The receivables turnover ratio experienced a general decline from 6.44 in early 2020 to a low around 4.96 in the first quarter of 2021, suggesting slower collection of receivables during that time. From mid-2021 onwards, the ratio improved steadily, reaching 6.23 in the first quarter of 2024, indicating enhanced effectiveness in receivables collection over recent periods.

Payables Turnover

Payables turnover showed fluctuations but generally declined from 6.36 in early 2020 to around 4.82 in early 2021, implying longer payment periods to suppliers. A subsequent gradual improvement occurred through late 2021 and into 2023, with the ratio rising to peaks near 6.06 by late 2023, reflecting a return to faster payments. A slight reduction was noted in early 2024.

Working Capital Turnover

Working capital turnover registered a marked decline early in the dataset, dropping sharply from 8.04 to a low around 3.56 through late 2020. From 2021, a steady recovery was evident, with a significant peak at 14.84 in late 2023, before settling back to 8.65 in early 2024. This suggests the company achieved substantially higher utilization of working capital during this peak period, followed by normalization.

Average Inventory Processing Period

The average inventory processing period increased from 78 days at the start of 2020 to a peak of 101 days by late 2022, indicating slower inventory turnover and longer holding periods. A reversal occurred in 2023, with the period declining consistently to 80 days by late 2023 and slightly increasing to 82 days in early 2024, corresponding with the improvement in inventory turnover ratio.

Average Receivable Collection Period

The receivable collection period extended from 57 days in early 2020 to around 74 days in early 2021, implying longer credit terms or slower customer payments. Thereafter, a gradual decrease to 59 days occurred by early 2024, suggesting improved collection efficiency and tighter credit management.

Operating Cycle

The operating cycle lengthened from 135 days in early 2020 to a high near 165 days during 2022 and early 2023. It then steadily shortened to around 141 days by early 2024, indicating an overall improvement in the management of inventory and receivables after a period of extended cash conversion time.

Average Payables Payment Period

The average time to pay suppliers increased from 57 days to a peak of approximately 76 days during early 2021, reflecting possibly extended payment terms or delayed payments. Subsequently, the period decreased to around 60 days by late 2023, stabilizing near 63 days early in 2024.

Cash Conversion Cycle

The cash conversion cycle exhibited volatility, increasing from 78 days in early 2020 to a peak of 95 days in mid-2020, then fluctuating around low-90s until late 2022. From 2023 onward, there was a steady decline to 78 days by early 2024, signaling improved efficiency in converting resources into cash over this recent timeframe.

The cost of sales exhibited fluctuations over the observed periods. Initially, it decreased from US$ 3,717 million to US$ 2,962 million by mid-2020, followed by a steady increase peaking around the end of 2022 at approximately US$ 5,951 million. The figure slightly declined but generally remained elevated into 2024, indicating rising expenses associated with sales activities over the recent quarters.

Inventories showed a gradual upward trend throughout the durations analyzed. Starting at roughly US$ 3,579 million, inventories increased in most quarters, reaching a high point near US$ 6,026 million by mid-2023 before a minor decline and stabilization around US$ 5,758 million by early 2024. This trend might suggest elevated stock levels or buildup of inventory consistent with production or demand expectations.

The inventory turnover ratio, representing how efficiently inventory is utilized or sold, declined from a ratio of 4.7 down to a low near 3.6 by late 2022. This reduction indicates slower movement or higher accumulation of inventory relative to sales during that period. Subsequently, a recovery is observable with the ratio climbing back up to approximately 4.55 in late 2023 and slightly declining to 4.47 by early 2024, suggesting some improvement in inventory management and sales efficiency in recent quarters.

Cost of Sales

Initial decline in early 2020 followed by a consistent rise to a peak in late 2022.

Moderate decline and stabilization observed in 2023 and early 2024.

The overall increase signals higher cost burdens related to sales activities over time.

Inventories

Steady increase over the period, demonstrating higher inventory holdings.

Minor fluctuations with a peak around mid-2023 and slight decline thereafter.

Implied buildup in inventory which may relate to production planning or demand anticipation.

Inventory Turnover Ratio

Declined from 4.7 to approximately 3.6 by late 2022, indicating slower inventory turnover.

Improved thereafter, rising to about 4.55 and slightly dipping in early 2024.

This suggests recent enhanced efficiency in inventory utilization or sales velocity.

The financial data for the analyzed periods reveal several notable trends in sales, receivables, and efficiency ratios.

Net Sales

Net sales experienced fluctuations between March 2020 and March 2024, initially dropping in mid-2020 but recovering steadily thereafter. From a low point of approximately 3,852 million US dollars in June 2020, sales rose consistently through 2021 and 2022, reaching a peak above 8,600 million US dollars in mid-2023. The final quarter of the latest period shows a slight decline but remains substantially higher than early 2020 levels, indicating overall growth in revenue over the four-year span.

Accounts and Notes Receivable, Net

The net accounts and notes receivable values rose in parallel with the improving sales figures but showed some volatility. After a moderate increase from around 3,441 million US dollars in June 2020 to a peak over 5,800 million US dollars in early 2023, receivables slightly decreased towards the end of the period under review. The increase in receivables generally aligns with higher sales volumes, although the short-term drops in receivables towards the end of 2023 and early 2024 may suggest improved collections or changes in credit policies.

Receivables Turnover Ratio

The receivables turnover ratio, which measures the efficiency of credit and collection efforts, declined from 6.44 in March 2020 to a low near 4.96 in April 2021, coinciding with periods of reduced sales and increased receivables. Following this nadir, the ratio recovered progressively, exceeding 6.0 by late 2023 and early 2024. This rebound implies enhancements in managing receivables and faster collection cycles, possibly reflecting improved operational efficiency or changes in customer payment behavior.

Overall, the data demonstrates a recovery and expansion trend in sales following mid-2020 lows, accompanied by a general increase in receivables in support of higher revenues. The improvement in the receivables turnover ratio over the longer term suggests that the company has strengthened its credit management and collection practices, leading to more effective liquidity management as sales volumes grew.

The financial data reveals several notable trends related to cost of sales, accounts payable, and payables turnover over the examined periods.

Cost of Sales

Cost of sales initially declined from the first quarter of 2020 through the second quarter, reaching a low point in June 2020. Subsequently, it showed a rising trend, with some fluctuations, and peaked in the fourth quarter of 2022. Thereafter, although there was a slight decrease in the first quarter of 2023, the cost of sales surged again through mid-2023 before slightly dropping and then stabilizing by the first quarter of 2024. Overall, this metric has generally increased over the full period, more than doubling from the lowest point in mid-2020.

Accounts Payable, Principally Trade

Accounts payable exhibited a moderate rise over the entire timeframe. After a decrease from the first to the second quarter of 2020, accounts payable increased consistently with minor short-term fluctuations. The largest increases are seen from mid-2021 to the end of 2022, followed by some variability but generally maintaining elevated levels through the early part of 2024. This suggests a growing reliance on trade credit or extended payment timelines coinciding with increased cost of sales.

Payables Turnover Ratio

This ratio, which measures the efficiency of payments to suppliers, started relatively high in early 2020, indicating rapid payment cycles. It then declined sharply through 2020, reaching its lowest point in early 2021. Afterward, the ratio experienced some recovery, rising steadily through 2021 and early 2022 before fluctuating around a moderate level in subsequent quarters. By early 2024, the ratio remains lower than at the outset but shows signs of stabilization. This pattern suggests that payment velocity slowed during the height of the pandemic impact and its aftermath, with gradual improvement but not a full return to prior efficiency.

In summary, the data indicates expanding operational scale or inflationary pressures reflected in the rising cost of sales, accompanied by increasing accounts payable balances. The payables turnover ratio’s decline and partial recovery imply a shift towards longer payment terms or changes in supplier negotiations, possibly aimed at managing cash flows in a challenging economic environment.

The financial data exhibits notable fluctuations and trends across the examined periods.

Working Capital

The working capital displayed variability over time, initially rising from $2,808 million to a peak of $5,562 million in December 2020. Subsequently, it generally declined with intermittent increases, reaching a low of $2,295 million in December 2023 before partially recovering to $3,934 million by March 2024. This pattern indicates periods of capital efficiency fluctuation, potentially influenced by operational or market factors.

Net Sales

Net sales showed a general upward trend over the periods, increasing from $5,011 million in March 2020 to a peak near $8,638 million in June 2023. Minor fluctuations occurred towards the latter periods, with a slight decrease to $8,403 million by March 2024. The steady sales growth reflects a positive demand outlook or successful market expansion strategies.

Working Capital Turnover

Working capital turnover, calculated as the ratio of net sales to working capital, demonstrated significant volatility. Initially high at 8.04, it dropped to a low of 3.56 by December 2020, coinciding with the peak in working capital. Subsequently, turnover rose again, reaching an exceptional value of 14.84 in December 2023 when working capital was at its lowest. The ratio then normalized to 8.65 by March 2024. This inverse relationship suggests periods of either increased efficiency in asset utilization or potential liquidity tightening.

Collectively, the data suggests a dynamic environment with cycles of capital investment and optimization impacting working capital levels, alongside robust growth in sales. The inverse correlation between working capital and turnover underscores shifts in operational efficiency or capital allocation strategies over time.

The analysis of the inventory turnover ratio and the average inventory processing period over the specified quarterly periods reveals notable trends and fluctuations in inventory management efficiency.

Inventory Turnover Ratio

The inventory turnover ratio displays a general decline from 4.7 in the first quarter of 2020 down to a low of 3.6 in the third quarter of 2022, indicating slower inventory movement during this period. Subsequent quarters show a recovery trend, with the ratio rising steadily to 4.55 by the fourth quarter of 2023, before slightly declining to 4.47 in the first quarter of 2024. This suggests an initial period of reduced inventory efficiency, followed by gradual improvement towards more effective turnover rates.

Average Inventory Processing Period

The average inventory processing period inversely mirrors the trends observed in inventory turnover. It increases from 78 days in the first quarter of 2020, peaking at 101 days in the third quarter of 2022, indicating longer durations for inventory to be sold or used. Following this peak, a consistent reduction in processing period is observed, decreasing to 80 days in the fourth quarter of 2023, with a slight increase to 82 days in the latest quarter. This pattern confirms the initial extension in holding times before operational adjustments prompted improved inventory processing efficiency.

Overall Insights

The period from early 2020 to mid-2022 illustrates a phase of deteriorating inventory turnover and prolonged processing periods, likely reflecting challenges in demand, supply chain disruptions, or inventory management practices. Improvements from late 2022 onward highlight a strategic or operational response to these challenges, resulting in more efficient inventory handling. The relative stability and return of turnover metrics toward earlier levels suggest the company has taken measures to optimize inventory cycles, improving capital use and potentially impacting profitability positively.

The financial data reveals notable trends in the receivables management over the periods analyzed. The receivables turnover ratio exhibits fluctuations, indicating variability in the effectiveness of collections. Initially, there is a decline from 6.44 to a low of 4.96, followed by a recovery and gradual improvement, reaching a peak of 6.23 in the latest period. This suggests an improvement in the company’s ability to convert receivables into cash more frequently over time after a period of slower turnover.

Correspondingly, the average receivable collection period, measured in days, shows an inverse pattern relative to the turnover ratio. It begins at 57 days, increases to a high of 74 days, indicating longer collection times during that phase, then gradually decreases to 59 days by the most recent period. This reduction in days implies enhanced efficiency in collecting receivables in recent quarters.

Overall, the analysis points toward a period of initial deterioration in receivables management efficiency, followed by a consistent improvement. The recent quarters exhibit stronger collections performance, which is beneficial for cash flow and working capital management. Such trends could indicate refined credit policies or improved customer payment behavior over the analyzed timeframe.

The financial data reveals distinct patterns in the company's working capital management over the specified periods.

Average Inventory Processing Period

This metric reflects the average time inventory remains before being sold. Initially, the period increased from 78 days to a peak around 101 days in late 2022. Subsequently, the trend reversed, declining steadily to a low of 80 days by the first quarter of 2024.

The early increase suggests a slowdown in inventory turnover, possibly due to supply chain disruptions or demand uncertainties, while the later decrease indicates an improvement in inventory management and more efficient turnover.

Average Receivable Collection Period

The average time to collect receivables showed an overall upward trend from 57 days to a peak of 74 days around early 2021. After this peak, the period decreased consistently to 59 days by March 2024.

This pattern implies that the company initially experienced a longer delay in collecting payments, potentially due to extended payment terms or customer payment difficulties, but later tightened credit policies or improved collections efficiency.

Operating Cycle

The operating cycle, representing the total time from inventory acquisition to cash collection, increased progressively from 135 days to a high of 168 days in third quarter 2022. From that point, a downward trend ensued, bringing the cycle down to approximately 140 days by early 2024.

The lengthening of the operating cycle in the earlier periods indicates a build-up of working capital tied up in inventory and receivables, potentially stressing liquidity. The subsequent reduction demonstrates enhanced operational efficiency and working capital management improvements.

In summary, the company faced elongation in inventory turnover and receivable collection times during the earlier period, contributing to a prolonged operating cycle. However, recent quarters show a reversal of these trends, signaling positive developments in operational efficiency and cash flow conversion.

The analysis of the payables turnover ratio reveals a fluctuating pattern over the examined quarters. Initially, the ratio stood at 6.36 and showed an increase to 6.67 before experiencing a decline to a low of 4.82. Following this trough, a gradual recovery is observed with the ratio rising again, peaking at 6.07, then fluctuating moderately around values ranging between 4.95 and 6.06 in the most recent periods. This indicates variability in the efficiency with which the company manages its accounts payable, reflecting changes in the pace at which suppliers are paid.

Correspondingly, the average payables payment period demonstrates an inverse trajectory relative to the payables turnover. Beginning at 57 days in the earliest quarter, it extended to a maximum of 76 days, signaling a lengthening of the time taken to settle payables. This elongation suggests a potential strategic adjustment in payment practices or cash flow management. In the subsequent quarters, the payment period contracts gradually, falling back to approximately 60 to 63 days, indicating a partial normalization of payment timing.

When considered together, these trends suggest that the company's accounts payable management has experienced periods of both accelerated and decelerated payment flows. The elongated payment periods and reduced turnover ratio in certain intervals may point to either deliberate deferment of payments to maintain liquidity or variations in operating conditions affecting supplier payments. The recent trend towards stabilization in both metrics highlights an effort to balance payment terms with operational and financial objectives.

Payables Turnover Ratio

Shows variability with initial improvement, a pronounced dip mid-period, and moderate recovery thereafter, indicating fluctuating payment velocity.

Average Payables Payment Period

Initially increases significantly, implying longer payment durations, then gradually decreases, suggesting adjustment towards shorter payment cycles.

Overall Insight

These inverse but related movements reflect adaptive accounts payable management, balancing cash flow needs and supplier relationships over time.

The financial data reveals notable trends in the company's working capital management, reflected through key metrics such as the average inventory processing period, receivable collection period, payables payment period, and the overall cash conversion cycle.

Average Inventory Processing Period

This metric shows an initial increase from 78 days to 88 days in the earlier quarters of 2020, indicating slower inventory turnover. Subsequently, it stabilized around the mid to high 80s before experiencing a gradual increase through 2022 to a peak at 101 days in the third quarter of 2022. From that point on, a downward trend is evident, declining to 80 days by the first quarter of 2024, suggesting improved inventory management and faster processing.

Average Receivable Collection Period

The collection period initially lengthened significantly from 57 to 74 days between early 2020 and the first quarter of 2021, implying slower receivables turnover. Following this peak, a gradual reduction occurred, dropping to 59 days by the first quarter of 2024. This pattern reflects an improvement in the company's efficiency in collecting receivables over the most recent periods.

Average Payables Payment Period

The payable period demonstrates fluctuations, rising from 57 days in early 2020 to a high of approximately 76 days in early 2021, followed by a decline towards 60 days by mid-2023. This suggests an initial extension in payment terms, potentially to conserve cash, with later tightening of payment periods. The most recent data point shows a slight increase back to 63 days.

Cash Conversion Cycle

This key indicator reflects the net time span between cash outflows and inflows. It increased from 78 days to a peak of 95 days in mid-2020, then fluctuated around the high 80s to mid-90s before demonstrating a downward trajectory starting late 2022. By the first quarter of 2024, the cycle had decreased to 78 days, mirroring the improvements in inventory and receivables management. The reduction in the cash conversion cycle suggests enhanced liquidity and operational efficiency.

Overall, the data indicates that the company experienced a temporary slowdown in working capital efficiency, primarily during the earlier phases of 2020 and mid-2022, with extended inventory holding and receivable collection periods. However, there has been a sustained recovery trend over the last several quarters, marked by shortened inventory and receivables periods and a declining cash conversion cycle. This points to more effective management of cash flows and operating assets, potentially strengthening the company’s financial flexibility.