Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Cummins Inc., FCFF calculation
US$ in millions
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, 2 See details »
The financial trajectory from 2019 to 2023 is characterized by a multi-year contraction in cash generation followed by a substantial recovery in the final year of the period.
- Net Cash Provided by Operating Activities
- A consistent downward trend was observed between 2019 and 2022, with operating cash flow decreasing from US$ 3,181 million to US$ 1,962 million. This period of decline was reversed in 2023, which saw a significant surge to US$ 3,966 million, representing the peak operating cash flow within the five-year analysis.
- Free Cash Flow to the Firm (FCFF)
- FCFF followed a similar trajectory to operating cash flow but experienced a more severe contraction. From a high of US$ 2,566 million in 2019, FCFF declined steadily to a period low of US$ 1,163 million in 2022. A sharp recovery occurred in 2023, with FCFF rising to US$ 2,938 million.
- Capital Expenditure Implications
- The variance between net cash provided by operating activities and FCFF indicates an increasing trend in capital commitments. The gap between these two metrics expanded from US$ 615 million in 2019 to US$ 1,028 million in 2023. This suggests that while the firm significantly improved its cash generation capabilities in 2023, it simultaneously increased its investment in long-term assets.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Interest Paid, Net of Tax
Cummins Inc., interest paid, net of tax calculation
US$ in millions
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).
2 2023 Calculation
Cash payments for interest, net of capitalized interest, tax = Cash payments for interest, net of capitalized interest × EITR
= 374 × 48.30% = 181
3 2023 Calculation
Interest capitalized, tax = Interest capitalized × EITR
= 8 × 48.30% = 4
The financial data indicates a substantial increase in cash payments for interest, net of tax, alongside marked volatility in the effective income tax rate during the analyzed period.
- Cash Payments for Interest
- A fluctuating trend is observed between 2019 and 2021, with payments decreasing from 87 million to 68 million in 2020 before returning to 87 million in 2021. Subsequently, a period of rapid escalation occurred, with expenditures rising to 142 million in 2022 and reaching 193 million by 2023. This represents a significant upward trajectory in net interest outflows over the final two years of the period.
- Interest Capitalization
- Interest capitalized, net of tax, remained constant at 2 million from 2019 through 2021. An increase to 4 million was recorded in 2022, and this level was maintained through 2023, indicating a modest increase in the volume of interest being capitalized.
- Effective Income Tax Rate (EITR)
- The effective income tax rate exhibited relative stability between 2019 and 2022, fluctuating within a narrow range of 20.00% to 22.60%. However, a sharp divergence occurred in 2023, with the rate increasing to 48.30%, more than doubling the rate observed in the preceding four years.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Enterprise Value to FCFF Ratio, Current
Cummins Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 43,347) |
| Free cash flow to the firm (FCFF) | 2,938) |
| Valuation Ratio | |
| EV/FCFF | 14.75 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Boeing Co. | 275.47 |
| Caterpillar Inc. | 30.11 |
| Eaton Corp. plc | 34.76 |
| GE Aerospace | 40.92 |
| Honeywell International Inc. | 14.76 |
| Lockheed Martin Corp. | 19.43 |
| RTX Corp. | 30.84 |
| EV/FCFF, Sector | |
| Capital Goods | 32.07 |
| EV/FCFF, Industry | |
| Industrials | 32.04 |
Based on: 10-K (reporting date: 2023-12-31).
1 Click competitor name to see calculations.
If the company EV/FCFF is lower then the EV/FCFF of benchmark then company is relatively undervalued.
Otherwise, if the company EV/FCFF is higher then the EV/FCFF of benchmark then company is relatively overvalued.
Enterprise Value to FCFF Ratio, Historical
Cummins Inc., historical EV/FCFF 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) | ||||||
| Enterprise value (EV)1 | 41,445) | 41,393) | 33,733) | 37,421) | 26,544) | |
| Free cash flow to the firm (FCFF)2 | 2,938) | 1,163) | 1,598) | 2,245) | 2,566) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 14.10 | 35.58 | 21.11 | 16.67 | 10.35 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Boeing Co. | 25.63 | 37.53 | — | — | — | |
| Caterpillar Inc. | 16.08 | 23.54 | 20.50 | — | — | |
| Eaton Corp. plc | 38.49 | 33.44 | 38.16 | — | — | |
| GE Aerospace | 29.56 | 17.29 | 56.53 | — | — | |
| Honeywell International Inc. | 29.13 | 29.82 | 25.22 | — | — | |
| Lockheed Martin Corp. | 17.62 | 19.69 | 13.92 | — | — | |
| RTX Corp. | 23.86 | 28.45 | 27.29 | — | — | |
| EV/FCFF, Sector | ||||||
| Capital Goods | 23.34 | 25.87 | 32.16 | — | — | |
| EV/FCFF, Industry | ||||||
| Industrials | 25.97 | 24.33 | 28.81 | — | — | |
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).
3 2023 Calculation
EV/FCFF = EV ÷ FCFF
= 41,445 ÷ 2,938 = 14.10
4 Click competitor name to see calculations.
The Enterprise Value to Free Cash Flow to the Firm (EV/FCFF) ratio exhibited significant volatility between 2019 and 2023, characterized by a period of aggressive expansion followed by a sharp correction. This trajectory reflects a divergent relationship between the market valuation of the firm and its operational cash flow generation over the five-year period.
- Enterprise Value Trends
- Enterprise value demonstrated a general upward trend, rising from 26,544 million US$ in 2019 to 41,445 million US$ by 2023. While a temporary contraction occurred in 2021, the overall growth indicates a substantial increase in the total market value attributed to the company's operations.
- Free Cash Flow to the Firm Dynamics
- FCFF experienced a sustained decline from 2019 to 2022, falling from 2,566 million US$ to a minimum of 1,163 million US$. This downward trend was abruptly reversed in 2023, when FCFF surged to 2,938 million US$, representing the highest cash flow level recorded in the analyzed timeframe.
- EV/FCFF Ratio Interpretation
- The EV/FCFF ratio expanded from 10.35 in 2019 to a peak of 35.58 in 2022. This spike was the result of a compounding effect where enterprise value increased while the underlying cash flows diminished, suggesting a period of valuation inflation relative to cash performance. The ratio subsequently compressed to 14.10 in 2023, a correction driven primarily by the significant recovery in FCFF, which realigned the valuation multiple closer to historical norms.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?