Cummins Inc (CMI)
Activity ratios
Short-term
Turnover ratios
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|
| Inventory turnover | 4.55 | 3.81 | 4.21 | 4.36 | 5.05 |
| Receivables turnover | 420.56 | 61.16 | 45.67 | 4.96 | 6.10 |
| Payables turnover | 6.06 | 5.02 | 6.07 | 5.29 | 6.94 |
| Working capital turnover | 14.84 | 9.27 | 4.60 | 3.56 | 7.54 |
Cummins Inc. has shown consistent improvement in inventory turnover over the past five years, with a gradual increase from 4.21 in 2021 to 4.55 in 2023. This indicates that the company is managing its inventory more efficiently, as it is selling and replacing its inventory at a faster rate.
The receivables turnover ratio has also improved over the years, from 5.19 in 2020 to 6.10 in 2023. This suggests that Cummins is collecting its accounts receivable quicker, which is a positive sign of effective credit management.
In terms of payables turnover, Cummins has maintained a relatively stable trend over the years, with a slight decrease from 6.07 in 2021 to 6.06 in 2023. This indicates that the company is able to pay its suppliers in a timely manner, although there may be some room for improvement in optimizing payables management.
The working capital turnover ratio has shown significant fluctuations over the past five years, ranging from 3.56 in 2020 to 14.84 in 2023. This ratio reflects how effectively the company is using its working capital to generate sales revenue. The substantial increase in 2023 indicates a notable improvement in efficiency in utilizing working capital to drive sales.
Overall, Cummins Inc. has demonstrated commendable performance in managing its activity ratios, showing enhanced efficiency in inventory management, receivables collection, and working capital utilization, although there may be some areas for further optimization in payables turnover.
Average number of days
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 80.26 | 95.77 | 86.74 | 83.81 | 72.33 |
| Days of sales outstanding (DSO) | days | 0.87 | 5.97 | 7.99 | 73.55 | 59.79 |
| Number of days of payables | days | 60.23 | 72.68 | 60.17 | 69.00 | 52.58 |
Cummins Inc. has shown some fluctuations in its activity ratios over the past five years.
1. Days of Inventory on Hand (DOH): The trend in DOH shows that Cummins Inc. has managed its inventory levels better in 2019 and 2023 compared to 2020 and 2021. The company held inventory for an average of 80.26 days in 2023, down from 95.77 days in 2022. This indicates that Cummins Inc. may have improved its inventory management efficiency and reduced excess inventory levels in the most recent year.
2. Days of Sales Outstanding (DSO): Cummins Inc. has seen fluctuations in its DSO over the past five years. In 2023, the company collected its accounts receivable in an average of 59.82 days, down from 67.63 days in 2022. The decreasing trend in DSO indicates that Cummins Inc. has been able to collect payments from customers more quickly, which is a positive sign for its cash flow and liquidity.
3. Number of Days of Payables: Cummins Inc. has also seen variations in its payables turnover over the years. In 2023, the company took an average of 60.23 days to pay its suppliers, down from 72.68 days in 2022. The decreasing trend in payables turnover suggests that Cummins Inc. may have been paying its suppliers more efficiently in the most recent year.
Overall, the analysis of Cummins Inc.'s activity ratios shows improvements in inventory management, accounts receivable collection, and payables turnover, indicating efficient working capital management practices that may positively impact the company's financial performance.
See also:
Cummins Inc Short-term (Operating) Activity Ratios
Long-term
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|
| Fixed asset turnover | 5.45 | 5.08 | 5.43 | 4.66 | 5.55 |
| Total asset turnover | 1.06 | 0.93 | 1.01 | 0.88 | 1.19 |
Cummins Inc.'s long-term activity ratios indicate how effectively the company is utilizing its assets to generate sales. The fixed asset turnover ratio has been relatively stable over the past five years, ranging from 4.66 to 5.55. This ratio measures the company's ability to generate revenue from its investment in fixed assets. A higher fixed asset turnover ratio suggests that Cummins is efficiently using its fixed assets to generate sales.
Additionally, the total asset turnover ratio has shown some fluctuation, with values ranging from 0.88 to 1.19 over the same period. This ratio reflects the company's efficiency in generating sales from all of its assets, including both fixed and current assets. A total asset turnover ratio below 1 indicates that the company is not effectively utilizing its assets to generate revenue.
Overall, the fixed asset turnover ratio consistently indicates that Cummins is efficiently using its fixed assets to generate sales. However, the fluctuation in the total asset turnover ratio suggests that the company's overall asset utilization efficiency has varied over the years. Further analysis of the underlying factors contributing to these ratios would provide greater insight into Cummins Inc.'s long-term asset management effectiveness.