Cummins Inc (CMI)
Liquidity ratios
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|
| Current ratio | 1.31 | 1.18 | 1.27 | 1.74 | 1.88 |
| Quick ratio | 0.21 | 0.22 | 0.27 | 0.52 | 1.24 |
| Cash ratio | 0.20 | 0.21 | 0.23 | 0.45 | 0.61 |
Cummins Inc's liquidity ratios have shown a decreasing trend over the years. The current ratio, which measures the company's ability to meet short-term obligations with its current assets, has declined from 1.88 in 2020 to 1.31 in 2024. Similarly, the quick ratio, a more stringent measure of liquidity excluding inventory, has decreased from 1.24 in 2020 to 0.21 in 2024. This indicates a reduction in the company's ability to cover its immediate liabilities with its most liquid assets.
Furthermore, the cash ratio, which reflects the proportion of current liabilities that can be covered by cash alone, has also shown a downward trajectory from 0.61 in 2020 to 0.20 in 2024. This suggests a decreasing ability of Cummins Inc to pay off its short-term obligations solely using its cash reserves.
Overall, the declining trend in all three liquidity ratios signals potential challenges in meeting short-term financial obligations for Cummins Inc, highlighting the importance of monitoring and managing its liquidity position effectively in the coming periods.
See also:
Additional liquidity measure
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Cash conversion cycle | days | 26.77 | 20.90 | 29.06 | 34.56 | 88.35 |
Cummins Inc's cash conversion cycle has experienced a downward trend over the past five years, decreasing from 88.35 days as of December 31, 2020, to 26.77 days as of December 31, 2024. This indicates that the company has been managing its working capital more efficiently over this period. A lower cash conversion cycle suggests that Cummins is taking less time to convert its investments in inventory and accounts receivable into cash, which can be a positive sign of effective management.
The reduction in the cash conversion cycle may indicate improvements in inventory management, faster collection of receivables, or extending payment terms with suppliers. A shorter cash conversion cycle can lead to improved liquidity and cash flow for the company, as it can free up cash that was previously tied up in working capital.
Overall, the decreasing trend in Cummins Inc's cash conversion cycle suggests that the company has been successful in managing its working capital and optimizing its cash flow operations over the past five years.