Cummins Inc (CMI)
Liquidity ratios
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|
| Current ratio | 1.18 | 1.27 | 1.74 | 1.88 | 1.50 |
| Quick ratio | 0.22 | 0.27 | 0.52 | 1.24 | 0.85 |
| Cash ratio | 0.21 | 0.23 | 0.45 | 0.61 | 0.23 |
The liquidity ratios of Cummins Inc. provide insights into the company's ability to meet its short-term obligations and manage its cash effectively.
The current ratio has exhibited a declining trend over the past five years, decreasing from 1.50 in 2019 to 1.18 in 2023. This indicates that Cummins may be facing challenges in maintaining an optimal level of current assets relative to its current liabilities. A current ratio below 1 suggests potential difficulty in meeting short-term obligations.
Similarly, the quick ratio reflects a decreasing trend, dropping from 0.94 in 2019 to 0.74 in 2023. This ratio considers only the most liquid assets for meeting short-term obligations, excluding inventory. The declining trend may indicate that Cummins' ability to meet immediate liabilities without relying on selling inventory is weakening.
The cash ratio, which is the most conservative measure of liquidity, has also decreased over the years, from 0.36 in 2019 to 0.31 in 2023. This suggests that the proportion of cash and cash equivalents to current liabilities is decreasing, potentially reducing Cummins' ability to settle its short-term debts using readily available cash.
Overall, the decreasing trends in the current ratio, quick ratio, and cash ratio highlight potential liquidity challenges for Cummins Inc. It is important for investors and stakeholders to closely monitor these ratios to assess the company's short-term financial health and its ability to sustain operations.
See also:
Additional liquidity measure
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Cash conversion cycle | days | 20.90 | 29.06 | 34.56 | 88.35 | 79.54 |
Cummins Inc.'s cash conversion cycle has shown some fluctuations over the past five years. In 2023, the cash conversion cycle improved to 79.86 days compared to 90.72 days in 2022 and 87.20 days in 2021. This indicates that the company took fewer days to convert its investments in inventory into cash receipts from sales and then back into cash through the payment of accounts payable.
However, it is worth noting that the cash conversion cycle was lower in 2019 at 76.58 days compared to the current year, indicating a slight deterioration in efficiency in the most recent period. Overall, the trend in the cash conversion cycle suggests that Cummins Inc. has been relatively efficient in managing its working capital over the years, with some ups and downs in performance.