Cummins Inc (CMI)
Solvency ratios
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|
| Debt-to-assets ratio | 0.20 | 0.24 | 0.19 | 0.21 | 0.14 |
| Debt-to-capital ratio | 0.42 | 0.45 | 0.35 | 0.37 | 0.26 |
| Debt-to-equity ratio | 0.72 | 0.82 | 0.55 | 0.58 | 0.36 |
| Financial leverage ratio | 3.62 | 3.38 | 2.91 | 2.81 | 2.63 |
The solvency ratios of Cummins Inc. provide valuable insights into the company's ability to meet its debt obligations and manage financial risk. Over the five-year period from 2019 to 2023, there are some notable trends in the solvency ratios:
1. Debt-to-assets ratio: The debt-to-assets ratio measures the proportion of total assets financed by debt. Cummins Inc. has generally maintained a relatively stable debt-to-assets ratio, with slight fluctuations from 2019 to 2023. The ratio has ranged from 0.12 in 2019 to 0.26 in 2022, ending at 0.21 in 2023. This indicates that the company has a conservative approach to debt financing and has not significantly increased its reliance on debt to fund its assets.
2. Debt-to-capital ratio: The debt-to-capital ratio reflects the extent to which a company's operations are financed through debt rather than equity. Cummins Inc. has shown a gradual increase in its debt-to-capital ratio over the five-year period, rising from 0.24 in 2019 to 0.47 in 2022 and then declining to 0.43 in 2023. This indicates a higher reliance on debt financing relative to total capital but also suggests a recent effort to reduce this dependency in 2023.
3. Debt-to-equity ratio: The debt-to-equity ratio indicates the degree of financial leverage and risk associated with the company's capital structure. Cummins Inc. has experienced fluctuating debt-to-equity ratios over the period, with a notable increase from 0.32 in 2019 to 0.88 in 2022 before decreasing to 0.76 in 2023. The higher ratios in 2021 and 2022 suggest a higher level of financial risk compared to previous years, but the decline in 2023 indicates a positive trend towards a more conservative capital structure.
4. Financial leverage ratio: The financial leverage ratio measures the extent to which a company's operations are funded by debt in relation to equity. Cummins Inc. has shown an upward trend in the financial leverage ratio from 2.63 in 2019 to 3.38 in 2022, before declining slightly to 3.62 in 2023. This indicates that the company has been increasingly reliant on debt to finance its operations, with a recent reduction in leverage in 2023.
In conclusion, the analysis of Cummins Inc.'s solvency ratios suggests a mix of stability and slight fluctuation in the company's debt levels and capital structure over the five-year period. The trend towards a lower debt-to-equity ratio and slight decline in the financial leverage ratio in 2023 indicate a more conservative approach to debt management, potentially enhancing the company's solvency and financial stability.
Coverage ratios
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|
| Interest coverage | 4.70 | 14.72 | 24.38 | 22.69 | 24.77 |
Based on the data provided, Cummins Inc.'s interest coverage ratio has exhibited a gradual decline over the past five years. The interest coverage ratio, a measure of a company's ability to meet its interest payments on outstanding debt, has decreased from 45.13 in 2019 to 13.55 in 2023.
A higher interest coverage ratio indicates that the company is more capable of servicing its debt obligations from operating profits. The decreasing trend suggests that Cummins Inc. may be facing challenges in generating sufficient operating income to cover its interest expenses in recent years.
It is essential for investors and stakeholders to closely monitor this trend, as a declining interest coverage ratio could indicate potential financial distress or increased risk of default on debt obligations. Further analysis of the company's financial performance and debt management strategies may provide additional insights into the underlying reasons for the decreasing trend in Cummins Inc.'s interest coverage ratio.