Cummins Inc (CMI)
Solvency ratios
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|
| Debt-to-assets ratio | 0.21 | 0.20 | 0.24 | 0.19 | 0.21 |
| Debt-to-capital ratio | 0.39 | 0.42 | 0.45 | 0.35 | 0.37 |
| Debt-to-equity ratio | 0.65 | 0.72 | 0.82 | 0.55 | 0.58 |
| Financial leverage ratio | 3.07 | 3.62 | 3.38 | 2.91 | 2.81 |
Cummins Inc's solvency ratios indicate the company's ability to meet its long-term financial obligations. The Debt-to-assets ratio has been relatively stable, decreasing slightly from 0.21 in 2020 to 0.19 in 2021, before increasing to 0.24 in 2022 and then coming back down to 0.20 in 2023 and 0.21 in 2024.
Similarly, the Debt-to-capital ratio shows a decreasing trend from 0.37 in 2020 to 0.35 in 2021, then increasing to 0.45 in 2022, before declining to 0.42 in 2023 and 0.39 in 2024. This ratio indicates the proportion of the company's capital that is financed by debt.
The Debt-to-equity ratio demonstrates a fluctuating pattern, starting at 0.58 in 2020, decreasing to 0.55 in 2021, increasing to 0.82 in 2022, then decreasing to 0.72 in 2023 and further dropping to 0.65 in 2024. This ratio reflects the leverage of the company and the proportion of equity and debt used to finance its assets.
Lastly, the Financial leverage ratio has shown some fluctuations from 2.81 in 2020 to 2.91 in 2021, increasing to 3.38 in 2022, peaking at 3.62 in 2023, and then decreasing to 3.07 in 2024. This ratio indicates the company's level of financial leverage and the extent to which it relies on debt financing.
Overall, analyzing these solvency ratios over the years provides insight into Cummins Inc's debt management and financial risk exposure.
Coverage ratios
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|
| Interest coverage | 10.14 | 4.70 | 14.72 | 24.38 | 22.69 |
The interest coverage ratio measures a company's ability to pay its interest expenses on outstanding debt. A higher ratio indicates a stronger ability to meet interest obligations.
For Cummins Inc, the interest coverage ratio has shown fluctuations over the years. As of December 31, 2020, the ratio was 22.69, indicating a comfortable ability to cover interest payments. This ratio increased further to 24.38 by December 31, 2021, reflecting an even stronger position.
However, from December 31, 2021, to December 31, 2024, there was a notable decline in the interest coverage ratio. By the end of 2024, the ratio had dropped to 10.14, signaling a reduced ability to cover interest costs. The most significant decrease occurred between December 31, 2022, and December 31, 2023, where the ratio fell sharply from 14.72 to 4.70.
Overall, while Cummins Inc initially demonstrated robust interest coverage, there was a subsequent decline in its ability to service interest expenses. It will be important for the company to closely monitor and manage its debt levels to ensure a healthy balance between interest payments and operational cash flows.