Analysis of Debt
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- Common-Size Income Statement
- Analysis of Liquidity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
- Price to Earnings (P/E) since 2005
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Total Debt (Carrying Amount)
Cummins Inc., balance sheet: debt
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Loans payable | ||||||
| Commercial paper | ||||||
| Current maturities of long-term debt | ||||||
| Long-term debt | ||||||
| Total debt (carrying amount) |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
The analysis of the annual reported debt data reveals notable fluctuations and overall growth in various debt components over the period from 2019 to 2023.
- Loans Payable
- This category shows a steady increase throughout the observed years. Beginning at 100 million US dollars in 2019, the loans payable rose consistently, reaching 280 million US dollars by 2023. This represents nearly a threefold increase over the five-year period, indicating an increased reliance on short to medium-term borrowing through loans.
- Commercial Paper
- Commercial paper exhibits considerable volatility across the years. Starting at 660 million US dollars in 2019, the amount decreased substantially to 323 million in 2020 and further marginally to 313 million in 2021. Subsequently, there was a sharp spike to 2,574 million in 2022, the highest value recorded in the dataset, before declining to 1,496 million in 2023. This pattern suggests fluctuating short-term financing needs, possibly reflecting changes in cash management strategies or market conditions.
- Current Maturities of Long-Term Debt
- There is a notable increase in current maturities of long-term debt, especially between 2021 and 2022. The figures rose from 31 million in 2019 to 59 million in 2021, then surged to 573 million in 2022, before declining to 118 million in 2023. This jump in 2022 could indicate a large portion of long-term debt becoming due within the following year, impacting liquidity planning.
- Long-Term Debt
- Long-term debt displays an overall ascending trend, with a marked increase from 1,576 million US dollars in 2019 to 4,802 million in 2023. The most significant jump occurred between 2019 and 2020, where the debt more than doubled. Subsequently, the debt levels have remained elevated, with moderate increases in the following years. This suggests a pronounced shift towards longer-term financing, possibly funding investments or restructuring existing obligations.
- Total Debt (Carrying Amount)
- Total debt experienced substantial growth, escalating from 2,367 million US dollars in 2019 to a peak of 7,855 million in 2022. In 2023, the total debt decreased to 6,696 million, reflecting a reduction but still maintaining a significantly higher level than at the start of the period. The overall trajectory indicates a strategic increase in leverage over the observed timeframe, with a slight deleveraging in the final year.
In summary, the company’s debt structure over the period indicates both growth in long-term borrowing and pronounced fluctuations in short-term obligations. Notable spikes in commercial paper and current maturities of long-term debt in 2022 suggest particular pressures or strategic shifts during that year, while the general increase in loans payable and long-term debt points to a trend of increased financial leverage.
Total Debt (Fair Value)
| Dec 31, 2023 | |
|---|---|
| Selected Financial Data (US$ in millions) | |
| Total debt (fair value) | |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | |
Based on: 10-K (reporting date: 2023-12-31).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on debt:
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| Total | |||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Weighted-average interest rate = 100 × ÷ =
Interest Costs Incurred
Cummins Inc., interest costs incurred
US$ in millions
| 12 months ended: | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest expense | |||||||||||
| Interest capitalized | |||||||||||
| Interest incurred |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
- Interest Expense Trends
- Interest expense decreased from 109 million US dollars in 2019 to 100 million in 2020, indicating a reduction in interest costs during that period. However, from 2020 onwards, there was a consistent upward trajectory, with interest expense rising to 111 million in 2021, sharply increasing to 199 million in 2022, and reaching 375 million in 2023. This reflects a significant growth in interest expense, particularly between 2021 and 2023.
- Interest Capitalized Trends
- Interest capitalized remained relatively low and stable from 2019 to 2021, fluctuating slightly between 2 and 3 million US dollars. Starting in 2022, capitalized interest saw an increase to 5 million and further rose to 8 million in 2023. While these figures are smaller relative to overall interest expense, the upward trend suggests increased capitalization of interest costs in recent years.
- Overall Interest Incurred
- Interest incurred, which combines interest expense and capitalized interest, follows a pattern similar to the interest expense. It declined slightly from 112 million in 2019 to 102 million in 2020, then increased incrementally to 113 million in 2021 before surging to 204 million in 2022 and 383 million in 2023. This indicates a substantial escalation in total interest costs incurred by the company, particularly over the last two years, more than tripling from 2021 to 2023.
- Summary and Insights
- The data reveals a notable shift in interest costs starting in 2021, transitioning from relatively stable and moderate levels to a steep increase through 2022 and 2023. The rise in interest capitalized also points to greater borrowing or investment activities where interest costs are being added to asset values rather than expensed immediately. The marked escalation in interest incurred suggests potential changes in debt levels, cost of borrowing, or both, which could have significant implications for the company's financial leverage and interest coverage in the periods assessed.
Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
2023 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense
= ÷ =
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest incurred
= ÷ =
The financial data reveals a notable decline in the company's ability to cover interest expenses over the five-year period ending December 31, 2023. Both the interest coverage ratio excluding capitalized interest and the adjusted interest coverage ratio including capitalized interest follow a similar downward trajectory.
- Interest Coverage Ratio (without capitalized interest)
- This ratio decreased steadily from 27 in 2019 to 24.38 in 2020, showing a slight drop but maintaining robust coverage. It then experienced a modest rebound to 25.78 in 2021, indicating temporary improvement. However, a marked decline ensued in 2022, dropping the ratio to 15.17, followed by a further significant decrease to 5.34 in 2023, reflecting increased financial strain in covering interest obligations.
- Adjusted Interest Coverage Ratio (with capitalized interest)
- Similarly, the adjusted ratio started at 26.28 in 2019 and declined to 23.9 in 2020, mirroring the trend seen in the non-adjusted ratio. It slightly improved to 25.33 in 2021 before sharply declining to 14.79 in 2022 and continuing to fall to 5.22 in 2023. This pattern suggests consistent pressure on the company’s capacity to manage interest expenses even when accounting for capitalized interest.
The significant decline in both ratios in 2022 and 2023 indicates an increased risk regarding the company’s interest expense coverage. The steep drop suggests that the company may be experiencing rising interest expenses, declining earnings, or a combination of both factors, which adversely affects its financial flexibility and could impact creditworthiness if the trend persists.