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Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Cummins Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net operating profit after taxes (NOPAT)¹	1,014)	2,348)	2,585)	2,018)	2,609)
Cost of capital²	12.15%	11.87%	12.33%	12.45%	12.65%
Invested capital³	20,768)	22,657)	17,518)	17,479)	15,235)

Economic profit⁴	(1,509)	(341)	424)	(158)	682)

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).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,014 – 12.15% × 20,768 = -1,509

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Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Cummins Inc. economic profit decreased from 2021 to 2022 and from 2022 to 2023.

Cummins Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net income attributable to Cummins Inc.	735)	2,151)	2,131)	1,789)	2,260)
Deferred income tax expense (benefit)¹	(457)	(274)	7)	7)	(4)
Increase (decrease) in allowance for doubtful account²	(3)	45)	(6)	20)	4)
Increase (decrease) in LIFO reserve³	9)	48)	55)	14)	(10)
Increase (decrease) in deferred revenue⁴	338)	143)	174)	177)	198)
Increase (decrease) in accrued product warranty⁵	(26)	31)	93)	(102)	54)
Increase (decrease) in equity equivalents⁶	(139)	(7)	323)	116)	242)
Interest expense	375)	199)	111)	100)	109)
Interest expense, operating lease liability⁷	22)	19)	13)	15)	17)
Adjusted interest expense	397)	218)	124)	115)	126)
Tax benefit of interest expense⁸	(83)	(46)	(26)	(24)	(26)
Adjusted interest expense, after taxes⁹	313)	172)	98)	91)	99)
Net income (loss) attributable to noncontrolling interest	105)	32)	33)	22)	8)
Net operating profit after taxes (NOPAT)	1,014)	2,348)	2,585)	2,018)	2,609)

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).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful account.

³ Addition of increase (decrease) in LIFO reserve. See details »

⁴ Addition of increase (decrease) in deferred revenue.

⁵ Addition of increase (decrease) in accrued product warranty.

⁶ Addition of increase (decrease) in equity equivalents to net income attributable to Cummins Inc..

⁷ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 512 × 4.20% = 22

⁸ 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 397 × 21.00% = 83

⁹ Addition of after taxes interest expense to net income attributable to Cummins Inc..

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Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Cummins Inc. NOPAT decreased from 2021 to 2022 and from 2022 to 2023.

Cummins Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Income tax expense	786)	636)	587)	527)	566)
Less: Deferred income tax expense (benefit)	(457)	(274)	7)	7)	(4)
Add: Tax savings from interest expense	83)	46)	26)	24)	26)
Cash operating taxes	1,326)	956)	606)	544)	596)

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).

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Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Cummins Inc. cash operating taxes increased from 2021 to 2022 and from 2022 to 2023.

Cummins Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Loans payable	280)	210)	208)	169)	100)
Commercial paper	1,496)	2,574)	313)	323)	660)
Current maturities of long-term debt	118)	573)	59)	62)	31)
Long-term debt	4,802)	4,498)	3,579)	3,610)	1,576)
Operating lease liability¹	512)	500)	454)	453)	501)
Total reported debt & leases	7,208)	8,355)	4,613)	4,617)	2,868)
Total Cummins Inc. shareholders’ equity	8,850)	8,975)	8,474)	8,062)	7,507)
Net deferred tax (assets) liabilities²	(552)	24)	(25)	(154)	(135)
Allowance for doubtful account³	75)	78)	33)	39)	19)
Excess of FIFO over LIFO⁴	249)	240)	192)	137)	123)
Deferred revenue⁵	2,186)	1,848)	1,705)	1,531)	1,354)
Accrued product warranty⁶	1,444)	1,470)	1,439)	1,346)	1,448)
Equity equivalents⁷	3,402)	3,660)	3,344)	2,899)	2,809)
Accumulated other comprehensive (income) loss, net of tax⁸	2,206)	1,890)	1,571)	1,982)	2,028)
Redeemable noncontrolling interests	—)	258)	—)	—)	—)
Noncontrolling interests	1,054)	992)	927)	927)	958)
Adjusted total Cummins Inc. shareholders’ equity	15,512)	15,775)	14,316)	13,870)	13,302)
Construction in process⁹	(1,390)	(1,001)	(816)	(547)	(594)
Marketable securities¹⁰	(562)	(472)	(595)	(461)	(341)
Invested capital	20,768)	22,657)	17,518)	17,479)	15,235)

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).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See details »

³ Addition of allowance for doubtful accounts receivable.

⁴ Addition of LIFO reserve. See details »

⁵ Addition of deferred revenue.

⁶ Addition of accrued product warranty.

⁷ Addition of equity equivalents to total Cummins Inc. shareholders’ equity.

⁸ Removal of accumulated other comprehensive income.

⁹ Subtraction of construction in process.

¹⁰ Subtraction of marketable securities.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Cummins Inc. invested capital increased from 2021 to 2022 but then slightly decreased from 2022 to 2023.

Cummins Inc., cost of capital calculations

Dec 31, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	36,436)	36,436)	÷	43,323)	=	0.84	0.84	×	13.88%	=	11.68%
Debt³	6,375)	6,375)	÷	43,323)	=	0.15	0.15	×	3.74% × (1 – 21.00%)	=	0.43%
Operating lease liability⁴	512)	512)	÷	43,323)	=	0.01	0.01	×	4.20% × (1 – 21.00%)	=	0.04%
Total:	43,323)					1.00					12.15%

Based on: 10-K (reporting date: 2023-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	35,119)	35,119)	÷	43,019)	=	0.82	0.82	×	13.88%	=	11.33%
Debt³	7,400)	7,400)	÷	43,019)	=	0.17	0.17	×	3.67% × (1 – 21.00%)	=	0.50%
Operating lease liability⁴	500)	500)	÷	43,019)	=	0.01	0.01	×	3.70% × (1 – 21.00%)	=	0.03%
Total:	43,019)					1.00					11.87%

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	31,834)	31,834)	÷	36,749)	=	0.87	0.87	×	13.88%	=	12.03%
Debt³	4,461)	4,461)	÷	36,749)	=	0.12	0.12	×	2.92% × (1 – 21.00%)	=	0.28%
Operating lease liability⁴	454)	454)	÷	36,749)	=	0.01	0.01	×	2.80% × (1 – 21.00%)	=	0.03%
Total:	36,749)					1.00					12.33%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	36,192)	36,192)	÷	41,310)	=	0.88	0.88	×	13.88%	=	12.16%
Debt³	4,665)	4,665)	÷	41,310)	=	0.11	0.11	×	2.91% × (1 – 21.00%)	=	0.26%
Operating lease liability⁴	453)	453)	÷	41,310)	=	0.01	0.01	×	3.40% × (1 – 21.00%)	=	0.03%
Total:	41,310)					1.00					12.45%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	24,689)	24,689)	÷	27,896)	=	0.89	0.89	×	13.88%	=	12.29%
Debt³	2,706)	2,706)	÷	27,896)	=	0.10	0.10	×	4.13% × (1 – 21.00%)	=	0.32%
Operating lease liability⁴	501)	501)	÷	27,896)	=	0.02	0.02	×	3.30% × (1 – 21.00%)	=	0.05%
Total:	27,896)					1.00					12.65%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Cummins Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit¹	(1,509)	(341)	424)	(158)	682)
Invested capital²	20,768)	22,657)	17,518)	17,479)	15,235)
Performance Ratio
Economic spread ratio³	-7.27%	-1.50%	2.42%	-0.91%	4.48%
Benchmarks
Economic Spread Ratio, Competitors⁴
Boeing Co.	-14.71%	-20.11%	-18.74%	-30.29%	-20.27%
Caterpillar Inc.	4.45%	0.82%	0.77%	-5.36%	0.99%
Eaton Corp. plc	-2.72%	-4.81%	-4.58%	-6.69%	-4.00%
GE Aerospace	7.12%	-9.04%	-14.02%	-4.12%	-6.66%
Honeywell International Inc.	-0.10%	-1.05%	0.00%	-1.43%	2.83%
Lockheed Martin Corp.	17.21%	13.20%	14.19%	17.50%	18.12%
RTX Corp.	-3.31%	-3.18%	-2.71%	-8.23%	0.26%

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).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -1,509 ÷ 20,768 = -7.27%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Cummins Inc. economic spread ratio deteriorated from 2021 to 2022 and from 2022 to 2023.

Cummins Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit¹	(1,509)	(341)	424)	(158)	682)

Net sales	34,065)	28,074)	24,021)	19,811)	23,571)
Add: Increase (decrease) in deferred revenue	338)	143)	174)	177)	198)
Adjusted net sales	34,403)	28,217)	24,195)	19,988)	23,769)
Performance Ratio
Economic profit margin²	-4.39%	-1.21%	1.75%	-0.79%	2.87%
Benchmarks
Economic Profit Margin, Competitors³
Boeing Co.	-8.49%	-15.34%	-14.87%	-24.81%	-9.41%
Caterpillar Inc.	4.00%	0.79%	0.88%	-7.44%	1.07%
Eaton Corp. plc	-3.68%	-7.13%	-6.88%	-10.27%	-5.51%
GE Aerospace	5.54%	-8.20%	-14.16%	-6.58%	-9.90%
Honeywell International Inc.	-0.13%	-1.39%	0.00%	-2.12%	3.30%
Lockheed Martin Corp.	6.99%	5.32%	6.06%	7.51%	7.78%
RTX Corp.	-5.38%	-5.38%	-4.82%	-16.82%	0.35%

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).

¹ Economic profit. See details »

² 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -1,509 ÷ 34,403 = -4.39%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Cummins Inc. economic profit margin deteriorated from 2021 to 2022 and from 2022 to 2023.

Cummins Inc. (NYSE:CMI)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin