Cummins Inc. (NYSE:CMI)

Return on Assets (ROA)

The ROA displayed a declining trend over the five-year period, starting at 11.45% in 2019 and decreasing to 2.3% by 2023. Although there was a slight recovery from 7.91% in 2020 to 8.99% in 2021, the overall pattern reflects a deterioration in asset profitability, with a significant drop in the final year.

Financial Leverage

Financial leverage increased steadily throughout the period, rising from 2.63 in 2019 to 3.62 in 2023. This indicates a growing use of debt relative to equity to finance assets, which could suggest an increasing risk profile or a strategic decision to leverage capital structure more aggressively.

Return on Equity (ROE)

ROE exhibited a similar downward trajectory to ROA, starting at a high of 30.11% in 2019 and falling to 8.31% in 2023. The measure experienced some improvement between 2020 and 2021 but declined again thereafter. The substantial reduction in ROE by 2023 highlights diminished profitability from the shareholders' perspective, potentially influenced by both asset returns and increased financial leverage.

Net Profit Margin

The net profit margin showed a declining trend over the five-year period. Starting at 9.59% in 2019, it gradually decreased each year to reach 2.16% by 2023. This steady decline indicates diminishing profitability relative to sales, with a notably sharp drop in the final year.

Asset Turnover

Asset turnover exhibited some variability, initially decreasing from 1.19 in 2019 to a low of 0.88 in 2020, followed by a moderate recovery in subsequent years. It improved to 1.06 by 2023, suggesting a gradual enhancement in the efficiency of asset utilization to generate sales, although it did not return to 2019 levels.

Financial Leverage

Financial leverage consistently increased throughout the period, rising from 2.63 in 2019 to 3.62 in 2023. This upward trend indicates growing reliance on debt or other liabilities to finance assets, which may imply higher financial risk.

Return on Equity (ROE)

ROE experienced notable fluctuations during the period. It decreased significantly from 30.11% in 2019 to 22.19% in 2020. After partial recovery in 2021 and 2022, ROE declined sharply again in 2023 to 8.31%. The overall downward trajectory reflects a reduction in the ability to generate profit from shareholders’ equity.

The financial data over the five-year period reveals several noteworthy trends regarding profitability, operational efficiency, and financial structure.

Tax Burden

The tax burden ratio remained relatively stable from 2019 through 2022, fluctuating slightly between 0.77 and 0.8, before experiencing a significant decline to 0.48 in 2023. This suggests a considerable reduction in the effective tax rate, potentially due to tax benefits, changes in tax legislation, or other tax planning strategies impacting the latest year.

Interest Burden

This ratio was consistent at 0.96 from 2019 to 2021, then declined slightly to 0.93 in 2022 and further to 0.8 in 2023. The downward trend in interest burden indicates increasing interest expenses relative to earnings before interest and taxes (EBIT), which could be linked to higher debt levels or interest rates.

EBIT Margin

A continuous downward trend is observed in the EBIT margin, starting from 12.45% in 2019 and decreasing each year to reach 5.57% in 2023. This significant decline demonstrates a reduction in operating profitability and margin, reflecting potentially higher costs, pricing pressures, or operational inefficiencies.

Asset Turnover

The asset turnover ratio dropped notably from 1.19 in 2019 to 0.88 in 2020, improved slightly in 2021 to 1.01, then decreased again in 2022 to 0.93 before rebounding to 1.06 in 2023. This indicates some fluctuations in the company’s efficiency in generating revenue from its assets, with the most recent year showing a recovery in asset utilization.

Financial Leverage

This ratio increased steadily over the period, starting at 2.63 in 2019 and rising to 3.62 in 2023. The growing financial leverage suggests a greater reliance on debt financing, which may increase financial risk but also potentially amplify returns during favorable conditions.

Return on Equity (ROE)

ROE declined from a robust 30.11% in 2019 to a low of 8.31% in 2023, with intermittent fluctuations in the intervening years. The steep decrease in the latest year corresponds with lower EBIT margins and increased interest burden, indicating diminished profitability and effectiveness in generating returns for shareholders.

In summary, the company experienced notable erosion in operating profitability and shareholder returns over the period, accompanied by increasing leverage and changes in tax and interest burdens. Improvement in asset turnover during the latest year provides some operational resilience, but overall trends suggest rising financial risk and reduced efficiency in profit generation.

Net Profit Margin

The net profit margin exhibited a downward trend over the five-year period. Starting at 9.59% in 2019, it slightly decreased to 9.03% in 2020 and continued a gradual decline to 8.87% in 2021. The decline became more pronounced in the following years, dropping to 7.66% in 2022 and sharply down to 2.16% by 2023. This indicates a significant reduction in profitability relative to sales revenue, particularly in the last two years.

Asset Turnover

The asset turnover ratio showed some fluctuations during the period. It started at 1.19 in 2019, declined to 0.88 in 2020, suggesting less efficient asset use. The ratio improved somewhat in 2021 to 1.01 but fell again to 0.93 in 2022. By 2023, it rose to 1.06, indicating a recovery in asset utilization efficiency, though not reaching the initial level observed in 2019.

Return on Assets (ROA)

Return on assets followed a declining trajectory similar to the net profit margin. The ROA was 11.45% in 2019, decreasing to 7.91% in 2020. It showed a slight recovery to 8.99% in 2021 but decreased again to 7.1% in 2022. By 2023, ROA plummeted to 2.3%, reflecting a significant drop in the overall profitability generated by company assets.

Tax Burden

The tax burden ratio remained relatively stable from 2019 to 2022, fluctuating slightly between 0.77 and 0.80. However, in 2023, there was a significant decrease to 0.48, indicating a substantial reduction in the effective tax rate applied to earnings before tax.

Interest Burden

The interest burden ratio was consistently high and stable from 2019 through 2021 at 0.96, reflecting minimal interest expense relative to EBIT. This ratio declined modestly to 0.93 in 2022 and then more sharply to 0.80 in 2023, suggesting an increase in interest expenses or financial costs impacting earnings before tax.

EBIT Margin

The EBIT margin displayed a steady decline over the five-year period. Starting at 12.45% in 2019, it dropped gradually each year to 5.57% in 2023, indicating a decrease in operating profitability and possibly reflecting rising costs, pricing pressure, or other operational challenges.

Asset Turnover

The asset turnover ratio experienced variability within the range of 0.88 to 1.19. After an initial drop from 1.19 in 2019 to 0.88 in 2020, it improved to 1.01 in 2021, decreased slightly to 0.93 in 2022, and then rose again to 1.06 in 2023. This suggests fluctuations in the efficiency of asset utilization to generate sales, with some recovery in 2023.

Return on Assets (ROA)

ROA followed a declining trajectory over the analyzed period. Beginning at 11.45% in 2019, it fell sharply to 7.91% in 2020, showed slight improvement in 2021, then declined again in the subsequent years to reach 2.3% in 2023. This reflects decreasing overall profitability relative to assets, combining the effects of decreasing margins and inconsistent asset turnover.

Tax Burden

The tax burden ratio remained relatively stable from 2019 through 2022, fluctuating slightly between 0.77 and 0.8. However, there was a significant decrease in 2023 to 0.48, indicating a notably lower tax impact on earnings in the most recent period.

Interest Burden

The interest burden ratio held steady at 0.96 from 2019 to 2021 and showed a mild decline to 0.93 in 2022, followed by a more pronounced decrease to 0.8 in 2023. This trend suggests rising interest expenses or higher financial costs impacting earnings before tax in the latest year.

EBIT Margin

The EBIT margin demonstrated a consistent downward trend over the five-year period, declining from 12.45% in 2019 to 5.57% in 2023. The margin decrease accelerated notably in 2023, reflecting a reduction in operational profitability before interest and taxes.

Net Profit Margin

The net profit margin similarly declined from 9.59% in 2019 to 2.16% in 2023, with a steady decrease each year. The sharp drop in 2023 aligns with the reductions in tax and interest burdens but indicates overall diminished profitability after all expenses.