Cummins Inc. (NYSE:CMI)

Debt to Equity

The debt to equity ratio exhibits an overall increasing trend from March 2019 through December 2022, rising from 0.31 to a peak of 0.97, indicating a growing reliance on debt relative to equity during this period. After December 2022, the ratio declines gradually to 0.75 by March 2024, suggesting some deleveraging or improved equity base in the most recent quarters.

Debt to Capital

The debt to capital ratio follows a similar pattern, increasing from 0.24 in March 2019 to a high of 0.49 in September 2022. This pattern implies a higher proportion of debt within the company's capital structure over this time frame. A gradual reduction occurs post-September 2022, stabilizing around 0.43 by March 2024, indicating partial repayment or rebalancing of financing sources.

Debt to Assets

The ratio of debt to total assets also rises significantly from 0.12 in March 2019 to 0.27 by September 2022, which reflects increased leverage as a portion of the asset base is financed by debt. Following this peak, the ratio decreases consistently to 0.21 by March 2024, signaling an improvement in asset financing, either through asset growth or debt reduction.

Financial Leverage

Financial leverage remains fairly stable around the 2.5 to 2.8 range from March 2019 until early 2022, then escalates sharply to a high of 3.62 by March 2024. Despite some fluctuation since late 2022, this indicates that the company has increased its use of financial leverage in recent periods, reflecting potentially higher risk exposure or strategic capital structuring changes.

Interest Coverage

Data for interest coverage begins in March 2020, initially showing strong coverage ratios around 27, which then undergo a steady decline over subsequent quarters. By March 2024, the interest coverage ratio falls sharply to 8.47 after hitting a low of 5.34 the previous quarter. This significant reduction suggests decreased earnings capacity relative to interest obligations, pointing to potential pressure on the company’s ability to service debt in the most recent periods.

The analysis of the quarterly financial data reveals significant fluctuations in the company's capital structure over the observed periods. The total debt exhibits a general increasing trend from early 2019 through the end of 2022, followed by a notable decline in 2023 and early 2024. Conversely, shareholders’ equity shows moderate growth overall with some periods of stability and slight decreases.

Total debt

The total debt starts at $2,421 million in March 2019, decreasing slightly by mid-2019, then increasing to a peak of $8,115 million in September 2022. This upward trend reflects aggressive debt accumulation during this timeframe, with a particularly sharp rise between June 2022 ($4,425 million) and September 2022 ($8,115 million). After this peak, total debt declines steadily to $6,696 million by March 2024.

Total shareholders’ equity

Shareholders’ equity begins at $7,820 million in March 2019, increasing up to $8,738 million by June 2022. Despite some fluctuations, equity remains relatively stable with an upward bias through 2022 and 2023, peaking at $10,658 million in September 2023. However, a decrease is observed in the last two reported quarters, falling to approximately $9,067 million in March 2024.

Debt to equity ratio

The debt to equity ratio reflects the combined movements in debt and equity. Initially around 0.31 in March 2019, the ratio climbs steadily, reaching nearly 0.97 by September 2022, indicating a high leverage level during this period. Thereafter, the ratio decreases gradually to about 0.75 by March 2024, suggesting a reduction in relative debt levels compared to equity.

Overall, the data suggest that the company significantly increased its leverage between early 2020 and late 2022, likely to finance growth or respond to operational demands. The dramatic spike in debt by September 2022 is counterbalanced by a subsequent deleveraging trend. Meanwhile, shareholders’ equity growth appears more moderate and consistent, contributing to a stabilization in the overall capital structure in the most recent periods.

The financial data reveals a dynamic pattern in the company's leverage and capital structure over the observed periods. A detailed examination highlights the following trends and observations:

Total Debt

Total debt exhibits considerable fluctuation with an overall increasing trajectory from 2019 through early 2022, followed by more volatile behavior thereafter. Starting at $2,421 million on March 31, 2019, debt levels decreased modestly by mid-2019 but surged sharply between March 2020 and December 2020, reaching $4,164 million by the end of 2020. This escalation coincides with the period covering the onset of the COVID-19 pandemic, potentially reflecting increased borrowing or liquidity management needs.

Entering 2021, total debt remained relatively stable in the $4,000 million range until a substantial increase in the third quarter of 2022, where debt surged dramatically to $8,115 million. This peak reflects a significant change in capital structure strategy or financing activity. Subsequent quarters show a gradual reduction in debt, yet levels remain elevated compared to the 2019 baseline, stabilizing around $6,696 to $6,835 million by early 2024.

Total Capital

Total capital shows a general upward trend throughout the entire period, increasing from $10,241 million in March 2019 to a peak of $18,122 million in December 2023. This growth indicates an expanding capital base, reflecting either asset accumulation, equity issuance, retained earnings, or a combination of these factors.

While capital generally increased steadily, fluctuations are noted around 2020, likely influenced by macroeconomic conditions, after which capital again rose substantially through 2022 and 2023. A decline is observed in the first quarter of 2024, dropping to $15,902 million, suggesting possible capital restructuring, asset divestiture, or other adjustments.

Debt to Capital Ratio

The debt to capital ratio illustrates changes in financial leverage and risk profile. Starting around 0.24 in early 2019, indicating that approximately 24% of the total capital was funded by debt, the ratio increased notably through 2020 to a consistent range of 0.33 to 0.35, reflecting rising debt levels relative to total capital.

A pronounced spike occurs in the third quarter of 2022, where the ratio jumps to 0.49, aligning with the large increase in total debt observed. This elevated leverage level suggests a heightened reliance on debt financing during this period.

Following this peak, the ratio declines gradually through 2023, settling near 0.43 by early 2024. The reduction indicates either partial deleveraging or relatively stronger growth in capital compared to debt repayment pace, yet the leverage remains higher than the pre-pandemic levels, suggesting a new baseline for the company’s capital structure.

In summary, the company’s financial strategy displays initial conservative debt levels, followed by increased leverage likely to address pandemic-related pressures or strategic investments. The subsequent peak leverage in late 2022 signals an aggressive debt issuance or balance sheet adjustment, after which careful deleveraging efforts seem to have ensued. Total capital growth persists throughout most periods, implying expansion and resource accumulation, although capital base contraction in early 2024 may warrant further investigation regarding asset management or capital reallocation.

Total Debt

Total debt exhibited a fluctuating pattern over the observed periods. Initially, it ranged between approximately 2,223 million USD and 2,661 million USD from March 2019 to September 2019. A notable increase occurred starting in March 2020, where debt rose sharply to 3,351 million USD and continued increasing through the end of 2020, reaching a peak of 4,164 million USD in December 2020. Debt levels remained relatively stable around 4,000 million USD during 2021 and early 2022, before a significant surge took place starting mid-2022.

By September 2022, total debt jumped substantially to 8,115 million USD, doubling the previous typical range. Thereafter, total debt slightly declined but remained elevated above 6,600 million USD through the latest date in March 2024.

Total Assets

Total assets showed a steady upward trend throughout the time frame. Initial values around 19,846 million USD in early 2019 displayed consistent incremental growth. By the end of 2020, assets had increased to approximately 22,624 million USD, continuing this positive trajectory into 2021 and 2022, with figures exceeding 24,000 million USD.

In 2023, total assets further expanded significantly, surpassing 30,000 million USD from March 2023 onwards. However, by the most recent period reported (March 2024), a slight decrease was observed, with total assets recorded at 31,827 million USD, down marginally from the previous quarter's 32,005 million USD.

Debt to Assets Ratio

The debt to assets ratio provides insight into the leverage position relative to asset size. Initially, it hovered between 0.11 and 0.13 from early 2019 through late 2019, indicating relatively low leverage.

From early 2020, this ratio experienced a noticeable increase, moving from approximately 0.17 to around 0.19 by mid-2020 and remaining close to that level through 2021. In 2022, the ratio held steady near 0.17–0.18 before a pronounced escalation in 2023.

By March 2023, the ratio rose sharply to 0.27, indicating a significantly higher leverage, consistent with the large increase in total debt during that period. Subsequently, it gradually declined through 2023 and into early 2024, settling around 0.21, yet this remained elevated compared to prior years.

Summary

The data reveals a clear pattern of increasing leverage from 2020 onward, accompanied by steady asset growth. The most prominent change is the significant expansion in total debt during 2022, nearly doubling its previous levels, which markedly affected the debt to assets ratio. Despite the higher leverage ratio, total assets have also increased substantially, suggesting asset base growth alongside debt accumulation. The slight reduction in total assets and debt to assets ratio toward the end of the dataset indicates a minor deleveraging or asset correction phase.

Total assets

The total assets demonstrated a generally upward trend over the examined period, increasing from approximately 19,846 million USD in the first quarter of 2019 to a peak of around 31,097 million USD by the first quarter of 2024. Notably, asset growth accelerated significantly starting in the third quarter of 2022, with a sharp rise from roughly 24,477 million USD to over 31,000 million USD by early 2024, indicating a substantial expansion during this period. Some fluctuations are observed, such as a minor decrease between late 2023 and early 2024, but overall the trajectory is strongly positive.

Total Cummins Inc. shareholders’ equity

Shareholders’ equity exhibited more variability and a less consistent growth pattern compared to total assets. Initial values fluctuated between approximately 7,068 million USD in early 2020 and 8,738 million USD in late 2022. A significant increase occurred from mid-2022 through late 2023, reaching over 10,658 million USD in the third quarter of 2023. However, a mild decline is observed in the last two quarters of the dataset, with equity falling to around 9,067 million USD by the first quarter of 2024. This suggests some volatility in equity levels, possibly linked to earnings, dividends, or other equity transactions.

Financial leverage

The financial leverage ratio, which measures the extent of reliance on debt relative to equity, showed a complex pattern. During 2019 and 2020, the ratio remained relatively stable, fluctuating between 2.45 and 2.84. Beginning in 2021, leverage tended to increase gradually, reaching peaks of approximately 3.55 in September 2022 and slightly above 3.60 in early 2024. The increase in financial leverage coincides with rapid asset growth and more moderate increases or declines in shareholders’ equity, indicating increased use of debt financing over equity in recent years. The downward trend in equity combined with rising assets supports the observation of heightened leverage.

The analysis of the financial data reveals the following trends and insights for the examined periods:

Earnings Before Interest and Tax (EBIT)

EBIT exhibited fluctuations over the observed quarters. Initially, EBIT showed moderate growth, peaking at 900 million US$ in June 2019 before declining substantially to 385 million US$ by December 2019. Subsequently, a recovery phase occurred, with EBIT reaching 811 million US$ by the first quarter of 2021. This was followed by variability, including another notable peak at 1116 million US$ in September 2022. The most dramatic change occurred in the final period reported, where EBIT plunged to a negative 1138 million US$, before rebounding sharply to 2310 million US$ by March 31, 2024. These fluctuations suggest volatile operational performance or the impact of extraordinary items in certain quarters.

Interest Expense

Interest expense remained relatively stable in earlier periods, hovering in the range of 22 to 32 million US$. Starting from mid-2022, a gradual increase was observed, rising to a peak of 99 million US$ in the fourth quarter of 2023. The latest quarter showed a slight decrease to 89 million US$, indicating an overall upward trend in financing costs or increased debt levels over time.

Interest Coverage Ratio

The interest coverage ratio was not consistently reported across all periods but, where available, it showed a general declining trend from exceptionally high levels above 25 in early 2020 to approximately 5.34 by December 2023. The slight recovery to 8.47 at the end of the dataset reflects a decrease in the company's ability to comfortably cover interest obligations with earnings, potentially linked to the EBIT volatility and increased interest expenses noted above. This declining trend may signal growing financial risk or reduced operational profitability affecting debt servicing capacity.

In summary, the data indicates significant variability in operational earnings with a recent sharp decline and rebound, coupled with steadily increasing interest expenses, leading to a reduced capacity to cover interest costs over time. These patterns underline the importance of closely monitoring both operational performance and financing conditions going forward.