Analysis of Long-term (Investment) Activity Ratios
Activity ratios measure how efficiently a company performs day-to-day tasks, such us the collection of receivables and management of inventory.
Long-term Activity Ratios (Summary)
Cummins Inc., long-term (investment) activity ratios
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 investment activity ratios demonstrate a consistent pattern of volatility characterized by a marked contraction in 2020, followed by a multi-year recovery phase. While most efficiency metrics have trended toward pre-2020 levels, the utilization of equity has improved significantly beyond the initial baseline.
- Fixed Asset Utilization
- Net fixed asset turnover experienced a decline from 5.55 in 2019 to 4.66 in 2020. This metric subsequently recovered to 5.45 by 2023. A nearly identical trajectory is observed when including right-of-use assets, where the ratio moved from 4.97 in 2019 to a low of 4.22 in 2020, eventually peaking at 5.05 in 2023. This suggests a stabilization and eventual return to historical efficiency levels regarding long-term physical assets.
- Overall Asset Efficiency
- Total asset turnover reflects a more subdued recovery relative to fixed asset turnover. After dropping from 1.19 in 2019 to 0.88 in 2020, the ratio fluctuated, ending at 1.06 in 2023. The fact that this ratio remains below the 2019 peak suggests that the growth in the total asset base has slightly outpaced the growth in generated revenue over the five-year period.
- Equity Productivity
- Equity turnover shows the most pronounced growth trend. Following a contraction to 2.46 in 2020, the ratio climbed steadily to 3.13 in 2022 and reached 3.85 by 2023. This upward trajectory indicates a substantial increase in the efficiency of utilizing shareholder equity to generate sales, significantly surpassing the 2019 benchmark of 3.14.
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Net Fixed Asset Turnover
Cummins Inc., net fixed asset turnover 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) | ||||||
| Net sales | 34,065) | 28,074) | 24,021) | 19,811) | 23,571) | |
| Property, plant and equipment, net | 6,249) | 5,521) | 4,422) | 4,255) | 4,245) | |
| Long-term Activity Ratio | ||||||
| Net fixed asset turnover1 | 5.45 | 5.08 | 5.43 | 4.66 | 5.55 | |
| Benchmarks | ||||||
| Net Fixed Asset Turnover, Competitors2 | ||||||
| Boeing Co. | 7.30 | 6.31 | 5.70 | — | — | |
| Caterpillar Inc. | 5.04 | 4.70 | 3.99 | — | — | |
| Eaton Corp. plc | 6.57 | 6.59 | 6.41 | — | — | |
| GE Aerospace | 6.06 | 5.96 | 5.47 | — | — | |
| Honeywell International Inc. | 6.48 | 6.48 | 6.18 | — | — | |
| Lockheed Martin Corp. | 8.07 | 8.27 | 8.83 | — | — | |
| RTX Corp. | 4.38 | 4.42 | 4.30 | — | — | |
| Net Fixed Asset Turnover, Sector | ||||||
| Capital Goods | 5.98 | 5.79 | 5.46 | — | — | |
| Net Fixed Asset Turnover, Industry | ||||||
| Industrials | 2.86 | 2.94 | 2.72 | — | — | |
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 2023 Calculation
Net fixed asset turnover = Net sales ÷ Property, plant and equipment, net
= 34,065 ÷ 6,249 = 5.45
2 Click competitor name to see calculations.
The analysis of long-term investment activity reveals a period of volatility followed by a sustained expansion of both revenue and the fixed asset base. While net sales experienced a significant contraction in 2020, a strong recovery trajectory was established from 2021 through 2023, characterized by an acceleration in revenue growth that outpaced the growth of net property, plant, and equipment.
- Net Sales Trends
- Revenue demonstrated a V-shaped recovery, declining from US$ 23,571 million in 2019 to US$ 19,811 million in 2020 before climbing steadily to US$ 34,065 million by the end of 2023. This represents a significant increase in top-line performance in the post-2020 period.
- Fixed Asset Investment
- Net property, plant, and equipment remained relatively stable between 2019 and 2021. However, a notable shift in investment strategy occurred in 2022 and 2023, with assets increasing from US$ 4,422 million in 2021 to US$ 6,249 million in 2023. This indicates a strategic expansion of the company's production capacity or infrastructure.
- Net Fixed Asset Turnover Efficiency
- The net fixed asset turnover ratio fluctuated in correlation with sales volatility. The ratio dropped to its lowest point of 4.66 in 2020 due to the decline in sales against a static asset base. Efficiency recovered to 5.43 in 2021, followed by a slight decline to 5.08 in 2022, which coincided with the initial surge in capital expenditures. By 2023, the ratio improved to 5.45, suggesting that the recent investments in property, plant, and equipment are being effectively utilized to generate higher sales volumes.
Overall, the data indicates that the increase in fixed asset investment has not hindered operational efficiency. Instead, the ability to maintain a turnover ratio above 5.0 during a period of significant asset growth suggests a strong alignment between capacity expansion and market demand.
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Net Fixed Asset Turnover (including Operating Lease, Right-of-Use Asset)
Cummins Inc., net fixed asset turnover (including operating lease, right-of-use asset) 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) | ||||||
| Net sales | 34,065) | 28,074) | 24,021) | 19,811) | 23,571) | |
| Property, plant and equipment, net | 6,249) | 5,521) | 4,422) | 4,255) | 4,245) | |
| Operating lease assets | 501) | 492) | 444) | 438) | 496) | |
| Property, plant and equipment, net (including operating lease, right-of-use asset) | 6,750) | 6,013) | 4,866) | 4,693) | 4,741) | |
| Long-term Activity Ratio | ||||||
| Net fixed asset turnover (including operating lease, right-of-use asset)1 | 5.05 | 4.67 | 4.94 | 4.22 | 4.97 | |
| Benchmarks | ||||||
| Net Fixed Asset Turnover (including Operating Lease, Right-of-Use Asset), Competitors2 | ||||||
| Boeing Co. | 6.30 | 5.55 | 5.04 | — | — | |
| Caterpillar Inc. | 4.83 | 4.49 | 3.79 | — | — | |
| Eaton Corp. plc | 5.55 | 5.58 | 5.60 | — | — | |
| GE Aerospace | 5.17 | 5.08 | 4.55 | — | — | |
| Honeywell International Inc. | 5.50 | 5.58 | 5.28 | — | — | |
| Lockheed Martin Corp. | 7.14 | 7.27 | 7.54 | — | — | |
| RTX Corp. | 3.96 | 3.95 | 3.80 | — | — | |
| Net Fixed Asset Turnover (including Operating Lease, Right-of-Use Asset), Sector | ||||||
| Capital Goods | 5.31 | 5.13 | 4.80 | — | — | |
| Net Fixed Asset Turnover (including Operating Lease, Right-of-Use Asset), Industry | ||||||
| Industrials | 2.49 | 2.54 | 2.34 | — | — | |
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 2023 Calculation
Net fixed asset turnover (including operating lease, right-of-use asset) = Net sales ÷ Property, plant and equipment, net (including operating lease, right-of-use asset)
= 34,065 ÷ 6,750 = 5.05
2 Click competitor name to see calculations.
The analysis of long-term investment activity reveals a period of volatility followed by significant expansion in both revenue generation and capital investment. A general upward trajectory in net sales is observed from 2020 through 2023, which has largely outpaced the growth in net fixed assets, resulting in a recovery and eventual peak in asset utilization efficiency.
- Net Sales Performance
- Net sales experienced a notable decline in 2020, dropping to 19,811 million US dollars from 23,571 million US dollars in 2019. This was followed by a consistent and accelerating growth phase, with sales reaching 34,065 million US dollars by December 31, 2023. This represents a substantial increase in top-line revenue, indicating a strong recovery and expansion of market activity over the five-year period.
- Fixed Asset Investment Trends
- Net property, plant, and equipment, including right-of-use assets, remained relatively stable between 2019 and 2021. However, a significant increase in capital investment is observed starting in 2022, where assets rose to 6,013 million US dollars, further increasing to 6,750 million US dollars in 2023. This suggests a strategic expansion of the production capacity or infrastructure to support the growing sales volume.
- Net Fixed Asset Turnover Analysis
- The net fixed asset turnover ratio exhibited fluctuations reflecting the balance between revenue growth and capital expenditure. The ratio declined to 4.22 in 2020 due to the contraction in sales. While it recovered to 4.94 in 2021, it experienced a slight dip to 4.67 in 2022, coinciding with the initial surge in fixed asset acquisitions. By 2023, the ratio reached a period high of 5.05, indicating that the increase in sales growth significantly outweighed the increase in the fixed asset base, thereby enhancing the efficiency with which the company utilizes its long-term investments to generate revenue.
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Total Asset Turnover
Cummins Inc., total asset turnover 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) | ||||||
| Net sales | 34,065) | 28,074) | 24,021) | 19,811) | 23,571) | |
| Total assets | 32,005) | 30,299) | 23,710) | 22,624) | 19,737) | |
| Long-term Activity Ratio | ||||||
| Total asset turnover1 | 1.06 | 0.93 | 1.01 | 0.88 | 1.19 | |
| Benchmarks | ||||||
| Total Asset Turnover, Competitors2 | ||||||
| Boeing Co. | 0.57 | 0.49 | 0.45 | — | — | |
| Caterpillar Inc. | 0.73 | 0.69 | 0.58 | — | — | |
| Eaton Corp. plc | 0.60 | 0.59 | 0.58 | — | — | |
| GE Aerospace | 0.40 | 0.39 | 0.36 | — | — | |
| Honeywell International Inc. | 0.60 | 0.57 | 0.53 | — | — | |
| Lockheed Martin Corp. | 1.29 | 1.25 | 1.32 | — | — | |
| RTX Corp. | 0.43 | 0.42 | 0.40 | — | — | |
| Total Asset Turnover, Sector | ||||||
| Capital Goods | 0.57 | 0.54 | 0.50 | — | — | |
| Total Asset Turnover, Industry | ||||||
| Industrials | 0.67 | 0.66 | 0.58 | — | — | |
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 2023 Calculation
Total asset turnover = Net sales ÷ Total assets
= 34,065 ÷ 32,005 = 1.06
2 Click competitor name to see calculations.
The operational efficiency regarding asset utilization experienced significant fluctuations between 2019 and 2023. While net sales demonstrated a strong upward trajectory following a temporary contraction in 2020, a simultaneous and substantial expansion of the total asset base has influenced the overall productivity of the company's investments.
- Total Asset Turnover Volatility
- A notable decline occurred in 2020, with the turnover ratio dropping to 0.88 from 1.19 in 2019. This downturn was driven by a reduction in net sales to 19,811 million USD occurring alongside an increase in total assets to 22,624 million USD, indicating a period of diminished asset productivity.
- Correlation Between Revenue Growth and Asset Expansion
- Between 2021 and 2023, net sales grew aggressively, rising from 24,021 million USD to 34,065 million USD. However, total assets also increased significantly during this period, rising from 23,710 million USD to 32,005 million USD. The sharp increase in assets in 2022 to 30,299 million USD caused a temporary regression in the turnover ratio to 0.93, suggesting that investment in assets initially preceded the realization of corresponding sales growth.
- Recent Recovery in Asset Productivity
- The 2023 fiscal year shows a recovery in efficiency, with the total asset turnover ratio increasing to 1.06. This improvement indicates that the recent acceleration in net sales is beginning to outpace the growth of the asset base, leading to a more effective utilization of long-term resources compared to the 2020-2022 period.
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Equity Turnover
Cummins Inc., equity turnover 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) | ||||||
| Net sales | 34,065) | 28,074) | 24,021) | 19,811) | 23,571) | |
| Total Cummins Inc. shareholders’ equity | 8,850) | 8,975) | 8,474) | 8,062) | 7,507) | |
| Long-term Activity Ratio | ||||||
| Equity turnover1 | 3.85 | 3.13 | 2.83 | 2.46 | 3.14 | |
| Benchmarks | ||||||
| Equity Turnover, Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 3.28 | 3.57 | 2.92 | — | — | |
| Eaton Corp. plc | 1.22 | 1.22 | 1.20 | — | — | |
| GE Aerospace | 2.36 | 2.02 | 1.76 | — | — | |
| Honeywell International Inc. | 2.31 | 2.12 | 1.85 | — | — | |
| Lockheed Martin Corp. | 9.89 | 7.12 | 6.12 | — | — | |
| RTX Corp. | 1.15 | 0.92 | 0.88 | — | — | |
| Equity Turnover, Sector | ||||||
| Capital Goods | 3.07 | 2.54 | 2.28 | — | — | |
| Equity Turnover, Industry | ||||||
| Industrials | 3.33 | 3.06 | 2.63 | — | — | |
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 2023 Calculation
Equity turnover = Net sales ÷ Total Cummins Inc. shareholders’ equity
= 34,065 ÷ 8,850 = 3.85
2 Click competitor name to see calculations.
The analysis of equity turnover from 2019 to 2023 reveals a period of initial volatility followed by a strong acceleration in investment efficiency. After a contraction in 2020, a consistent upward trajectory in the ability to generate revenue relative to the equity base is observed, culminating in the highest turnover ratio of the analyzed five-year period by the end of 2023.
- Net Sales Trends
- Revenue experienced a significant decline in 2020, dropping to 19,811 million US dollars from 23,571 million US dollars in 2019. This was followed by a period of sustained growth, with sales increasing to 24,021 million US dollars in 2021, 28,074 million US dollars in 2022, and reaching a peak of 34,065 million US dollars in 2023.
- Shareholders' Equity Evolution
- Total shareholders' equity grew steadily from 7,507 million US dollars in 2019 to a peak of 8,975 million US dollars in 2022. A slight reduction was noted in 2023, where equity decreased to 8,850 million US dollars. The overall stability of the equity base indicates that the recent surge in revenue was achieved without a proportional increase in equity funding.
- Equity Turnover Performance
- The equity turnover ratio fell from 3.14 in 2019 to 2.46 in 2020, reflecting the adverse impact of declining sales occurring simultaneously with an increasing equity base. A recovery phase began in 2021 with a ratio of 2.83, returning to 3.13 in 2022. The ratio reached 3.85 in 2023, a sharp increase driven by the combination of record-high net sales and a marginal decrease in total equity, signaling a substantial improvement in the efficiency of capital utilization.
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