Last update on 2024-06-06

Cummins (CMI) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Analyzing Cummins (CMI) using the Piotroski F-Score for 2023. Discover insights on profitability, liquidity, and operational efficiency. Final Score: 5/9.

Short Analysis - Piotroski Score: 5

We're running Cummins (CMI) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The analysis assesses Cummins (CMI) using the Piotroski F-Score to evaluate profitability, liquidity, and operating efficiency. With a score of 5 out of 9, Cummins demonstrates strengths such as positive net income, positive cash flow from operations, cash flow exceeding net income, increasing gross margin, and growing asset turnover ratio. However, areas of concern include decreasing ROA, increasing leverage, declining current ratio, and slight share dilution.

Insights for Value Investors Seeking Stable Income

With a score of 5, Cummins shows a balanced financial position but reveals some areas needing improvement. If you're an investor looking for robust profitability and operational efficiency, this company is promising. However, consider the recent increase in leverage and declining liquidity. It could be worthwhile to keep an eye on these trends and potentially look for improvement before making a significant investment.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Cummins (CMI)

Company has a positive net income?

Net income criterion checks if the company is profitable.

For Cummins (CMI), the net income in 2023 is $735 million, which is positive. Historically, Cummins has shown profitability every year for the last 20 years, with significant peaks in certain years like 2018 and 2019 where net income exceeded $2 billion. Given the positive net income for 2023, Cummins earns 1 point for this criterion. This continuous profitability trend is favorable from a financial health and operational performance standpoint, ensuring investor confidence.

Company has a positive cash flow?

Assessing Cash Flow from Operations (CFO) for Cummins (CMI) is critical as it reflects the cash a company generates from its regular operating activities. Positive CFO is a strong indicator of financial health and operational efficiency, signifying that the company can generate sufficient cash to maintain and grow its operations without relying on external financing.

For Cummins (CMI), the cash flow from operations in 2023 is $3,966,000,000, which is indeed positive. This is a robust indication of the company's financial health. Historically, Cummins has shown an increasing trend in its operating cash flow over the last two decades, with 2023 exhibiting the highest CFO recorded. This positive trajectory suggests sustained operational efficiency and growth, with a steep jump from $1,962,000,000 in 2022 to nearly $4 billion in 2023, almost doubling in just one year. Such a trend is a highly favorable indicator for investors, ensuring liquidity and potential for reinvestment.

Return on Assets (ROA) are growing?

The change in ROA measures the profitability improvement over the preceding period. This is crucial for evaluating efficiency gains and enhanced profitability.

Cummins (CMI) saw a decline in ROA from 0.0797 in 2022 to 0.0236 in 2023. This is concerning, pointing towards decreasing profitability. The 20-year average ROA of 0.3056 for the industry underscores this issue.

Operating Cashflow are higher than Netincome?

This criterion evaluates if the Operating Cash Flow (OCF) is higher than Net Income (NI). A higher OCF compared to NI suggests that the company's earnings are backed by solid cash flow, indicating its earnings quality and financial health.

For Cummins (CMI), the Operating Cash Flow in 2023 was $3.966 billion, whereas the Net Income was $735 million. Since the OCF is significantly higher than the NI, Cummins earns 1 point for this criterion. This indicates that the company's earnings are strongly supported by cash flow, which is a positive sign. Historically, Cummins has consistently maintained a robust OCF. For instance, in 2022, the OCF was $1.962 billion and the NI was $2.151 billion, almost neck-to-neck. The increase in OCF to $3.966 billion in 2023 demonstrates exceptional cash flow management. However, the relatively low NI in 2023 compared to previous years raises questions about non-cash expenses impacting profitability or other financial considerations. Overall, the trend of OCF being higher than NI is favorable but further analysis of the net income decline is warranted.

Liquidity of Cummins (CMI)

Leverage is declining?

The change in leverage criterion examines the company's financial risk by comparing its debt levels over successive years.

Cummins (CMI) experienced a slight increase in leverage from 0.1606 in 2022 to 0.1617 in 2023. This indicates that the company may have taken on slightly more debt relative to its assets. Reviewing the historical trend over the last 20 years, the leverage has generally decreased, signaling a long-term strategy of reducing financial risk. However, the recent uptick can be seen as a deviation from this prudent path. Therefore, according to the Piotroski F-score rule, 0 points should be awarded for this criterion as the leverage has increased in 2023.

Current Ratio is growing?

The Current Ratio is calculated by dividing a company's current assets by its current liabilities. It measures the ability of a company to pay its short-term obligations.

Cummins (CMI) had a Current Ratio of 1.1779 in 2023, down from 1.2653 in 2022, indicating a decrease. This trend is concerning as a decrease in Current Ratio might mean worsening liquidity. Over the last 20 years, CMI had higher ratios, often above 1.5. Compared to the industry median of 1.7757 in 2023, CMI's Current Ratio is significantly lower, not only suggesting weaker liquidity but also indicating underperformance relative to industry standards. This metric should be monitored closely.

Number of shares not diluted?

This criterion analyzes the change in the number of outstanding shares issued by Cummins (CMI) between two years. A decrease is favorable as it typically indicates share buybacks, whereas an increase suggests dilution.

The outstanding shares for Cummins increased from 141.5 million in 2022 to 141.7 million in 2023, reflecting a change of 200,000 shares or roughly 0.14% increase. This trend suggests slight shareholder dilution, as opposed to a share buyback. Over the past 20 years, outstanding shares have generally decreased from a high point of around 200 million to the current levels, indicating a historical trend of share buybacks. Therefore, the score for this criterion is 0, signalling a neutral / slightly negative indicator for Piotroski Analysis.

Operating of Cummins (CMI)

Cross Margin is growing?

Gross Margin is a crucial criterion for Piotroski's F-score as it indicates the percentage of revenue exceeding the cost of goods sold. A higher gross margin suggests better efficiency in production and stronger pricing power, enhancing profitability.

The Gross Margin for Cummins (CMI) has increased from 0.2393 in 2022 to 0.2422 in 2023, adding 1 point to the Piotroski F-score. This trend is positive as it suggests better control over production costs and potentially stronger pricing power. Over the past 20 years, the Gross Margin has fluctuated but has generally trended upwards, indicating long-term improvements in operational efficiency. Compared to the industry median, which is 0.3492 in 2023, Cummins still falls short, suggesting room for further improvement. Nonetheless, the increase from 2022 to 2023 is a positive sign.

Asset Turnover Ratio is growing?

Asset Turnover compares a company’s sales to its assets, indicating how efficiently the company is using its assets to generate revenue.

Cummins' Asset Turnover increased from 1.0396 in 2022 to 1.0935 in 2023. This uptick—albeit modest—suggests enhanced efficiency in asset utilization. Historically, Asset Turnover for Cummins has oscillated, reaching highs of 1.7162 in 2008 and notable lows of 0.9353 during the Covid-19 pandemic in 2020. The increase from 2022 to 2023 resembles early recovery trends post-pandemic (similar to its 2012 bounce-back). This improved ratio merits an additional 1 point according to the Piotroski analysis, supporting a positive long-term trend in operational efficiency. This looks good for the company, reflecting its ability to generate more revenue per dollar of asset.