Market Cap : 32.77 B | Enterprise Value : 34.39 B | PE Ratio : 16.24 | PB Ratio : 3.76 |
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ROIC % measures how well a company generates cash flow relative to the capital it has invested in its business. It is also called ROC %. Cummins's annualized return on invested capital (ROIC %) for the quarter that ended in Jun. 2022 was 16.22%.
As of today (2022-08-17), Cummins's WACC % is 7.38%. Cummins's ROIC % is 11.67% (calculated using TTM income statement data). Cummins generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.
The historical data trend for Cummins's ROIC % can be seen below:
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
For the Specialty Industrial Machinery subindustry, Cummins's ROIC %, along with its competitors' market caps and ROIC % data, can be viewed below:
* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.
For the Industrial Products industry and Industrials sector, Cummins's ROIC % distribution charts can be found below:
* The bar in red indicates where Cummins's ROIC % falls into.
Cummins's annualized Return on Invested Capital (ROIC %) for the fiscal year that ended in Dec. 2021 is calculated as:
ROIC % (A: Dec. 2021 ) | ||||||
= | NOPAT | / | Average Invested Capital | |||
= | Operating Income * ( 1 - Tax Rate % ) | / | ( (Invested Capital (A: Dec. 2020 ) | + | Invested Capital (A: Dec. 2021 )) | / count ) |
= | 2214 * ( 1 - 21.34% ) | / | ( (14284 | + | 15685) | / 2 ) |
= | 1741.5324 | / | 14984.5 | |||
= | 11.62 % |
where
Invested Capital | (A: Dec. 2020 ) | |||||||||||
= | Total Assets | - | Accounts Payable & Accrued Expense | - | Excess Cash | |||||||
= | Total Assets | - | Accounts Payable & Accrued Expense | - | ( Cash, Cash Equivalents, Marketable Securities | - | max(0, Total Current Liabilities | - | Total Current Assets | + | Cash, Cash Equivalents, Marketable Securities | )) |
= | 22624 | - | 4478 | - | ( 3862 | - | max(0, 6335 | - | 11897 | + | 3862 | )) |
= | 14284 |
Invested Capital | (A: Dec. 2021 ) | |||||||||||
= | Total Assets | - | Accounts Payable & Accrued Expense | - | Excess Cash | |||||||
= | Total Assets | - | Accounts Payable & Accrued Expense | - | ( Cash, Cash Equivalents, Marketable Securities | - | max(0, Total Current Liabilities | - | Total Current Assets | + | Cash, Cash Equivalents, Marketable Securities | )) |
= | 23710 | - | 4838 | - | ( 3187 | - | max(0, 7084 | - | 12309 | + | 3187 | )) |
= | 15685 |
Cummins's annualized Return on Invested Capital (ROIC %) for the quarter that ended in Jun. 2022 is calculated as:
ROIC % (Q: Jun. 2022 ) | ||||||
= | NOPAT | / | Average Invested Capital | |||
= | Operating Income * ( 1 - Tax Rate % ) | / | ( (Invested Capital (Q: Mar. 2022 ) | + | Invested Capital (Q: Jun. 2022 )) | / count ) |
= | 3220 * ( 1 - 17.31% ) | / | ( (15851 | + | 16973) | / 2 ) |
= | 2662.618 | / | 16412 | |||
= | 16.22 % |
where
Invested Capital | (Q: Mar. 2022 ) | |||||||||||
= | Total Assets | - | Accounts Payable & Accrued Expense | - | Excess Cash | |||||||
= | Total Assets | - | Accounts Payable & Accrued Expense | - | ( Cash, Cash Equivalents, Marketable Securities | - | max(0, Total Current Liabilities | - | Total Current Assets | + | Cash, Cash Equivalents, Marketable Securities | )) |
= | 24122 | - | 5468 | - | ( 2803 | - | max(0, 7512 | - | 12596 | + | 2803 | )) |
= | 15851 |
Invested Capital | (Q: Jun. 2022 ) | |||||||||||
= | Total Assets | - | Accounts Payable & Accrued Expense | - | Excess Cash | |||||||
= | Total Assets | - | Accounts Payable & Accrued Expense | - | ( Cash, Cash Equivalents, Marketable Securities | - | max(0, Total Current Liabilities | - | Total Current Assets | + | Cash, Cash Equivalents, Marketable Securities | )) |
= | 24477 | - | 4506 | - | ( 2998 | - | max(0, 7671 | - | 12762 | + | 2998 | )) |
= | 16973 |
Note: The Operating Income data used here is four times the quarterly (Jun. 2022) data.
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
ROIC % measures how well a company generates cash flow relative to the capital it has invested in its business. It is also called ROC %. The reason book values of debt and equity are used is because the book values are the capital the company received when issuing the debt or receiving the equity investments.
There are four key components to this definition. The first is the use of operating income or EBIT rather than net income in the numerator. The second is the tax adjustment to this operating income or EBIT, computed as a hypothetical tax based on an effective or marginal tax rate. The third is the use of book values for invested capital, rather than market values. The final is the timing difference; the capital invested is from the end of the prior year whereas the operating income or EBIT is the current year's number.
Why is ROIC % important?
Because it costs money to raise capital. A firm that generates higher returns on investment than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.
As of today, Cummins's WACC % is 7.38%. Cummins's ROIC % is 11.67% (calculated using TTM income statement data). Cummins generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. Cummins earns returns that do not match up to its cost of capital. It will destroy value as it grows.
Like ROE % and ROA %, ROIC % is calculated with only 12 months of data. Fluctuations in the company's earnings or business cycles can affect the ratio drastically. It is important to look at the ratio from a long term perspective.
Thank you for viewing the detailed overview of Cummins's ROIC % provided by GuruFocus.com. Please click on the following links to see related term pages.
Peters Luther E | officer: VP - Corporate Controller | 500 JACKSON STREET COLUMBUS IN 47201 |
Fetch Bonnie J | officer: VP - Supply Chain | 500 JACKSON STREET COLUMBUS IN 47201 |
Wiltrout Jeffrey T | officer: VP - Corporate Strategy | 500 JACKSON STREET COLUMBUS IN 47201 |
Harris Carla A | director | 702 SW 8TH STREET BENTONVILLE AR 72716 |
Lamb-hale Nicole | officer: VP - General Counsel | 909 ROSE AVENUE SUITE 200 NORTH BETHESDA MD 20852 |
Newsome Earl | officer: VP - Chief Information Officer | 505 HUNTMAR PARK DR SUITE 300 HERNDON VA 20170 |
Brockhaus John D | officer: VP-Human Resources Operations | 500 JACKSON STREET COLUMBUS IN 47201 |
Narang Mahesh | officer: VP & President - Components | 500 JACKSON STREET COLUMBUS IN 47201 |
Chandler Mary T | officer: VP - Corp. Resp. & Comm. Rel. | 500 JACKSON STREET COLUMBUS IN 47201 |
Nelson Kimberly A | director | ONE GENERAL MILLS BLVD MINNEAPOLIS MN 55426 |
Davis Amy Rochelle | officer: VP & Pres. - New Power Segment | 500 JACKSON STREET COLUMBUS IN 47201 |
Stoner Nathan R | officer: VP - China Area Business Org | 500 JACKSON STREET COLUMBUS IN 47201 |
Kennedy Melina M | officer: VP-Product Compl.-Reg. Affairs | 301 EAST MARKET STREET INDIANAPOLIS IN 46204 |
Fier Walter J | officer: VP - Chief Technical Officer | 500 CENTRAL AVENUE COLUMBUS IN 47201 |
Quintos Karen H | director | ONE DELL WAY ROUND ROCK TX 78682 |
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