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GuruFocus has detected 7 Warning Signs with Cummins Inc $CMI.
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Cummins Inc (NYSE:CMI)
Piotroski F-Score
7 (As of Today)

Good Sign:

Piotroski F-Score of 7 is 7, indicating very healthy situation.

The zones of discrimination were as such:

Good or high score = 7, 8, 9
Bad or low score = 0, 1, 2, 3

Cummins Inc has an F-score of 7. It is a good or high score, which usually indicates a very healthy situation.

CMI' s Piotroski F-Score Range Over the Past 10 Years
Min: 2   Max: 9
Current: 7

2
9

During the past 13 years, the highest Piotroski F-Score of Cummins Inc was 9. The lowest was 2. And the median was 6.


Definition

How is the Piotroski F-Score calculated?

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Mar17) TTM:Last Year (Mar16) TTM:
Net Income was 406 + 289 + 378 + 396 = $1,469 Mil.
Cash Flow from Operations was 467 + 576 + 625 + 379 = $2,047 Mil.
Revenue was 4528 + 4187 + 4503 + 4589 = $17,807 Mil.
Gross Profit was 1197 + 1079 + 1120 + 1128 = $4,524 Mil.
Average Total Assets from the begining of this year (Mar16)
to the end of this year (Mar17) was
(14827 + 15020 + 15136 + 15011 + 15634) / 5 = $15125.6 Mil.
Total Assets at the begining of this year (Mar16) was $14,827 Mil.
Long-Term Debt was $1,576 Mil.
Total Current Assets was $8,159 Mil.
Total Current Liabilities was $4,662 Mil.
Net Income was 471 + 380 + 161 + 321 = $1,333 Mil.

Revenue was 5015 + 4620 + 4766 + 4291 = $18,692 Mil.
Gross Profit was 1332 + 1208 + 1212 + 1056 = $4,808 Mil.
Average Total Assets from the begining of last year (Mar15)
to the end of last year (Mar16) was
(15736 + 15878 + 15797 + 15134 + 14827) / 5 = $15474.4 Mil.
Total Assets at the begining of last year (Mar15) was $15,736 Mil.
Long-Term Debt was $1,614 Mil.
Total Current Assets was $7,468 Mil.
Total Current Liabilities was $3,917 Mil.

Profitability

Question 1. Return on Assets (ROA)

Net income before extraordinary items for the year divided by total assets at the beginning of the year.

Score 1 if positive, 0 if negative.

Cummins Inc's current net income (TTM) was 1,469. ==> Positive ==> Score 1.

Question 2. Cash Flow Return on Assets (CFROA)

Net cash flow from operating activities (operating cash flow) divided by total assets at the beginning of the year.

Score 1 if positive, 0 if negative.

Cummins Inc's current cash flow from operations (TTM) was 2,047. ==> Positive ==> Score 1.

Question 3. Change in Return on Assets

Compare this year’s return on assets (1) to last year’s return on assets.

Score 1 if it’s higher, 0 if it’s lower.

Cummins Inc's return on assets of this year was 0.09907601. Cummins Inc's return on assets of last year was 0.08471022. ==> This year is higher. ==> Score 1.

Question 4. Quality of Earnings (Accrual)

Compare Cash flow return on assets (2) to return on assets (1)

Score 1 if CFROA > ROA, 0 if CFROA <= ROA.

Cummins Inc's current net income (TTM) was 1,469. Cummins Inc's current cash flow from operations (TTM) was 2,047. ==> 2,047 > 1,469 ==> CFROA > ROA ==> Score 1.

Funding

Question 5. Change in Gearing or Leverage

Compare this year’s gearing (long-term debt divided by average total assets) to last year’s gearing.

Score 0 if this year's gearing is higher, 1 otherwise.

Gearing (This Year: Mar17)=Long-Term Debt/Average Total Assets from Mar16 to Mar17
=1576/15125.6
=0.10419421

Gearing (Last Year: Mar16)=Long-Term Debt/Average Total Assets from Mar15 to Mar16
=1614/15474.4
=0.1043013

Cummins Inc's gearing of this year was 0.10419421. Cummins Inc's gearing of last year was 0.1043013. ==> This year is lower or equal to last year. ==> Score 1.

Question 6. Change in Working Capital (Liquidity)

Compare this year’s current ratio (current assets divided by current liabilities) to last year’s current ratio.

Score 1 if this year'’s current ratio is higher, 0 if it’s lower

Current Ratio (This Year: Mar17)=Total Current Assets/Total Current Liabilities
=8159/4662
=1.75010725

Current Ratio (Last Year: Mar16)=Total Current Assets/Total Current Liabilities
=7468/3917
=1.90656114

Cummins Inc's current ratio of this year was 1.75010725. Cummins Inc's current ratio of last year was 1.90656114. ==> Last year's current ratio is higher ==> Score 0.

Question 7. Change in Shares in Issue

Compare the number of shares in issue this year, to the number in issue last year.

Score 0 if there is larger number of shares in issue this year, 1 otherwise.

Cummins Inc's number of shares in issue this year was 168. Cummins Inc's number of shares in issue last year was 172. ==> There is smaller number of shares in issue this year, or the same. ==> Score 1.

Efficiency

Question 8. Change in Gross Margin

Compare this year’s gross margin (gross profit divided by sales) to last year’s.

Score 1 if this year’s gross margin is higher, 0 if it’s lower.

Gross Margin (This Year: TTM)=Gross Profit/Revenue
=4524/17807
=0.25405739

Gross Margin (Last Year: TTM)=Gross Profit/Revenue
=4808/18692
=0.25722234

Cummins Inc's gross margin of this year was 0.25405739. Cummins Inc's gross margin of last year was 0.25722234. ==> Last year's gross margin is higher ==> Score 0.

Question 9. Change in asset turnover

Compare this year’s asset turnover (total sales for the year divided by total assets at the beginning of the year) to last year’s asset turnover ratio.

Score 1 if this year’s asset turnover ratio is higher, 0 if it’s lower

Asset Turnover (This Year)=Revenue (TTM)/Total Assets at the Beginning of This Year (Mar16)
=17807/14827
=1.20098469

Asset Turnover (Last Year)=Revenue (TTM)/Total Assets at the Beginning of Last Year (Mar15)
=18692/15736
=1.18784952

Cummins Inc's asset turnover of this year was 1.20098469. Cummins Inc's asset turnover of last year was 1.18784952. ==> This year's asset turnover is higher. ==> Score 1.

Evaluation

Piotroski F-Score= Que. 1+ Que. 2+ Que. 3+Que. 4+Que. 5+Que. 6+Que. 7+Que. 8+Que. 9
=1+1+1+1+1+0+1+0+1
=7

Good or high score = 7, 8, 9
Bad or low score = 0, 1, 2, 3

Cummins Inc has an F-score of 7. It is a good or high score, which usually indicates a very healthy situation.


Explanation

The developer of the system is Joseph D. Piotroski is relatively unknown accounting professor who shuns publicity and rarely gives interviews.

He graduated from the University of Illinois with a B.S. in accounting in 1989, received an M.B.A. from Indiana University in 1994. Five years later, in 1999, after earning a Ph.D. in accounting from the University of Michigan, he became an associate professor of accounting at the University of Chicago.

In 2000, he wrote a research paper called "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers" (pdf).

He wanted to see if he can develop a system (using a simple nine-point scoring system) that can increase the returns of a strategy of investing in low price to book (referred to in the paper as high book to market) value companies.

What he found was something that exceeded his most optimistic expectations.

Buying only those companies that scored highest (8 or 9) on his nine-point scale, or F-Score as he called it, over the 20 year period from 1976 to 1996 led to an average out-performance over the market of 13.4%.

Even more impressive were the results of a strategy of investing in the highest F-Score companies (8 or 9) and shorting companies with the lowest F-Score (0 or 1).

Over the same period from 1976 to 1996 (20 years) this strategy led to an average yearly return of 23%, substantially outperforming the average S&P 500 index return of 15.83% over the same period.


Related Terms

Net Income, Cash Flow from Operations, Revenue, Gross Profit, Total Assets, Long-Term Debt, Total Current Assets, Total Current Liabilities


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Cummins Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
Question 1 1111111111
Question 2 1111111111
Question 3 0001100001
Question 4 1110101111
Question 5 1000110110
Question 6 0110111000
Question 7 1101111111
Question 8 0101110110
Question 9 1101100000
F-score 6746965665

Cummins Inc Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
Question 1 1111111111
Question 2 1111111111
Question 3 0000000011
Question 4 1111111111
Question 5 1111100001
Question 6 0000000000
Question 7 1111111111
Question 8 1111110000
Question 9 0000000001
F-score 6666654457
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