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Cummins WACC %

:7.52% (As of Today)
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As of today (2022-08-09), Cummins's weighted average cost of capital is 7.52%. 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 WACC % Historical Data

The historical data trend for Cummins's WACC % 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.

* Premium members only.

Cummins Annual Data
Trend Dec12 Dec13 Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Dec20 Dec21
WACC %
Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 6.82 9.05 9.54 7.14 6.98

Cummins Quarterly Data
Sep17 Dec17 Mar18 Jun18 Sep18 Dec18 Mar19 Jun19 Sep19 Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21 Sep21 Dec21 Mar22 Jun22
WACC % Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 7.09 7.07 6.98 7.22 7.37

Competitive Comparison

For the Specialty Industrial Machinery subindustry, Cummins's WACC %, along with its competitors' market caps and WACC % 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.

   

Cummins WACC % Distribution

For the Industrial Products industry and Industrials sector, Cummins's WACC % distribution charts can be found below:

* The bar in red indicates where Cummins's WACC % falls into.



Cummins WACC % Calculation

The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm's cost of capital. Generally speaking, a company's assets are financed by debt and equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances.

WACC=E/(E + D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate)

1. Weights:
Generally speaking, a company's assets are financed by debt and equity. We need to calculate the weight of equity and the weight of debt.
The market value of equity (E) is also called "Market Cap". As of today, Cummins's market capitalization (E) is $30667.495 Mil.
The market value of debt is typically difficult to calculate, therefore, GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding the latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together. As of Jun. 2022, Cummins's latest two-year average Short-Term Debt & Capital Lease Obligation was $695 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was $3920 Mil. The total Book Value of Debt (D) is $4615 Mil.
a) weight of equity = E / (E + D) = 30667.495 / (30667.495 + 4615) = 0.8692
b) weight of debt = D / (E + D) = 4615 / (30667.495 + 4615) = 0.1308

2. Cost of Equity:
GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of return. The formula is:
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return)
a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is updated daily. The current risk-free rate is 2.79400000%. Please go to Economic Indicators page for more information. Please note that we use the 10-Year Treasury Constant Maturity Rate of the country/region where the company is headquartered. If the data for that country/region is not available, then we will use the 10-Year Treasury Constant Maturity Rate of the United States as default.
b) Beta is the sensitivity of the expected excess asset returns to the expected excess market returns. Cummins's beta is 0.93.
c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.
Cost of Equity = 2.79400000% + 0.93 * 6% = 8.374%

3. Cost of Debt:
GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.
As of Dec. 2021, Cummins's interest expense (positive number) was $111 Mil. Its total Book Value of Debt (D) is $4615 Mil.
Cost of Debt = 111 / 4615 = 2.4052%.

4. Multiply by one minus Average Tax Rate:
GuruFocus uses the latest two-year average tax rate to do the calculation. The calculated average tax rate is limited to between 0% and 100%. If the calculated average tax rate is higher than 100%, it is set to 100%. If the calculated average tax rate is less than 0%, it is set to 0%.
The latest Two-year Average Tax Rate is 21.94%.

Cummins's Weighted Average Cost Of Capital (WACC) for Today is calculated as:

WACC=E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate)
=0.8692*8.374%+0.1308*2.4052%*(1 - 21.94%)
=7.52%

* 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.


Cummins  (NYSE:CMI) WACC % Explanation

Because it costs money to raise capital. A firm that generates higher ROIC % 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 weighted average cost of capital is 7.52%. 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.


Be Aware

1. GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together.

2. The WACC formula discussed above does not include Preferred Stock. Please adjust if preferred stock is considered.

3. (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.

4. GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.


Related Terms

Cummins Business Description

Cummins logo
Address
500 Jackson Street, Box 3005, Columbus, IN, USA, 47202-3005
Cummins is the top manufacturer of diesel engines used in commercial trucks, off-highway equipment, and railroad locomotives, in addition to standby and prime power generators. The company also sells powertrain components, which include filtration products, transmissions, turbochargers, aftertreatment systems, and fuel systems. Cummins is in the unique position of competing with its primary customers, heavy-duty truck manufacturers, who make and aggressively market their own engines. Despite robust competition across all its segments and increasing government regulation of diesel emissions, Cummins has maintained its leadership position in the industry.
Executives
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

Cummins Headlines

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