Intrinsic value of Cummins - CMI

Previous Close

$154.38

  Intrinsic Value

$129.21

stock screener

  Rating & Target

hold

-16%

  Value-price divergence*

+37%

Previous close

$154.38

 
Intrinsic value

$129.21

 
Up/down potential

-16%

 
Rating

hold

 
Value-price divergence*

+37%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CMI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 25.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -8.38
  6.90
  6.71
  6.54
  6.39
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
Revenue, $m
  17,509
  18,717
  19,973
  21,279
  22,638
  24,052
  25,524
  27,058
  28,657
  30,324
  32,064
  33,879
  35,775
  37,756
  39,826
  41,991
  44,254
  46,623
  49,102
  51,697
  54,414
  57,261
  60,243
  63,368
  66,643
  70,076
  73,675
  77,450
  81,408
  85,559
  89,914
Variable operating expenses, $m
 
  16,692
  17,809
  18,971
  20,179
  21,436
  22,746
  24,110
  25,532
  27,014
  28,561
  30,127
  31,813
  33,575
  35,416
  37,340
  39,354
  41,460
  43,664
  45,972
  48,388
  50,920
  53,572
  56,350
  59,263
  62,316
  65,517
  68,873
  72,392
  76,084
  79,956
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  15,581
  16,692
  17,809
  18,971
  20,179
  21,436
  22,746
  24,110
  25,532
  27,014
  28,561
  30,127
  31,813
  33,575
  35,416
  37,340
  39,354
  41,460
  43,664
  45,972
  48,388
  50,920
  53,572
  56,350
  59,263
  62,316
  65,517
  68,873
  72,392
  76,084
  79,956
Operating income, $m
  1,928
  2,025
  2,164
  2,308
  2,459
  2,616
  2,779
  2,948
  3,126
  3,310
  3,503
  3,752
  3,962
  4,181
  4,410
  4,650
  4,901
  5,163
  5,438
  5,725
  6,026
  6,341
  6,671
  7,017
  7,380
  7,760
  8,159
  8,577
  9,015
  9,475
  9,957
EBITDA, $m
  2,458
  2,511
  2,679
  2,854
  3,037
  3,226
  3,424
  3,630
  3,844
  4,068
  4,301
  4,545
  4,799
  5,065
  5,342
  5,633
  5,936
  6,254
  6,587
  6,935
  7,299
  7,681
  8,081
  8,500
  8,940
  9,400
  9,883
  10,389
  10,920
  11,477
  12,061
Interest expense (income), $m
  68
  61
  83
  105
  127
  151
  176
  202
  228
  256
  286
  316
  348
  381
  416
  452
  490
  529
  571
  614
  660
  707
  757
  809
  864
  921
  981
  1,044
  1,110
  1,179
  1,252
Earnings before tax, $m
  1,930
  1,964
  2,081
  2,204
  2,332
  2,464
  2,603
  2,747
  2,897
  3,054
  3,217
  3,436
  3,614
  3,800
  3,995
  4,198
  4,411
  4,634
  4,867
  5,111
  5,366
  5,634
  5,915
  6,208
  6,516
  6,839
  7,178
  7,533
  7,905
  8,296
  8,705
Tax expense, $m
  474
  530
  562
  595
  630
  665
  703
  742
  782
  825
  869
  928
  976
  1,026
  1,079
  1,134
  1,191
  1,251
  1,314
  1,380
  1,449
  1,521
  1,597
  1,676
  1,759
  1,847
  1,938
  2,034
  2,134
  2,240
  2,350
Net income, $m
  1,394
  1,433
  1,519
  1,609
  1,702
  1,799
  1,900
  2,005
  2,115
  2,229
  2,349
  2,508
  2,638
  2,774
  2,916
  3,065
  3,220
  3,383
  3,553
  3,731
  3,917
  4,113
  4,318
  4,532
  4,757
  4,993
  5,240
  5,499
  5,771
  6,056
  6,355

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,380
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  15,011
  14,577
  15,555
  16,572
  17,631
  18,732
  19,879
  21,073
  22,319
  23,617
  24,972
  26,386
  27,862
  29,405
  31,017
  32,703
  34,466
  36,311
  38,241
  40,262
  42,379
  44,596
  46,918
  49,352
  51,903
  54,576
  57,380
  60,319
  63,402
  66,635
  70,026
Adjusted assets (=assets-cash), $m
  13,631
  14,577
  15,555
  16,572
  17,631
  18,732
  19,879
  21,073
  22,319
  23,617
  24,972
  26,386
  27,862
  29,405
  31,017
  32,703
  34,466
  36,311
  38,241
  40,262
  42,379
  44,596
  46,918
  49,352
  51,903
  54,576
  57,380
  60,319
  63,402
  66,635
  70,026
Revenue / Adjusted assets
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
  1.284
Average production assets, $m
  4,103
  4,380
  4,674
  4,979
  5,297
  5,628
  5,973
  6,332
  6,706
  7,096
  7,503
  7,928
  8,371
  8,835
  9,319
  9,826
  10,356
  10,910
  11,490
  12,097
  12,733
  13,399
  14,097
  14,828
  15,594
  16,398
  17,240
  18,123
  19,049
  20,021
  21,040
Working capital, $m
  3,382
  2,452
  2,616
  2,788
  2,966
  3,151
  3,344
  3,545
  3,754
  3,972
  4,200
  4,438
  4,687
  4,946
  5,217
  5,501
  5,797
  6,108
  6,432
  6,772
  7,128
  7,501
  7,892
  8,301
  8,730
  9,180
  9,651
  10,146
  10,664
  11,208
  11,779
Total debt, $m
  1,856
  2,116
  2,680
  3,266
  3,875
  4,510
  5,170
  5,858
  6,575
  7,323
  8,104
  8,918
  9,769
  10,657
  11,586
  12,557
  13,572
  14,635
  15,747
  16,911
  18,130
  19,407
  20,745
  22,147
  23,616
  25,156
  26,771
  28,464
  30,239
  32,102
  34,055
Total liabilities, $m
  8,136
  8,396
  8,960
  9,546
  10,155
  10,790
  11,450
  12,138
  12,855
  13,603
  14,384
  15,198
  16,049
  16,937
  17,866
  18,837
  19,852
  20,915
  22,027
  23,191
  24,410
  25,687
  27,025
  28,427
  29,896
  31,436
  33,051
  34,744
  36,519
  38,382
  40,335
Total equity, $m
  6,875
  6,181
  6,595
  7,027
  7,475
  7,942
  8,429
  8,935
  9,463
  10,014
  10,588
  11,188
  11,814
  12,468
  13,151
  13,866
  14,614
  15,396
  16,214
  17,071
  17,969
  18,909
  19,893
  20,925
  22,007
  23,140
  24,329
  25,575
  26,882
  28,253
  29,691
Total liabilities and equity, $m
  15,011
  14,577
  15,555
  16,573
  17,630
  18,732
  19,879
  21,073
  22,318
  23,617
  24,972
  26,386
  27,863
  29,405
  31,017
  32,703
  34,466
  36,311
  38,241
  40,262
  42,379
  44,596
  46,918
  49,352
  51,903
  54,576
  57,380
  60,319
  63,401
  66,635
  70,026
Debt-to-equity ratio
  0.270
  0.340
  0.410
  0.460
  0.520
  0.570
  0.610
  0.660
  0.690
  0.730
  0.770
  0.800
  0.830
  0.850
  0.880
  0.910
  0.930
  0.950
  0.970
  0.990
  1.010
  1.030
  1.040
  1.060
  1.070
  1.090
  1.100
  1.110
  1.120
  1.140
  1.150
Adjusted equity ratio
  0.422
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,394
  1,433
  1,519
  1,609
  1,702
  1,799
  1,900
  2,005
  2,115
  2,229
  2,349
  2,508
  2,638
  2,774
  2,916
  3,065
  3,220
  3,383
  3,553
  3,731
  3,917
  4,113
  4,318
  4,532
  4,757
  4,993
  5,240
  5,499
  5,771
  6,056
  6,355
Depreciation, amort., depletion, $m
  530
  486
  515
  546
  578
  611
  645
  681
  719
  758
  798
  793
  837
  883
  932
  983
  1,036
  1,091
  1,149
  1,210
  1,273
  1,340
  1,410
  1,483
  1,559
  1,640
  1,724
  1,812
  1,905
  2,002
  2,104
Funds from operations, $m
  1,972
  1,919
  2,035
  2,155
  2,280
  2,410
  2,545
  2,686
  2,833
  2,987
  3,147
  3,301
  3,475
  3,658
  3,848
  4,047
  4,256
  4,474
  4,702
  4,941
  5,191
  5,453
  5,727
  6,015
  6,316
  6,632
  6,964
  7,311
  7,676
  8,058
  8,459
Change in working capital, $m
  37
  158
  165
  171
  178
  185
  193
  201
  209
  218
  228
  238
  248
  259
  271
  284
  297
  310
  325
  340
  356
  373
  391
  409
  429
  450
  472
  494
  519
  544
  570
Cash from operations, $m
  1,935
  1,761
  1,870
  1,984
  2,102
  2,225
  2,352
  2,485
  2,624
  2,768
  2,919
  3,063
  3,227
  3,398
  3,577
  3,764
  3,959
  4,163
  4,377
  4,601
  4,835
  5,080
  5,337
  5,606
  5,887
  6,183
  6,492
  6,817
  7,157
  7,514
  7,888
Maintenance CAPEX, $m
  0
  -410
  -438
  -467
  -498
  -530
  -563
  -597
  -633
  -671
  -710
  -750
  -793
  -837
  -883
  -932
  -983
  -1,036
  -1,091
  -1,149
  -1,210
  -1,273
  -1,340
  -1,410
  -1,483
  -1,559
  -1,640
  -1,724
  -1,812
  -1,905
  -2,002
New CAPEX, $m
  -594
  -277
  -294
  -306
  -318
  -331
  -345
  -359
  -374
  -390
  -407
  -425
  -444
  -463
  -484
  -506
  -530
  -554
  -580
  -607
  -636
  -666
  -698
  -731
  -766
  -803
  -842
  -883
  -926
  -971
  -1,019
Cash from investing activities, $m
  -917
  -687
  -732
  -773
  -816
  -861
  -908
  -956
  -1,007
  -1,061
  -1,117
  -1,175
  -1,237
  -1,300
  -1,367
  -1,438
  -1,513
  -1,590
  -1,671
  -1,756
  -1,846
  -1,939
  -2,038
  -2,141
  -2,249
  -2,362
  -2,482
  -2,607
  -2,738
  -2,876
  -3,021
Free cash flow, $m
  1,018
  1,074
  1,138
  1,211
  1,286
  1,364
  1,445
  1,529
  1,617
  1,708
  1,802
  1,888
  1,991
  2,098
  2,209
  2,325
  2,447
  2,574
  2,706
  2,844
  2,989
  3,141
  3,299
  3,465
  3,638
  3,820
  4,010
  4,210
  4,419
  4,638
  4,867
Issuance/(repayment) of debt, $m
  179
  548
  563
  586
  610
  634
  661
  688
  717
  748
  780
  814
  851
  889
  929
  971
  1,016
  1,063
  1,112
  1,164
  1,219
  1,277
  1,338
  1,402
  1,469
  1,540
  1,615
  1,693
  1,776
  1,862
  1,953
Issuance/(repurchase) of shares, $m
  -778
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -733
  548
  563
  586
  610
  634
  661
  688
  717
  748
  780
  814
  851
  889
  929
  971
  1,016
  1,063
  1,112
  1,164
  1,219
  1,277
  1,338
  1,402
  1,469
  1,540
  1,615
  1,693
  1,776
  1,862
  1,953
Total cash flow (excl. dividends), $m
  85
  1,622
  1,702
  1,797
  1,895
  1,998
  2,106
  2,217
  2,334
  2,456
  2,583
  2,702
  2,841
  2,986
  3,138
  3,296
  3,462
  3,636
  3,818
  4,009
  4,208
  4,417
  4,637
  4,866
  5,107
  5,360
  5,625
  5,903
  6,194
  6,500
  6,821
Retained Cash Flow (-), $m
  531
  -398
  -415
  -431
  -449
  -467
  -486
  -507
  -528
  -551
  -574
  -600
  -626
  -654
  -684
  -715
  -748
  -782
  -819
  -857
  -897
  -940
  -985
  -1,032
  -1,081
  -1,134
  -1,189
  -1,246
  -1,307
  -1,371
  -1,438
Prev. year cash balance distribution, $m
 
  1,092
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  2,316
  1,287
  1,365
  1,447
  1,531
  1,619
  1,711
  1,806
  1,905
  2,008
  2,103
  2,215
  2,332
  2,454
  2,582
  2,715
  2,854
  2,999
  3,152
  3,311
  3,477
  3,652
  3,835
  4,026
  4,226
  4,436
  4,656
  4,887
  5,129
  5,383
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  2,221
  1,178
  1,188
  1,191
  1,187
  1,175
  1,156
  1,129
  1,094
  1,053
  999
  945
  887
  824
  758
  690
  621
  552
  485
  421
  360
  303
  251
  205
  164
  129
  100
  76
  56
  41
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Cummins Inc., together with its subsidiaries, designs, manufactures, distributes, and services diesel and natural gas engines, and engine-related component products worldwide. It operates through Engine, Distribution, Components, and Power Systems segments. The Engine segment manufactures and markets a range of diesel and natural gas powered engines under the Cummins and other customer brand names for the heavy- and medium-duty truck, bus, recreational vehicle, light-duty automotive, construction, mining, marine, rail, oil and gas, defense, and agricultural markets. This segment also offers new parts and services, as well as remanufactured parts and engines. The Distribution segment distributes parts, engines, and power generation products; and provides service solutions, such as maintenance contracts, engineering services, and integrated products. The Components segment offers emission solutions, including custom engineering systems and integrated controls, oxidation catalysts, particulate filters, selective catalytic reduction systems, and engineered components; and turbochargers for light-duty, mid-range, heavy-duty, and high-horsepower diesel markets. This segment also provides air and fuel filters, fuel water separators, lube and hydraulic filters, coolants, fuel additives, and other filtration systems; and fuel systems for heavy-duty on-highway diesel engine applications, as well as remanufactures fuel systems. The Power Generation segment offers components that back-up and prime power generators, controls, paralleling systems, and transfer switches, as well as A/C generator/alternator products under the Stamford, AVK and Markon brands. The company sells its products to original equipment manufacturers, dealers/distributors, and end users. Cummins Inc. was founded in 1919 and is headquartered in Columbus, Indiana.

FINANCIAL RATIOS  of  Cummins (CMI)

Valuation Ratios
P/E Ratio 18.6
Price to Sales 1.5
Price to Book 3.8
Price to Tangible Book
Price to Cash Flow 13.4
Price to Free Cash Flow 19.4
Growth Rates
Sales Growth Rate -8.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25.7%
Cap. Spend. - 3 Yr. Gr. Rate -4.3%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 22.8%
Total Debt to Equity 27%
Interest Coverage 29
Management Effectiveness
Return On Assets 9.6%
Ret/ On Assets - 3 Yr. Avg. 12%
Return On Total Capital 15.7%
Ret/ On T. Cap. - 3 Yr. Avg. 16.2%
Return On Equity 19.5%
Return On Equity - 3 Yr. Avg. 19.9%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 25.4%
Gross Margin - 3 Yr. Avg. 25.5%
EBITDA Margin 14.4%
EBITDA Margin - 3 Yr. Avg. 16.7%
Operating Margin 11%
Oper. Margin - 3 Yr. Avg. 11.4%
Pre-Tax Margin 11%
Pre-Tax Margin - 3 Yr. Avg. 11.4%
Net Profit Margin 8%
Net Profit Margin - 3 Yr. Avg. 8%
Effective Tax Rate 24.6%
Eff/ Tax Rate - 3 Yr. Avg. 26.9%
Payout Ratio 48.5%

CMI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CMI stock intrinsic value calculation we used $17509 million for the last fiscal year's total revenue generated by Cummins. The default revenue input number comes from 2016 income statement of Cummins. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CMI stock valuation model: a) initial revenue growth rate of 6.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CMI is calculated based on our internal credit rating of Cummins, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Cummins.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CMI stock the variable cost ratio is equal to 89.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CMI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.9% for Cummins.

Corporate tax rate of 27% is the nominal tax rate for Cummins. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CMI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CMI are equal to 23.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Cummins operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CMI is equal to 13.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $6875 million for Cummins - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 166.569 million for Cummins is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Cummins at the current share price and the inputted number of shares is $25.7 billion.

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COMPANY NEWS

▶ ETFs with exposure to Cummins, Inc. : August 16, 2017   [Aug-16-17 05:27PM  Capital Cube]
▶ Cummins Recognizes Top U.S. Suppliers   [Aug-15-17 01:08PM  Business Wire]
▶ 2018 Ram 3500 takes the truck torque crown   [Aug-11-17 11:15AM  Autoblog]
▶ Cramer Remix: Heres why we are not in a tech bubble   [Aug-02-17 07:08PM  CNBC Videos]
▶ Cummins misses 2Q profit forecasts   [Aug-01-17 10:58PM  Associated Press]
▶ Big movers in the blitz   [01:26PM  CNBC Videos]
▶ Cummins: Really, It Wasn't That Bad   [10:46AM  Barrons.com]
▶ Cummins profit rises 4.4 percent   [07:37AM  Reuters]
▶ Cummins Announces Official Rebranding of Onan Generators   [Jul-25-17 05:44PM  Business Wire]
▶ 4 Auto Stocks On Track to Beat in Q2   [Jul-21-17 01:08PM  Zacks]
▶ These 3 Stocks Just Raised Their Dividends   [Jul-17-17 08:08AM  Motley Fool]
▶ Cummins Inc. Increases Quarterly Common Stock Dividend   [Jul-11-17 02:00PM  Business Wire]
▶ Today's top gainers   [Jul-06-17 05:02PM  CNBC Videos]
▶ Top Ranked Momentum Stocks to Buy for July 3rd   [Jul-03-17 11:30AM  Zacks]
▶ Top Ranked Income Stocks to Buy for June 29th   [Jun-29-17 09:50AM  Zacks]
▶ Cummins Named a Top Company for Diversity   [09:55AM  Business Wire]
▶ Cummins Breakout Looks More Likely Than Not   [03:41PM  TheStreet.com]
▶ Cummins: Not So Fast Tesla!   [11:14AM  Barrons.com]
▶ Top Ranked Income Stocks to Buy for June 5th   [Jun-05-17 11:03AM  Zacks]
▶ Top Ranked Income Stocks to Buy for May 26th   [May-26-17 09:36AM  Zacks]
▶ 3 Top Construction Machinery Stocks to Buy in 2017   [May-23-17 06:06PM  Motley Fool]
▶ 3 Top Mining-Equipment Companies to Buy in 2017   [May-21-17 11:23AM  Motley Fool]
▶ Cummins Is Poised to Power Higher   [May-16-17 11:48AM  TheStreet.com]
▶ ETFs with exposure to Cummins, Inc. : May 9, 2017   [May-09-17 04:26PM  Capital Cube]
▶ Auto Industry Stock Outlook - May 2017   [May-08-17 03:52PM  Zacks]
▶ Cummins Guidanz Mobile App Improves Customer Uptime   [May-04-17 11:07AM  Business Wire]
Stock chart of CMI Financial statements of CMI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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