Intrinsic value of Cummins - CMI

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$155.30

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$155.30

 
Intrinsic value

$109.83

 
Up/down potential

-29%

 
Rating

sell

 
Value-price divergence* premium content

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*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 26.0

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  17,509
  17,859
  18,270
  18,739
  19,267
  19,851
  20,492
  21,189
  21,945
  22,759
  23,632
  24,567
  25,564
  26,625
  27,753
  28,951
  30,219
  31,562
  32,983
  34,483
  36,068
  37,739
  39,503
  41,361
  43,319
  45,381
  47,553
  49,838
  52,243
  54,773
  57,434
Variable operating expenses, $m
 
  15,929
  16,295
  16,712
  17,181
  17,700
  18,270
  18,891
  19,563
  20,286
  21,063
  21,846
  22,733
  23,677
  24,680
  25,745
  26,873
  28,067
  29,330
  30,664
  32,073
  33,560
  35,128
  36,781
  38,522
  40,356
  42,287
  44,319
  46,458
  48,708
  51,074
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
  15,929
  16,295
  16,712
  17,181
  17,700
  18,270
  18,891
  19,563
  20,286
  21,063
  21,846
  22,733
  23,677
  24,680
  25,745
  26,873
  28,067
  29,330
  30,664
  32,073
  33,560
  35,128
  36,781
  38,522
  40,356
  42,287
  44,319
  46,458
  48,708
  51,074
Operating income, $m
  1,928
  1,930
  1,975
  2,027
  2,086
  2,150
  2,221
  2,299
  2,382
  2,472
  2,569
  2,721
  2,831
  2,949
  3,073
  3,206
  3,347
  3,495
  3,653
  3,819
  3,994
  4,179
  4,375
  4,580
  4,797
  5,026
  5,266
  5,519
  5,785
  6,066
  6,360
EBITDA, $m
  2,458
  2,464
  2,520
  2,585
  2,658
  2,738
  2,827
  2,923
  3,027
  3,140
  3,260
  3,389
  3,527
  3,673
  3,829
  3,994
  4,169
  4,354
  4,550
  4,757
  4,976
  5,206
  5,449
  5,706
  5,976
  6,260
  6,560
  6,875
  7,207
  7,556
  7,923
Interest expense (income), $m
  68
  61
  68
  75
  83
  92
  102
  114
  126
  139
  153
  169
  185
  202
  221
  241
  262
  284
  307
  332
  358
  386
  415
  446
  479
  513
  549
  587
  627
  669
  713
Earnings before tax, $m
  1,930
  1,869
  1,908
  1,953
  2,003
  2,058
  2,119
  2,185
  2,256
  2,333
  2,416
  2,552
  2,646
  2,746
  2,853
  2,965
  3,085
  3,211
  3,345
  3,487
  3,636
  3,793
  3,959
  4,134
  4,319
  4,513
  4,717
  4,932
  5,158
  5,397
  5,647
Tax expense, $m
  474
  505
  515
  527
  541
  556
  572
  590
  609
  630
  652
  689
  714
  741
  770
  801
  833
  867
  903
  941
  982
  1,024
  1,069
  1,116
  1,166
  1,218
  1,274
  1,332
  1,393
  1,457
  1,525
Net income, $m
  1,394
  1,364
  1,393
  1,425
  1,462
  1,502
  1,547
  1,595
  1,647
  1,703
  1,764
  1,863
  1,932
  2,005
  2,082
  2,165
  2,252
  2,344
  2,442
  2,545
  2,654
  2,769
  2,890
  3,018
  3,153
  3,294
  3,443
  3,600
  3,766
  3,939
  4,122

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
  13,909
  14,229
  14,595
  15,005
  15,460
  15,959
  16,503
  17,091
  17,725
  18,405
  19,133
  19,909
  20,736
  21,615
  22,547
  23,535
  24,581
  25,687
  26,856
  28,090
  29,392
  30,765
  32,213
  33,738
  35,344
  37,035
  38,815
  40,688
  42,658
  44,731
Adjusted assets (=assets-cash), $m
  13,631
  13,909
  14,229
  14,595
  15,005
  15,460
  15,959
  16,503
  17,091
  17,725
  18,405
  19,133
  19,909
  20,736
  21,615
  22,547
  23,535
  24,581
  25,687
  26,856
  28,090
  29,392
  30,765
  32,213
  33,738
  35,344
  37,035
  38,815
  40,688
  42,658
  44,731
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
  4,179
  4,275
  4,385
  4,508
  4,645
  4,795
  4,958
  5,135
  5,326
  5,530
  5,749
  5,982
  6,230
  6,494
  6,774
  7,071
  7,386
  7,718
  8,069
  8,440
  8,831
  9,244
  9,678
  10,137
  10,619
  11,127
  11,662
  12,225
  12,817
  13,440
Working capital, $m
  3,382
  2,340
  2,393
  2,455
  2,524
  2,600
  2,684
  2,776
  2,875
  2,981
  3,096
  3,218
  3,349
  3,488
  3,636
  3,793
  3,959
  4,135
  4,321
  4,517
  4,725
  4,944
  5,175
  5,418
  5,675
  5,945
  6,229
  6,529
  6,844
  7,175
  7,524
Total debt, $m
  1,856
  1,732
  1,916
  2,126
  2,363
  2,625
  2,912
  3,226
  3,564
  3,930
  4,321
  4,741
  5,188
  5,664
  6,170
  6,707
  7,276
  7,879
  8,516
  9,189
  9,900
  10,650
  11,441
  12,274
  13,153
  14,078
  15,052
  16,077
  17,156
  18,291
  19,485
Total liabilities, $m
  8,136
  8,012
  8,196
  8,406
  8,643
  8,905
  9,192
  9,506
  9,844
  10,210
  10,601
  11,021
  11,468
  11,944
  12,450
  12,987
  13,556
  14,159
  14,796
  15,469
  16,180
  16,930
  17,721
  18,554
  19,433
  20,358
  21,332
  22,357
  23,436
  24,571
  25,765
Total equity, $m
  6,875
  5,897
  6,033
  6,188
  6,362
  6,555
  6,767
  6,997
  7,247
  7,515
  7,804
  8,112
  8,442
  8,792
  9,165
  9,560
  9,979
  10,422
  10,891
  11,387
  11,910
  12,462
  13,044
  13,658
  14,305
  14,986
  15,703
  16,457
  17,252
  18,087
  18,966
Total liabilities and equity, $m
  15,011
  13,909
  14,229
  14,594
  15,005
  15,460
  15,959
  16,503
  17,091
  17,725
  18,405
  19,133
  19,910
  20,736
  21,615
  22,547
  23,535
  24,581
  25,687
  26,856
  28,090
  29,392
  30,765
  32,212
  33,738
  35,344
  37,035
  38,814
  40,688
  42,658
  44,731
Debt-to-equity ratio
  0.270
  0.290
  0.320
  0.340
  0.370
  0.400
  0.430
  0.460
  0.490
  0.520
  0.550
  0.580
  0.610
  0.640
  0.670
  0.700
  0.730
  0.760
  0.780
  0.810
  0.830
  0.850
  0.880
  0.900
  0.920
  0.940
  0.960
  0.980
  0.990
  1.010
  1.030
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
  1,364
  1,393
  1,425
  1,462
  1,502
  1,547
  1,595
  1,647
  1,703
  1,764
  1,863
  1,932
  2,005
  2,082
  2,165
  2,252
  2,344
  2,442
  2,545
  2,654
  2,769
  2,890
  3,018
  3,153
  3,294
  3,443
  3,600
  3,766
  3,939
  4,122
Depreciation, amort., depletion, $m
  530
  534
  545
  558
  572
  588
  606
  625
  645
  667
  691
  668
  696
  724
  755
  788
  822
  859
  897
  938
  981
  1,027
  1,075
  1,125
  1,179
  1,235
  1,294
  1,356
  1,421
  1,490
  1,563
Funds from operations, $m
  1,972
  1,898
  1,938
  1,983
  2,034
  2,091
  2,152
  2,220
  2,292
  2,371
  2,455
  2,531
  2,627
  2,729
  2,838
  2,952
  3,074
  3,203
  3,339
  3,483
  3,636
  3,796
  3,965
  4,143
  4,331
  4,529
  4,737
  4,957
  5,187
  5,430
  5,685
Change in working capital, $m
  37
  46
  54
  62
  69
  77
  84
  91
  99
  107
  114
  122
  131
  139
  148
  157
  166
  176
  186
  197
  208
  219
  231
  243
  257
  270
  284
  299
  315
  331
  349
Cash from operations, $m
  1,935
  1,882
  1,884
  1,922
  1,965
  2,014
  2,068
  2,128
  2,193
  2,264
  2,340
  2,409
  2,497
  2,590
  2,690
  2,796
  2,908
  3,027
  3,153
  3,287
  3,428
  3,577
  3,734
  3,900
  4,075
  4,259
  4,453
  4,657
  4,872
  5,098
  5,336
Maintenance CAPEX, $m
  0
  -477
  -486
  -497
  -510
  -524
  -540
  -558
  -577
  -597
  -619
  -643
  -668
  -696
  -724
  -755
  -788
  -822
  -859
  -897
  -938
  -981
  -1,027
  -1,075
  -1,125
  -1,179
  -1,235
  -1,294
  -1,356
  -1,421
  -1,490
New CAPEX, $m
  -594
  -77
  -96
  -110
  -123
  -137
  -150
  -163
  -177
  -190
  -204
  -219
  -233
  -248
  -264
  -280
  -297
  -314
  -332
  -351
  -371
  -391
  -413
  -435
  -458
  -483
  -508
  -535
  -563
  -592
  -623
Cash from investing activities, $m
  -917
  -554
  -582
  -607
  -633
  -661
  -690
  -721
  -754
  -787
  -823
  -862
  -901
  -944
  -988
  -1,035
  -1,085
  -1,136
  -1,191
  -1,248
  -1,309
  -1,372
  -1,440
  -1,510
  -1,583
  -1,662
  -1,743
  -1,829
  -1,919
  -2,013
  -2,113
Free cash flow, $m
  1,018
  1,328
  1,302
  1,315
  1,332
  1,353
  1,378
  1,407
  1,440
  1,476
  1,517
  1,547
  1,595
  1,646
  1,701
  1,760
  1,823
  1,891
  1,962
  2,038
  2,119
  2,204
  2,295
  2,390
  2,491
  2,598
  2,710
  2,828
  2,953
  3,085
  3,223
Issuance/(repayment) of debt, $m
  179
  164
  184
  211
  236
  262
  288
  313
  339
  365
  392
  419
  447
  476
  506
  537
  569
  602
  637
  673
  711
  750
  791
  834
  878
  925
  974
  1,025
  1,079
  1,135
  1,194
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
  164
  184
  211
  236
  262
  288
  313
  339
  365
  392
  419
  447
  476
  506
  537
  569
  602
  637
  673
  711
  750
  791
  834
  878
  925
  974
  1,025
  1,079
  1,135
  1,194
Total cash flow (excl. dividends), $m
  85
  1,492
  1,486
  1,525
  1,568
  1,615
  1,666
  1,720
  1,779
  1,842
  1,908
  1,967
  2,042
  2,122
  2,207
  2,297
  2,393
  2,493
  2,599
  2,711
  2,830
  2,954
  3,086
  3,224
  3,369
  3,523
  3,684
  3,854
  4,032
  4,220
  4,417
Retained Cash Flow (-), $m
  531
  -114
  -136
  -155
  -174
  -193
  -212
  -230
  -249
  -269
  -288
  -309
  -329
  -351
  -373
  -395
  -419
  -443
  -469
  -496
  -523
  -552
  -582
  -614
  -647
  -681
  -717
  -755
  -794
  -835
  -879
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
 
  2,469
  1,351
  1,370
  1,394
  1,422
  1,454
  1,490
  1,529
  1,573
  1,620
  1,658
  1,713
  1,772
  1,835
  1,902
  1,974
  2,050
  2,130
  2,216
  2,306
  2,402
  2,503
  2,610
  2,723
  2,842
  2,967
  3,099
  3,238
  3,384
  3,538
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
 
  2,367
  1,236
  1,193
  1,148
  1,102
  1,055
  1,007
  956
  903
  849
  787
  731
  674
  616
  558
  502
  446
  392
  341
  293
  248
  208
  171
  139
  111
  87
  67
  50
  37
  27
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 18.7
Price to Sales 1.5
Price to Book 3.8
Price to Tangible Book
Price to Cash Flow 13.5
Price to Free Cash Flow 19.5
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 2% 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 8.6 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 167.13 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 $26.0 billion.


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Stock chart of CMI Financial statements of CMI Annual reports 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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