Intrinsic value of Cummins - CMI

Previous Close

$145.24

  Intrinsic Value

$367.40

stock screener

  Rating & Target

str. buy

+153%

Previous close

$145.24

 
Intrinsic value

$367.40

 
Up/down potential

+153%

 
Rating

str. buy

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 0001), $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 23.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  20.80
  19.22
  17.80
  16.52
  15.37
  14.33
  13.40
  12.56
  11.80
  11.12
  10.51
  9.96
  9.46
  9.02
  8.61
  8.25
  7.93
  7.63
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
Revenue, $m
  24,677
  29,420
  34,656
  40,381
  46,586
  53,261
  60,397
  67,981
  76,003
  84,456
  93,331
  102,626
  112,336
  122,465
  133,015
  143,992
  155,408
  167,273
  179,604
  192,417
  205,734
  219,578
  233,973
  248,948
  264,533
  280,760
  297,665
  315,283
  333,654
  352,820
Variable operating expenses, $m
  21,278
  25,328
  29,800
  34,688
  39,987
  45,688
  51,781
  58,257
  65,108
  72,326
  79,699
  87,636
  95,929
  104,578
  113,587
  122,961
  132,709
  142,841
  153,371
  164,313
  175,685
  187,506
  199,799
  212,587
  225,896
  239,753
  254,188
  269,233
  284,920
  301,287
Fixed operating expenses, $m
  731
  747
  763
  780
  797
  815
  833
  851
  870
  889
  908
  928
  949
  970
  991
  1,013
  1,035
  1,058
  1,081
  1,105
  1,129
  1,154
  1,179
  1,205
  1,232
  1,259
  1,287
  1,315
  1,344
  1,374
Total operating expenses, $m
  22,009
  26,075
  30,563
  35,468
  40,784
  46,503
  52,614
  59,108
  65,978
  73,215
  80,607
  88,564
  96,878
  105,548
  114,578
  123,974
  133,744
  143,899
  154,452
  165,418
  176,814
  188,660
  200,978
  213,792
  227,128
  241,012
  255,475
  270,548
  286,264
  302,661
Operating income, $m
  2,668
  3,345
  4,093
  4,912
  5,802
  6,759
  7,783
  8,873
  10,026
  11,241
  12,724
  14,061
  15,459
  16,918
  18,437
  20,019
  21,664
  23,374
  25,152
  27,000
  28,920
  30,917
  32,995
  35,156
  37,406
  39,749
  42,190
  44,735
  47,389
  50,159
EBITDA, $m
  3,481
  4,274
  5,152
  6,112
  7,154
  8,276
  9,476
  10,752
  12,102
  13,526
  15,021
  16,587
  18,224
  19,932
  21,711
  23,563
  25,489
  27,492
  29,573
  31,736
  33,985
  36,322
  38,754
  41,284
  43,917
  46,660
  49,517
  52,496
  55,602
  58,844
Interest expense (income), $m
  68
  108
  229
  365
  515
  678
  856
  1,046
  1,250
  1,467
  1,696
  1,938
  2,191
  2,457
  2,734
  3,024
  3,325
  3,639
  3,965
  4,304
  4,657
  5,023
  5,404
  5,799
  6,211
  6,638
  7,084
  7,548
  8,031
  8,534
  9,059
Earnings before tax, $m
  2,560
  3,115
  3,728
  4,398
  5,123
  5,904
  6,737
  7,623
  8,559
  9,545
  10,786
  11,870
  13,002
  14,183
  15,413
  16,693
  18,025
  19,409
  20,847
  22,343
  23,897
  25,514
  27,195
  28,945
  30,767
  32,665
  34,643
  36,704
  38,855
  41,100
Tax expense, $m
  691
  841
  1,007
  1,187
  1,383
  1,594
  1,819
  2,058
  2,311
  2,577
  2,912
  3,205
  3,511
  3,829
  4,162
  4,507
  4,867
  5,240
  5,629
  6,033
  6,452
  6,889
  7,343
  7,815
  8,307
  8,820
  9,353
  9,910
  10,491
  11,097
Net income, $m
  1,869
  2,274
  2,722
  3,210
  3,740
  4,310
  4,918
  5,564
  6,248
  6,968
  7,874
  8,665
  9,491
  10,354
  11,252
  12,186
  13,158
  14,168
  15,219
  16,310
  17,445
  18,625
  19,853
  21,130
  22,460
  23,845
  25,289
  26,794
  28,364
  30,003

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  21,838
  26,035
  30,669
  35,735
  41,226
  47,134
  53,448
  60,160
  67,260
  74,740
  82,594
  90,819
  99,413
  108,376
  117,712
  127,427
  137,529
  148,029
  158,941
  170,281
  182,066
  194,317
  207,056
  220,308
  234,100
  248,461
  263,420
  279,011
  295,269
  312,230
Adjusted assets (=assets-cash), $m
  21,838
  26,035
  30,669
  35,735
  41,226
  47,134
  53,448
  60,160
  67,260
  74,740
  82,594
  90,819
  99,413
  108,376
  117,712
  127,427
  137,529
  148,029
  158,941
  170,281
  182,066
  194,317
  207,056
  220,308
  234,100
  248,461
  263,420
  279,011
  295,269
  312,230
Revenue / Adjusted assets
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
Average production assets, $m
  5,528
  6,590
  7,763
  9,045
  10,435
  11,931
  13,529
  15,228
  17,025
  18,918
  20,906
  22,988
  25,163
  27,432
  29,795
  32,254
  34,811
  37,469
  40,231
  43,101
  46,084
  49,185
  52,410
  55,764
  59,255
  62,890
  66,677
  70,623
  74,738
  79,032
Working capital, $m
  2,542
  3,030
  3,570
  4,159
  4,798
  5,486
  6,221
  7,002
  7,828
  8,699
  9,613
  10,570
  11,571
  12,614
  13,701
  14,831
  16,007
  17,229
  18,499
  19,819
  21,191
  22,617
  24,099
  25,642
  27,247
  28,918
  30,659
  32,474
  34,366
  36,340
Total debt, $m
  4,249
  6,759
  9,530
  12,560
  15,843
  19,376
  23,152
  27,166
  31,411
  35,884
  40,581
  45,500
  50,639
  55,999
  61,582
  67,391
  73,432
  79,712
  86,237
  93,018
  100,065
  107,391
  115,009
  122,934
  131,182
  139,769
  148,715
  158,039
  167,761
  177,903
Total liabilities, $m
  13,059
  15,569
  18,340
  21,370
  24,653
  28,186
  31,962
  35,976
  40,221
  44,694
  49,391
  54,310
  59,449
  64,809
  70,392
  76,201
  82,242
  88,522
  95,047
  101,828
  108,875
  116,201
  123,819
  131,744
  139,992
  148,579
  157,525
  166,849
  176,571
  186,713
Total equity, $m
  8,779
  10,466
  12,329
  14,366
  16,573
  18,948
  21,486
  24,184
  27,038
  30,045
  33,203
  36,509
  39,964
  43,567
  47,320
  51,226
  55,287
  59,508
  63,894
  68,453
  73,190
  78,115
  83,236
  88,564
  94,108
  99,881
  105,895
  112,162
  118,698
  125,516
Total liabilities and equity, $m
  21,838
  26,035
  30,669
  35,736
  41,226
  47,134
  53,448
  60,160
  67,259
  74,739
  82,594
  90,819
  99,413
  108,376
  117,712
  127,427
  137,529
  148,030
  158,941
  170,281
  182,065
  194,316
  207,055
  220,308
  234,100
  248,460
  263,420
  279,011
  295,269
  312,229
Debt-to-equity ratio
  0.480
  0.650
  0.770
  0.870
  0.960
  1.020
  1.080
  1.120
  1.160
  1.190
  1.220
  1.250
  1.270
  1.290
  1.300
  1.320
  1.330
  1.340
  1.350
  1.360
  1.370
  1.370
  1.380
  1.390
  1.390
  1.400
  1.400
  1.410
  1.410
  1.420
Adjusted equity ratio
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,869
  2,274
  2,722
  3,210
  3,740
  4,310
  4,918
  5,564
  6,248
  6,968
  7,874
  8,665
  9,491
  10,354
  11,252
  12,186
  13,158
  14,168
  15,219
  16,310
  17,445
  18,625
  19,853
  21,130
  22,460
  23,845
  25,289
  26,794
  28,364
  30,003
Depreciation, amort., depletion, $m
  813
  930
  1,059
  1,199
  1,352
  1,517
  1,692
  1,879
  2,076
  2,284
  2,297
  2,526
  2,765
  3,015
  3,274
  3,544
  3,825
  4,117
  4,421
  4,736
  5,064
  5,405
  5,759
  6,128
  6,512
  6,911
  7,327
  7,761
  8,213
  8,685
Funds from operations, $m
  2,682
  3,204
  3,780
  4,410
  5,092
  5,826
  6,610
  7,443
  8,324
  9,252
  10,171
  11,191
  12,257
  13,368
  14,526
  15,731
  16,983
  18,286
  19,640
  21,047
  22,509
  24,030
  25,612
  27,258
  28,972
  30,756
  32,616
  34,555
  36,577
  38,688
Change in working capital, $m
  438
  489
  539
  590
  639
  688
  735
  781
  826
  871
  914
  957
  1,000
  1,043
  1,087
  1,131
  1,176
  1,222
  1,270
  1,320
  1,372
  1,426
  1,483
  1,542
  1,605
  1,671
  1,741
  1,815
  1,892
  1,974
Cash from operations, $m
  2,244
  2,715
  3,241
  3,820
  4,453
  5,139
  5,875
  6,662
  7,498
  8,382
  9,257
  10,234
  11,256
  12,325
  13,439
  14,600
  15,808
  17,064
  18,370
  19,727
  21,138
  22,604
  24,129
  25,716
  27,366
  29,085
  30,875
  32,740
  34,685
  36,714
Maintenance CAPEX, $m
  -503
  -607
  -724
  -853
  -994
  -1,147
  -1,311
  -1,487
  -1,673
  -1,871
  -2,079
  -2,297
  -2,526
  -2,765
  -3,015
  -3,274
  -3,544
  -3,825
  -4,117
  -4,421
  -4,736
  -5,064
  -5,405
  -5,759
  -6,128
  -6,512
  -6,911
  -7,327
  -7,761
  -8,213
New CAPEX, $m
  -947
  -1,062
  -1,173
  -1,282
  -1,390
  -1,495
  -1,598
  -1,699
  -1,797
  -1,893
  -1,988
  -2,082
  -2,175
  -2,269
  -2,363
  -2,459
  -2,557
  -2,658
  -2,762
  -2,870
  -2,983
  -3,101
  -3,225
  -3,354
  -3,491
  -3,635
  -3,787
  -3,946
  -4,115
  -4,293
Cash from investing activities, $m
  -1,450
  -1,669
  -1,897
  -2,135
  -2,384
  -2,642
  -2,909
  -3,186
  -3,470
  -3,764
  -4,067
  -4,379
  -4,701
  -5,034
  -5,378
  -5,733
  -6,101
  -6,483
  -6,879
  -7,291
  -7,719
  -8,165
  -8,630
  -9,113
  -9,619
  -10,147
  -10,698
  -11,273
  -11,876
  -12,506
Free cash flow, $m
  793
  1,045
  1,344
  1,685
  2,069
  2,497
  2,966
  3,477
  4,028
  4,617
  5,190
  5,854
  6,555
  7,291
  8,062
  8,867
  9,706
  10,580
  11,490
  12,436
  13,418
  14,439
  15,500
  16,602
  17,747
  18,939
  20,177
  21,467
  22,809
  24,208
Issuance/(repayment) of debt, $m
  2,243
  2,510
  2,771
  3,029
  3,284
  3,533
  3,776
  4,014
  4,246
  4,473
  4,697
  4,918
  5,139
  5,360
  5,583
  5,809
  6,041
  6,279
  6,525
  6,781
  7,047
  7,326
  7,618
  7,925
  8,248
  8,587
  8,946
  9,324
  9,722
  10,143
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  2,243
  2,510
  2,771
  3,029
  3,284
  3,533
  3,776
  4,014
  4,246
  4,473
  4,697
  4,918
  5,139
  5,360
  5,583
  5,809
  6,041
  6,279
  6,525
  6,781
  7,047
  7,326
  7,618
  7,925
  8,248
  8,587
  8,946
  9,324
  9,722
  10,143
Total cash flow (excl. dividends), $m
  3,036
  3,555
  4,115
  4,714
  5,353
  6,029
  6,742
  7,490
  8,273
  9,091
  9,887
  10,773
  11,694
  12,651
  13,644
  14,676
  15,747
  16,860
  18,015
  19,217
  20,466
  21,765
  23,118
  24,527
  25,995
  27,526
  29,123
  30,790
  32,531
  34,350
Retained Cash Flow (-), $m
  -1,520
  -1,687
  -1,863
  -2,037
  -2,207
  -2,375
  -2,538
  -2,698
  -2,854
  -3,007
  -3,158
  -3,306
  -3,455
  -3,603
  -3,753
  -3,905
  -4,061
  -4,221
  -4,387
  -4,558
  -4,738
  -4,925
  -5,121
  -5,327
  -5,544
  -5,773
  -6,014
  -6,268
  -6,536
  -6,818
Prev. year cash balance distribution, $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 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
  1,516
  1,868
  2,252
  2,678
  3,146
  3,654
  4,204
  4,792
  5,419
  6,084
  6,729
  7,467
  8,239
  9,048
  9,891
  10,771
  11,686
  12,638
  13,629
  14,658
  15,728
  16,840
  17,997
  19,199
  20,451
  21,753
  23,110
  24,523
  25,996
  27,532
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
  1,454
  1,710
  1,960
  2,205
  2,438
  2,652
  2,840
  2,995
  3,113
  3,189
  3,196
  3,186
  3,133
  3,037
  2,904
  2,737
  2,543
  2,328
  2,098
  1,863
  1,627
  1,397
  1,180
  978
  796
  635
  496
  379
  284
  207
Current shareholders' claim on cash, %
  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. designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products. The Company's segments include Engine, Distribution, Components and Power Systems. The Engine segment manufactures and markets a range of diesel and natural gas powered engines under the Cummins brand name, as well as certain customer brand names, for the heavy and medium-duty truck, bus, recreational vehicle (RV), light-duty automotive and agricultural markets. The Distribution segment consists of the product lines, which service and/or distribute a range of products and services, including parts, engines, power generation and service. The Components segment supplies products, including aftertreatment systems, turbochargers, filtration products and fuel systems for commercial diesel applications. The Power Systems segment consists of businesses, including Power generation, Industrial and Generator technologies.

FINANCIAL RATIOS  of  Cummins (CMI)

Valuation Ratios
P/E Ratio 17.5
Price to Sales 1.4
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 18.2
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 $20428 million for the last fiscal year's total revenue generated by Cummins. The default revenue input number comes from 0001 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 20.8% 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 86.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $715 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 5.4% 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 22.4%.

Life of production assets of 9.1 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 10.3%. 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 - $7259 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 163.3 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 $23.7 billion.

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▶ Cummins Inc. Declares Quarterly Common Stock Dividend   [May-08-18 03:00PM  Business Wire]

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