Intrinsic value of Cummins - CMI

Previous Close

$177.10

  Intrinsic Value

$155.55

stock screener

  Rating & Target

hold

-12%

  Value-price divergence*

+199%

Previous close

$177.10

 
Intrinsic value

$155.55

 
Up/down potential

-12%

 
Rating

hold

 
Value-price divergence*

+199%

*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 29.7

 

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
  12.10
  11.39
  10.75
  10.18
  9.66
  9.19
  8.77
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.80
  6.62
  6.46
  6.32
  6.18
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
Revenue, $m
  17,509
  19,628
  21,863
  24,214
  26,678
  29,254
  31,943
  34,746
  37,663
  40,697
  43,852
  47,130
  50,537
  54,077
  57,756
  61,582
  65,562
  69,702
  74,013
  78,502
  83,180
  88,057
  93,144
  98,453
  103,995
  109,784
  115,832
  122,155
  128,767
  135,684
  142,922
Variable operating expenses, $m
 
  17,502
  19,490
  21,580
  23,771
  26,063
  28,454
  30,946
  33,540
  36,239
  39,044
  41,911
  44,940
  48,088
  51,360
  54,763
  58,301
  61,983
  65,817
  69,809
  73,969
  78,306
  82,829
  87,550
  92,478
  97,626
  103,005
  108,628
  114,508
  120,658
  127,095
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
  17,502
  19,490
  21,580
  23,771
  26,063
  28,454
  30,946
  33,540
  36,239
  39,044
  41,911
  44,940
  48,088
  51,360
  54,763
  58,301
  61,983
  65,817
  69,809
  73,969
  78,306
  82,829
  87,550
  92,478
  97,626
  103,005
  108,628
  114,508
  120,658
  127,095
Operating income, $m
  1,928
  2,126
  2,373
  2,633
  2,906
  3,192
  3,489
  3,800
  4,123
  4,459
  4,808
  5,219
  5,596
  5,989
  6,396
  6,820
  7,260
  7,719
  8,196
  8,693
  9,212
  9,752
  10,315
  10,903
  11,517
  12,158
  12,827
  13,528
  14,260
  15,026
  15,827
EBITDA, $m
  2,458
  2,708
  3,016
  3,340
  3,680
  4,036
  4,407
  4,793
  5,196
  5,614
  6,049
  6,502
  6,972
  7,460
  7,968
  8,495
  9,044
  9,616
  10,210
  10,829
  11,475
  12,148
  12,849
  13,582
  14,346
  15,145
  15,979
  16,851
  17,764
  18,718
  19,716
Interest expense (income), $m
  68
  61
  98
  138
  179
  222
  267
  314
  363
  414
  467
  522
  580
  639
  701
  766
  832
  902
  975
  1,050
  1,129
  1,210
  1,296
  1,385
  1,478
  1,575
  1,676
  1,782
  1,892
  2,008
  2,129
Earnings before tax, $m
  1,930
  2,064
  2,275
  2,496
  2,728
  2,970
  3,223
  3,486
  3,760
  4,045
  4,341
  4,697
  5,017
  5,349
  5,695
  6,054
  6,428
  6,817
  7,222
  7,643
  8,083
  8,541
  9,019
  9,518
  10,039
  10,583
  11,152
  11,746
  12,368
  13,018
  13,698
Tax expense, $m
  474
  557
  614
  674
  736
  802
  870
  941
  1,015
  1,092
  1,172
  1,268
  1,355
  1,444
  1,538
  1,635
  1,736
  1,841
  1,950
  2,064
  2,182
  2,306
  2,435
  2,570
  2,711
  2,857
  3,011
  3,171
  3,339
  3,515
  3,699
Net income, $m
  1,394
  1,507
  1,661
  1,822
  1,991
  2,168
  2,352
  2,545
  2,745
  2,953
  3,169
  3,429
  3,662
  3,905
  4,157
  4,420
  4,692
  4,976
  5,272
  5,580
  5,901
  6,235
  6,584
  6,948
  7,328
  7,726
  8,141
  8,575
  9,028
  9,503
  10,000

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
  15,286
  17,027
  18,858
  20,777
  22,784
  24,878
  27,061
  29,333
  31,696
  34,152
  36,706
  39,359
  42,116
  44,982
  47,961
  51,061
  54,285
  57,642
  61,139
  64,782
  68,580
  72,542
  76,677
  80,993
  85,501
  90,212
  95,137
  100,286
  105,673
  111,310
Adjusted assets (=assets-cash), $m
  13,631
  15,286
  17,027
  18,858
  20,777
  22,784
  24,878
  27,061
  29,333
  31,696
  34,152
  36,706
  39,359
  42,116
  44,982
  47,961
  51,061
  54,285
  57,642
  61,139
  64,782
  68,580
  72,542
  76,677
  80,993
  85,501
  90,212
  95,137
  100,286
  105,673
  111,310
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
  4,593
  5,116
  5,666
  6,243
  6,845
  7,475
  8,131
  8,813
  9,523
  10,261
  11,028
  11,826
  12,654
  13,515
  14,410
  15,341
  16,310
  17,319
  18,370
  19,464
  20,605
  21,796
  23,038
  24,335
  25,689
  27,105
  28,584
  30,132
  31,750
  33,444
Working capital, $m
  3,382
  2,571
  2,864
  3,172
  3,495
  3,832
  4,185
  4,552
  4,934
  5,331
  5,745
  6,174
  6,620
  7,084
  7,566
  8,067
  8,589
  9,131
  9,696
  10,284
  10,897
  11,536
  12,202
  12,897
  13,623
  14,382
  15,174
  16,002
  16,869
  17,775
  18,723
Total debt, $m
  1,856
  2,525
  3,528
  4,582
  5,688
  6,843
  8,050
  9,307
  10,616
  11,977
  13,392
  14,862
  16,391
  17,979
  19,629
  21,346
  23,131
  24,988
  26,922
  28,936
  31,035
  33,222
  35,504
  37,886
  40,372
  42,969
  45,682
  48,519
  51,485
  54,588
  57,835
Total liabilities, $m
  8,136
  8,805
  9,808
  10,862
  11,968
  13,123
  14,330
  15,587
  16,896
  18,257
  19,672
  21,142
  22,671
  24,259
  25,909
  27,626
  29,411
  31,268
  33,202
  35,216
  37,315
  39,502
  41,784
  44,166
  46,652
  49,249
  51,962
  54,799
  57,765
  60,868
  64,115
Total equity, $m
  6,875
  6,481
  7,220
  7,996
  8,809
  9,660
  10,548
  11,474
  12,437
  13,439
  14,481
  15,563
  16,688
  17,857
  19,072
  20,336
  21,650
  23,017
  24,440
  25,923
  27,468
  29,078
  30,758
  32,511
  34,341
  36,253
  38,250
  40,338
  42,521
  44,805
  47,196
Total liabilities and equity, $m
  15,011
  15,286
  17,028
  18,858
  20,777
  22,783
  24,878
  27,061
  29,333
  31,696
  34,153
  36,705
  39,359
  42,116
  44,981
  47,962
  51,061
  54,285
  57,642
  61,139
  64,783
  68,580
  72,542
  76,677
  80,993
  85,502
  90,212
  95,137
  100,286
  105,673
  111,311
Debt-to-equity ratio
  0.270
  0.390
  0.490
  0.570
  0.650
  0.710
  0.760
  0.810
  0.850
  0.890
  0.920
  0.950
  0.980
  1.010
  1.030
  1.050
  1.070
  1.090
  1.100
  1.120
  1.130
  1.140
  1.150
  1.170
  1.180
  1.190
  1.190
  1.200
  1.210
  1.220
  1.230
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
  1,507
  1,661
  1,822
  1,991
  2,168
  2,352
  2,545
  2,745
  2,953
  3,169
  3,429
  3,662
  3,905
  4,157
  4,420
  4,692
  4,976
  5,272
  5,580
  5,901
  6,235
  6,584
  6,948
  7,328
  7,726
  8,141
  8,575
  9,028
  9,503
  10,000
Depreciation, amort., depletion, $m
  530
  582
  643
  707
  774
  844
  917
  993
  1,073
  1,155
  1,241
  1,282
  1,375
  1,471
  1,572
  1,676
  1,784
  1,897
  2,014
  2,136
  2,263
  2,396
  2,534
  2,679
  2,830
  2,987
  3,152
  3,324
  3,504
  3,692
  3,889
Funds from operations, $m
  1,972
  2,089
  2,303
  2,529
  2,765
  3,012
  3,270
  3,538
  3,818
  4,108
  4,410
  4,711
  5,037
  5,376
  5,729
  6,095
  6,476
  6,873
  7,286
  7,716
  8,164
  8,631
  9,118
  9,627
  10,158
  10,713
  11,292
  11,898
  12,532
  13,195
  13,889
Change in working capital, $m
  37
  278
  293
  308
  323
  338
  352
  367
  382
  397
  413
  429
  446
  464
  482
  501
  521
  542
  565
  588
  613
  639
  666
  695
  726
  758
  792
  828
  866
  906
  948
Cash from operations, $m
  1,935
  1,812
  2,011
  2,221
  2,442
  2,674
  2,917
  3,171
  3,435
  3,711
  3,997
  4,282
  4,591
  4,913
  5,247
  5,594
  5,955
  6,330
  6,721
  7,128
  7,551
  7,992
  8,452
  8,932
  9,432
  9,954
  10,500
  11,070
  11,666
  12,289
  12,941
Maintenance CAPEX, $m
  0
  -477
  -534
  -595
  -659
  -726
  -796
  -869
  -945
  -1,025
  -1,107
  -1,193
  -1,282
  -1,375
  -1,471
  -1,572
  -1,676
  -1,784
  -1,897
  -2,014
  -2,136
  -2,263
  -2,396
  -2,534
  -2,679
  -2,830
  -2,987
  -3,152
  -3,324
  -3,504
  -3,692
New CAPEX, $m
  -594
  -490
  -523
  -550
  -577
  -603
  -629
  -656
  -683
  -710
  -738
  -767
  -797
  -828
  -861
  -895
  -931
  -969
  -1,009
  -1,051
  -1,095
  -1,141
  -1,190
  -1,242
  -1,297
  -1,355
  -1,415
  -1,480
  -1,547
  -1,619
  -1,694
Cash from investing activities, $m
  -917
  -967
  -1,057
  -1,145
  -1,236
  -1,329
  -1,425
  -1,525
  -1,628
  -1,735
  -1,845
  -1,960
  -2,079
  -2,203
  -2,332
  -2,467
  -2,607
  -2,753
  -2,906
  -3,065
  -3,231
  -3,404
  -3,586
  -3,776
  -3,976
  -4,185
  -4,402
  -4,632
  -4,871
  -5,123
  -5,386
Free cash flow, $m
  1,018
  844
  953
  1,076
  1,207
  1,346
  1,492
  1,646
  1,807
  1,976
  2,152
  2,321
  2,512
  2,709
  2,914
  3,127
  3,348
  3,578
  3,816
  4,063
  4,320
  4,588
  4,866
  5,155
  5,456
  5,770
  6,098
  6,439
  6,795
  7,167
  7,555
Issuance/(repayment) of debt, $m
  179
  957
  1,003
  1,054
  1,105
  1,156
  1,206
  1,257
  1,309
  1,361
  1,415
  1,471
  1,528
  1,588
  1,651
  1,716
  1,785
  1,857
  1,934
  2,014
  2,099
  2,188
  2,282
  2,381
  2,486
  2,597
  2,713
  2,836
  2,966
  3,103
  3,247
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
  957
  1,003
  1,054
  1,105
  1,156
  1,206
  1,257
  1,309
  1,361
  1,415
  1,471
  1,528
  1,588
  1,651
  1,716
  1,785
  1,857
  1,934
  2,014
  2,099
  2,188
  2,282
  2,381
  2,486
  2,597
  2,713
  2,836
  2,966
  3,103
  3,247
Total cash flow (excl. dividends), $m
  85
  1,801
  1,956
  2,130
  2,312
  2,501
  2,698
  2,903
  3,116
  3,337
  3,567
  3,792
  4,040
  4,297
  4,565
  4,843
  5,133
  5,435
  5,750
  6,077
  6,419
  6,776
  7,148
  7,536
  7,943
  8,367
  8,811
  9,275
  9,761
  10,270
  10,802
Retained Cash Flow (-), $m
  531
  -698
  -738
  -776
  -814
  -851
  -888
  -925
  -963
  -1,002
  -1,042
  -1,083
  -1,125
  -1,169
  -1,215
  -1,263
  -1,314
  -1,367
  -1,423
  -1,482
  -1,545
  -1,610
  -1,680
  -1,753
  -1,830
  -1,912
  -1,997
  -2,088
  -2,183
  -2,284
  -2,390
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
 
  2,195
  1,218
  1,354
  1,499
  1,651
  1,810
  1,978
  2,153
  2,335
  2,525
  2,710
  2,915
  3,128
  3,350
  3,580
  3,819
  4,068
  4,326
  4,595
  4,874
  5,165
  5,468
  5,783
  6,112
  6,456
  6,814
  7,187
  7,578
  7,985
  8,412
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
 
  2,104
  1,115
  1,179
  1,234
  1,279
  1,314
  1,336
  1,345
  1,341
  1,324
  1,287
  1,244
  1,189
  1,125
  1,051
  971
  885
  797
  707
  619
  534
  454
  379
  311
  251
  199
  154
  117
  87
  63
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. 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 21.4
Price to Sales 1.7
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 15.4
Price to Free Cash Flow 22.2
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 $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 12.1% 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 167.982 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 $29.7 billion.

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COMPANY NEWS

▶ Cummins Announces Acquisition of Energy Storage Technology   [Oct-16-17 12:00PM  Business Wire]
▶ Cummins CEO Says Nafta Is Critical to Company's Success   [Oct-12-17 11:30AM  Bloomberg Video]
▶ Cummins Inc. Declares Quarterly Common Stock Dividend   [Oct-10-17 03:00PM  Business Wire]
▶ Top Ranked Income Stocks to Buy for October 5th   [Oct-05-17 09:19AM  Zacks]
▶ Makers of Fuel-Guzzling Big Rigs Try to Go Green   [Sep-22-17 11:00PM  The Wall Street Journal]
▶ Makers of Fuel-Guzzling Big Rigs Try to Go Green   [Sep-21-17 09:51AM  The Wall Street Journal]
▶ With business on the upswing, Cummins has added nearly 300 employees since March   [Sep-20-17 01:25PM  American City Business Journals]
▶ Can Tesla compete in the trucking industry?   [Sep-14-17 04:12PM  CNBC Videos]
▶ Stocks With Rising Relative Strength: Cummins   [03:00AM  Investor's Business Daily]
▶ The Worst Is Over for Truck Engine King Cummins   [Aug-29-17 04:31PM  TheStreet.com]
▶ Stephanie Link's new buys   [01:53PM  CNBC Videos]
▶ 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]
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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