Market Overview

Cummins's Debt Overview


Shares of Cummins Inc. (NYSE: CMI) increased by 21.30% in the past three months. Before having a look at the importance of debt, let's look at how much debt Cummins has.

Cummins's Debt

According to the Cummins’s most recent balance sheet as reported on April 28, 2020, total debt is at $3.35 billion, with $1.58 billion in long-term debt and $1.77 billion in current debt. Adjusting for $1.69 billion in cash-equivalents, the company has a net debt of $1.66 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Cummins has $20.08 billion in total assets, therefore making the debt-ratio 0.17. Generally speaking, a debt-ratio more than 1 means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. For example, a debt ratio of 40% might be higher for one industry, whereas normal for another.

Why Debt Is Important

Besides equity, debt is an important factor in the capital structure of a company, and contributes to its growth. Due to its lower financing cost compared to equity, it becomes an attractive option for executives trying to raise capital.

Interest-payment obligations can impact the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.


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