# Cummins (CMI) — Financial Analysis

**Exchange:**   
**Coverage as of:** 2026-Q2  
**Updated:** 2026-06-03  
**Tier:** Free primer (step 2 of 19)  
**Sibling pages:** /stocks/CMI/thesis · /stocks/CMI/memo

## Financial Snapshot

---
source: coverage-next-full
step: 04
title: Financial Quality & Adversarial Sweep
ticker: CMI
company: Cummins Inc.
date: 2026-06-03
---

### Step 04 — Financial Quality: Cummins Inc. (CMI)

#### 1. Financial Statement Quality Assessment

##### Revenue Recognition
CMI recognizes revenue when products are delivered or services are performed, consistent with ASC 606. Segment revenues are reported net of inter-segment eliminations ($7.5B in FY2024). No red flags in revenue recognition — the large elimination figure reflects Distribution segment purchasing from Engine/Components/Power Systems at transfer prices [S3].

**Judgment:** Revenue quality HIGH. Aftermarket and service revenue (~35–40% of Distribution) is granular, recurring, and not subject to channel-stuffing risk. New equipment revenue follows shipment-based recognition.

##### Gross Margin Analysis

| Year | Revenue ($B) | Gross Profit ($B) | Gross Margin |
|------|-------------|-------------------|--------------|
| FY2021 | $24.0 | $5.7 | 23.7% |
| FY2022 | $28.1 | $6.7 | 23.9% |
| FY2023 | $34.1 | $8.2 | 24.2% |
| FY2024 | $34.1 | $8.4 | 24.7% |
| FY2025 | $33.7 | $8.5 | 25.3% |

Gross margins have expanded continuously despite the Meritor acquisition (which added lower-margin axle/brake revenue) — indicating pricing power and mix shift toward higher-margin Power Systems and Distribution aftermarket [S2].

##### EBITDA Normalization

The raw EBITDA figures for FY2023 and FY2024 require significant normalization for one-time items:

| Year | Reported EBITDA | Adjustments | Normalized EBITDA |
|------|----------------|-------------|-------------------|
| FY2022 | ~$3.5B | None significant | ~$3.5B |
| FY2023 | ~$3.0B | +$2.0B EPA settlement, +$100M Atmus separation | ~$5.1B |
| FY2024 | ~$6.3B | -$1.3B Atmus gain, +$312M Accelera charges | ~$5.0B |
| FY2025 | ~$5.6B | +$500M Accelera charges (est.) | ~$5.8B adj. |

**Normalized trend:** Underlying EBITDA has grown from ~$3.5B (FY2022) to ~$5.8B (FY2025) — a 66% increase over 3 years — driven primarily by Power Systems growth and mix improvement [S2][S3].

##### Cash Flow Quality

| Year | Net Income | OCF | FCF | OCF/NI Ratio |
|------|-----------|-----|-----|--------------|
| FY2021 | $2.13B | $2.26B | $1.52B | 1.06x |
| FY2022 | $2.15B | $1.96B | $1.05B | 0.91x |
| FY2023 | $0.74B | $3.97B | $2.75B | 5.36x¹ |
| FY2024 | $3.95B | $1.49B | $0.28B | 0.38x² |
| FY2025 | $2.84B | $3.62B | $2.39B | 1.27x |
| TTM | $2.79B | $3.93B | $2.67B | 1.41x |

¹ FY2023: NI depressed by non-cash settlement charge; OCF higher because accrual charged in NI but cash paid later  
² FY2024: OCF depressed because $1.9B EPA settlement cash payment made; NI elevated by non-cash Atmus gain  

**Judgment:** FCF quality HIGH over the cycle. The FY2023/FY2024 distortions are mechanical and well-documented; TTM normalized FCF of $2.7B is the best representation of current run-rate [S2].

##### Working Capital
Working capital improved from $2.3B (FY2023) to $7.3B (FY2025) as the $1.9B settlement cash payment flowed through and short-term debt was paid down from $2.8B to $666M. No working capital efficiency concerns [S2].

---

#### 2. Balance Sheet Quality

| Metric | FY2025 | Comment |
|--------|--------|---------|
| Total Debt | $7.6B | Investment-grade; BBB+ rated |
| Cash + ST Investments | $3.6B | Ample liquidity |
| Net Debt | ~$4.0B | Debt/EBITDA ~0.7x on adj. basis |
| Goodwill + Intangibles | $4.4B | Primarily Meritor ($2.9B acquisition) |
| PP&E | $7.0B | Well-invested; ~$1.2B annual capex |
| Pension obligations | Manageable; fully disclosed in 10-K | |

Goodwill of $2.2B represents ~16% of book equity — manageable and primarily attributable to the Meritor acquisition. No impairment testing issues flagged in FY2024 or FY2025 10-K [S3].

---

#### 3. Adversarial Research Sweep

##### Known Issue 1: EPA/DOJ/CARB Emissions Settlement (RESOLVED)
**What happened:** In December 2023, CMI reached a settlement agreement with the EPA, DOJ, California AG, and CARB to resolve civil regulatory claims that CMI used defeat devices in software to manipulate emissions test results for certain pick-up truck engines. The settlement amount was $2.036B — the largest EPA civil penalty in automotive/engine history at that time.

**Key facts [S3][S4]:**
- Settlement became final in April 2024
- $1.9B cash payment made in Q2 2024
- $136M balance relates to non-monetary obligations (recall/repair programs)
- No criminal charges; civil resolution only
- CMI neither admitted nor denied the underlying claims
- The affected engines are Cummins B6.7 engines used in certain Ram 1500/2500/3500 pickup trucks (Stellantis)
- CMI has cooperated with additional DOE/state investigations related to the same engines; as of FY2024 10-K, no additional material liability identified

**Residual risk:** Low. Settlement is final; additional investigations appear to be related to the same underlying issue. CMI's reputation with fleet customers (not pick-up consumers) was not materially damaged.

##### Known Issue 2: Accelera Write-Downs and JV Impairments
**What happened:** In Q4 2024, CMI announced a strategic reorganization of Accelera, resulting in $312M in charges (inventory write-downs, JV impairments — primarily the Accelera-Daimler joint venture for commercial BEV trucks). Additional non-cash impairment charges of ~$657M occurred across Q3 2025, Q4 2025, and Q1 2026.

**Assessment [S5]:** These charges reflect slower-than-expected BEV adoption in heavy commercial trucking. Management has restructured the Accelera portfolio to focus on electrolyzer and hydrogen fuel cell applications where CMI has more differentiated technology. The ongoing cash burn (~$400–600M/year in Accelera operating losses) is the primary drag on FCF and EPS quality. Not a going-concern issue but a material capital allocation concern.

##### Known Issue 3: Tariff Exposure
**What happened:** Since 2025, US tariff actions under USMCA/Section 232 have created an estimated $100–200M headwind on CMI's Canadian and Mexican-sourced content (Columbus, Indiana engines use significant cross-border supply chains) [S5].

**Assessment:** Manageable at $100–200M on a $5.8B EBITDA base (~2–3% headwind). CMI has noted this in Q1 2026 earnings but not provided specific guidance. No structural supply chain disruption risk identified.

##### Known Issue 4: PACCAR MX Engine Competitive Pressure
**What happened:** PACCAR (Kenworth/Peterbilt) has been growing its in-house MX-13 and MX-11 engine attachment rate in its own trucks, displacing Cummins X15 sales. PACCAR MX engine attachment rate estimated to have grown from ~15% (2012) to ~35–40% of PACCAR trucks by 2024 [S8].

**Assessment:** Slow-moving structural headwind (~50–100 bps of market share/year). CMI still has strong Kenworth/Peterbilt presence in vocational/long-haul specs; PACCAR buys CMI parts for MX engine service and aftertreatment integration. Net impact: gradual Engine segment revenue headwind, partially offset by aftermarket parts.

##### No Other Material Red Flags
- No significant short-seller reports targeting CMI found in recent searches
- No major litigation beyond the EPA matter
- No going-concern language in any 10-K
- No restatement history

**Overall financial quality: HIGH.** The large one-time items (EPA settlement, Atmus gain) are clearly disclosed and directionally obvious. Underlying FCF generation is strong and growing. Accelera is the key uncertainty but is ring-fenced in a distinct segment.

---

#### Source Index

| ID | Source |
|----|--------|
| [S2] | StockAnalysis.com — stockanalysis_summary.md |
| [S3] | SEC 10-K FY2024 — 10K_FY2024_summary.md |
| [S4] | SEC 10-K FY2023 — 10K_FY2023_summary.md |
| [S5] | Street consensus / recent news — consensus.md |
| [S8] | Competitive landscape — industry/competitive_landscape.md |

## Deeper Financial Analysis

The fundamental tier ($1.00) adds 8 dimensions not included here:

- Revenue Breakdown — segment revenue, geographic mix, product-line margins
- Financial Trends — QoQ momentum, leading indicators, inflection points
- Balance Sheet — debt structure, dilution risk, working capital dynamics
- Capital Allocation — ROIC, buyback cadence, reinvestment efficiency
- Earnings Analysis — beats/misses, guidance vs actuals, transcript highlights
- Competitive Positioning — market share, pricing power, peer benchmarks
- Industry Context — TAM, sector tailwinds/headwinds, regulatory backdrop

**API endpoint:** GET /api/v1/research/CMI/fundamental

## Navigation

- Overview: /stocks/CMI
- Financials (this page): /stocks/CMI/financials
- Thesis: /stocks/CMI/thesis
- Investment Memo: /stocks/CMI/memo
- Coverage universe: /stocks