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Cummins India Ltd.
INTRODUCTION:
Cummins Inc. is a Fortune 500 corporation that designs, manufactures, and distributes engines,
filtration, and power generation products. Cummins also services engines and related equipment,
including fuel systems, controls, air handling, filtration, emission control and electrical power
generation systems. Headquartered in Columbus, Indiana, United States, Cummins sells in
approximately 190 countries and territories through a network of more than 600 company-owned
and independent distributors and approximately 6,000 dealers.
HISTORY:
Also in the 1930s, Cummins company designed the Model H and the N Series engines,
which officially launched Cummins Company as a reliable engine producer.
In 1937 it made its first profit.
Made more profit in the 1950s as the primary engine provider for trucks and equipments
used in the American interstate highway projects.
In the 1950s Cummins Company also open is first oversees manufacturing facility is Shotts,
Scotland and expanded sales into 98 countries
Organization Structure and Product Lines
Cummins has four business units:
Cummins Engine Business
Cummins Power Generation Business
Cummins Component Business
Cummins Distribution Business
Cummins has three additional subsidiaries. It produces and does business through:
Cummins Turbo Technologies
Cummins Power Generation
Cummins Emission Solutions
Cummins is overseen by its current Chairman and CEO Thomas Linebarger along with 15 vise
presidents who oversee other business processes.
Market Leader/competitor of Cummins ltd:
• Greaves Cotton Limited is one of the leading engineering companies in India with core competencies in diesel/petrol engines, gensets and construction equipment.
• The Company sustains its leadership through eleven manufacturing units which produce world class products backed by comprehensive marketing and service/parts network throughout the country.
CAPITAL STRUCTURE / LEVERAGE RATIOS :
DEFINATION:
The ratios under this category are very relevant from the point of view of long term funds
providers. They are interested to know whether the company is viable enough to refund the long
term loan along with interest or whether the company shall be able to pay dividend to
shareholders etc.
So ratios here focus on the long term solvency of the company.
The various ratios discussed under this head are as follows:
A)Debt Equity Ratio
B) Interest Coverage Ratio
C) Dividend coverage Ratio
D) Capital Gearing Ratio
1)Debt Equity Ratio :-
This ratio reflects the proportion of owners’ stake in the business.
Total Debt
----------------------------
Shareholders’ Funds
FOR THE YEAR ENDING MARCH
2013
128289
------------------ = 0.5
238673
2012
105854
------------------ = 0.5
204315
2011
105939
------------------ = 0.5
180627
2010
86371
------------------ = 0.5
156099
YEARS 2010 2011 2012 2013
DER 0.5 0.5 0.5 0.5
1 2 3 40
0.1
0.2
0.3
0.4
0.5
0.6
Series1
INTERPRETATION :
Companies with less debt equity ratio are less risky than the companies having a high ratio. Thus, it
is an important for a share holder to look at the financial ratios in order to invest in a company. In
cummins,as we can see above debt equity ratio is 0.5 in every above financial year it shows that for
every rupee of outsiders, the firm has two rupee of owner’s capital.
2) Interest Coverage Ratio:
Net Profit before Interest & Tax
Interest Coverage Ratio = ------------------------------------------------------
Fixed Interest Charges
FOR THE YEAR ENDING MARCH
2013
1051
------------------ = 2.28
461
2012
824
------------------ = 1.52
541
2011
802
------------------ = 1.68
475
2010
610
------------------ = 1.25
487
YEARS 2010 2011 2012 2013
ICR 125.4 168.92 152.43 228.05
1 2 3 40
50
100
150
200
250
ICR
ICR
INTERPRETATION:
The interest coverage ratio measures a company's ability to meet its interest obligations with
income earned from the firm's primary source of business. Higher the ratio, more safe are the long
term creditors because even if earnings of the firm fall later, the firm shall be able to meet its
commitment of fixed interest charges.
Capital Structure of the Company:
The company’s debt equity ratio is constant over the years which imply that they are issuing share capital and debt in same amount to generate their cash inflow so that they can use the money in their development activities. On the other side, its interest coverage ratio improved from FY10 to FY13. It shows that firm ability to pay the interest is increased.
Cil has more equity than debt in all the four financial years and their debt equity ratio is way below the standard ratio of 2:1. Since cost of equity is more than the cost of debt, this shows that the company is more of a risk lover.