Goodwill and Intangible Assets Accounting Policy

Goodwill is tested for impairment on an annual basis in the fourth fiscal quarter and, when specific circumstances dictate, between annual tests. When impaired, the carrying value of goodwill is written down to fair value. The goodwill impairment test involves a two-step process. The first step, identifying a potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step would need to be conducted; otherwise, no further steps are necessary as no potential impairment exists. If necessary, the second step to measure the impairment loss would be to compare the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value over the respective implied fair value is recognized as an impairment loss. Purchased intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets. Purchased intangible assets with indefinite lives are assessed for potential impairment annually or when events or circumstances indicate that their carrying amounts might be impaired.

Source: Cisco Systems Inc., Annual Report

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Goodwill and Intangible Assets Disclosure

Cisco Systems Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
Technology 3,182  3,038  3,418  4,100  3,563  2,267 
Customer relationships 1,353  1,793  1,699  1,706  1,566  2,261 
Other 82  85  55  51  30  49 
Purchased intangible assets with finite lives, gross 4,617  4,916  5,172  5,857  5,159  4,577 
Accumulated amortization (2,189) (2,637) (2,813) (2,709) (1,842) (2,618)
Purchased intangible assets with finite lives, net 2,428  2,279  2,359  3,148  3,317  1,959 
In-process research and development, with indefinite lives 111  222  17  132  86 
Purchased intangible assets 2,539  2,501  2,376  3,280  3,403  1,959 
Goodwill 29,766  26,625  24,469  24,239  21,919  16,998 
Goodwill and purchased intangible assets 32,305  29,126  26,845  27,519  25,322  18,957 

Source: Based on data from Cisco Systems Inc. Annual Reports

Item Description The company
Purchased intangible assets Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Cisco Systems Inc.'s purchased intangible assets increased from 2015 to 2016 and from 2016 to 2017.
Goodwill Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions. Cisco Systems Inc.'s goodwill increased from 2015 to 2016 and from 2016 to 2017.
Goodwill and purchased intangible assets Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Cisco Systems Inc.'s goodwill and purchased intangible assets increased from 2015 to 2016 and from 2016 to 2017.

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Analyst Adjustments: Removal of Goodwill

Cisco Systems Inc., adjustments to financial data

USD $ in millions

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
Adjustment to Total Assets
Total assets (as reported) 129,818  121,652  113,481  105,134  101,191  91,759 
Less: Goodwill 29,766  26,625  24,469  24,239  21,919  16,998 
Total assets (adjusted) 100,052  95,027  89,012  80,895  79,272  74,761 
Adjustment to Total Cisco Shareholders' Equity
Total Cisco shareholders' equity (as reported) 66,137  63,586  59,698  56,654  59,120  51,286 
Less: Goodwill 29,766  26,625  24,469  24,239  21,919  16,998 
Total Cisco shareholders' equity (adjusted) 36,371  36,961  35,229  32,415  37,201  34,288 

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Adjusted Ratios: Removal of Goodwill (Summary)

Cisco Systems Inc., adjusted ratios

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
Total Asset Turnover
Reported total asset turnover 0.37 0.40 0.43 0.45 0.48 0.50
Adjusted total asset turnover 0.48 0.52 0.55 0.58 0.61 0.62
Financial Leverage
Reported financial leverage 1.96 1.91 1.90 1.86 1.71 1.79
Adjusted financial leverage 2.75 2.57 2.53 2.50 2.13 2.18
Return on Equity (ROE)
Reported ROE 14.53% 16.89% 15.04% 13.86% 16.89% 15.68%
Adjusted ROE 26.42% 29.05% 25.49% 24.23% 26.84% 23.45%
Return on Assets (ROA)
Reported ROA 7.40% 8.83% 7.91% 7.47% 9.87% 8.76%
Adjusted ROA 9.60% 11.30% 10.09% 9.71% 12.59% 10.76%
Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Cisco Systems Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Cisco Systems Inc.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Cisco Systems Inc.'s adjusted ROE improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Cisco Systems Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Total Asset Turnover

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
As Reported
Revenue (USD $ in millions) 48,005  49,247  49,161  47,142  48,607  46,061 
Total assets (USD $ in millions) 129,818  121,652  113,481  105,134  101,191  91,759 
Total asset turnover1 0.37 0.40 0.43 0.45 0.48 0.50
Adjusted for Goodwill
Revenue (USD $ in millions) 48,005  49,247  49,161  47,142  48,607  46,061 
Adjusted total assets (USD $ in millions) 100,052  95,027  89,012  80,895  79,272  74,761 
Adjusted total asset turnover2 0.48 0.52 0.55 0.58 0.61 0.62

2017 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= 48,005 ÷ 129,818 = 0.37

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= 48,005 ÷ 100,052 = 0.48

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Cisco Systems Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017.

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Adjusted Financial Leverage

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
As Reported
Total assets (USD $ in millions) 129,818  121,652  113,481  105,134  101,191  91,759 
Total Cisco shareholders' equity (USD $ in millions) 66,137  63,586  59,698  56,654  59,120  51,286 
Financial leverage1 1.96 1.91 1.90 1.86 1.71 1.79
Adjusted for Goodwill
Adjusted total assets (USD $ in millions) 100,052  95,027  89,012  80,895  79,272  74,761 
Adjusted total Cisco shareholders' equity (USD $ in millions) 36,371  36,961  35,229  32,415  37,201  34,288 
Adjusted financial leverage2 2.75 2.57 2.53 2.50 2.13 2.18

2017 Calculations

1 Financial leverage = Total assets ÷ Total Cisco shareholders' equity
= 129,818 ÷ 66,137 = 1.96

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Cisco shareholders' equity
= 100,052 ÷ 36,371 = 2.75

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Cisco Systems Inc.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Equity (ROE)

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
As Reported
Net income (USD $ in millions) 9,609  10,739  8,981  7,853  9,983  8,041 
Total Cisco shareholders' equity (USD $ in millions) 66,137  63,586  59,698  56,654  59,120  51,286 
ROE1 14.53% 16.89% 15.04% 13.86% 16.89% 15.68%
Adjusted for Goodwill
Net income (USD $ in millions) 9,609  10,739  8,981  7,853  9,983  8,041 
Adjusted total Cisco shareholders' equity (USD $ in millions) 36,371  36,961  35,229  32,415  37,201  34,288 
Adjusted ROE2 26.42% 29.05% 25.49% 24.23% 26.84% 23.45%

2017 Calculations

1 ROE = 100 × Net income ÷ Total Cisco shareholders' equity
= 100 × 9,609 ÷ 66,137 = 14.53%

2 Adjusted ROE = 100 × Net income ÷ Adjusted total Cisco shareholders' equity
= 100 × 9,609 ÷ 36,371 = 26.42%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Cisco Systems Inc.'s adjusted ROE improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.

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Adjusted Return on Assets (ROA)

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
As Reported
Net income (USD $ in millions) 9,609  10,739  8,981  7,853  9,983  8,041 
Total assets (USD $ in millions) 129,818  121,652  113,481  105,134  101,191  91,759 
ROA1 7.40% 8.83% 7.91% 7.47% 9.87% 8.76%
Adjusted for Goodwill
Net income (USD $ in millions) 9,609  10,739  8,981  7,853  9,983  8,041 
Adjusted total assets (USD $ in millions) 100,052  95,027  89,012  80,895  79,272  74,761 
Adjusted ROA2 9.60% 11.30% 10.09% 9.71% 12.59% 10.76%

2017 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × 9,609 ÷ 129,818 = 7.40%

2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × 9,609 ÷ 100,052 = 9.60%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Cisco Systems Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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