Microsoft Excel LibreOffice Calc

Cisco Systems Inc. (NASDAQ:CSCO)

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Analysis of Goodwill and Intangible Assets

Advanced level


Accounting Policy on Goodwill and Intangible Assets

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. Identifying a potential impairment consists of comparing the fair value of a reporting unit with its carrying amount, including goodwill. 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: 10-K (filing date: 2019-09-05).


Goodwill and Intangible Asset Disclosure

Cisco Systems Inc., balance sheet: goodwill and intangible assets

US$ in millions

Microsoft Excel LibreOffice Calc
Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
Technology
Customer relationships
Other
Purchased intangible assets with finite lives, gross
Accumulated amortization
Purchased intangible assets with finite lives, net
In-process research and development, with indefinite lives
Purchased intangible assets
Goodwill
Goodwill and purchased intangible assets

Based on: 10-K (filing date: 2019-09-05), 10-K (filing date: 2018-09-06), 10-K (filing date: 2017-09-07), 10-K (filing date: 2016-09-08), 10-K (filing date: 2015-09-08), 10-K (filing date: 2014-09-09).

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 2017 to 2018 but then decreased significantly from 2018 to 2019.
Goodwill Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Cisco Systems Inc.’s goodwill increased from 2017 to 2018 and from 2018 to 2019.
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 2017 to 2018 and from 2018 to 2019.

Adjustments to Financial Statements: Removal of Goodwill

Cisco Systems Inc., adjustments to financial statements

US$ in millions

Microsoft Excel LibreOffice Calc
Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
Adjustment to Total Assets
Total assets (as reported)
Less: Goodwill
Total assets (adjusted)
Adjustment to Total Cisco Shareholders’ Equity
Total Cisco shareholders’ equity (as reported)
Less: Goodwill
Total Cisco shareholders’ equity (adjusted)

Based on: 10-K (filing date: 2019-09-05), 10-K (filing date: 2018-09-06), 10-K (filing date: 2017-09-07), 10-K (filing date: 2016-09-08), 10-K (filing date: 2015-09-08), 10-K (filing date: 2014-09-09).


Cisco Systems Inc., Financial Data: Reported vs. Adjusted


Adjusted Financial Ratios: Removal of Goodwill (Summary)

Cisco Systems Inc., adjusted financial ratios

Microsoft Excel LibreOffice Calc
Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
Total Asset Turnover
Reported total asset turnover
Adjusted total asset turnover
Financial Leverage
Reported financial leverage
Adjusted financial leverage
Return on Equity (ROE)
Reported ROE
Adjusted ROE
Return on Assets (ROA)
Reported ROA
Adjusted ROA

Based on: 10-K (filing date: 2019-09-05), 10-K (filing date: 2018-09-06), 10-K (filing date: 2017-09-07), 10-K (filing date: 2016-09-08), 10-K (filing date: 2015-09-08), 10-K (filing date: 2014-09-09).

Financial 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 ratio improved from 2017 to 2018 and from 2018 to 2019.
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 ratio increased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Cisco Systems Inc.’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Cisco Systems Inc.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Cisco Systems Inc., Financial Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
As Reported
Selected Financial Data (US$ in millions)
Revenue
Total assets
Activity Ratio
Total asset turnover1
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Revenue
Adjusted total assets
Activity Ratio
Adjusted total asset turnover2

Based on: 10-K (filing date: 2019-09-05), 10-K (filing date: 2018-09-06), 10-K (filing date: 2017-09-07), 10-K (filing date: 2016-09-08), 10-K (filing date: 2015-09-08), 10-K (filing date: 2014-09-09).

2019 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= ÷ =

Activity 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 ratio improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
As Reported
Selected Financial Data (US$ in millions)
Total assets
Total Cisco shareholders’ equity
Solvency Ratio
Financial leverage1
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted total assets
Adjusted total Cisco shareholders’ equity
Solvency Ratio
Adjusted financial leverage2

Based on: 10-K (filing date: 2019-09-05), 10-K (filing date: 2018-09-06), 10-K (filing date: 2017-09-07), 10-K (filing date: 2016-09-08), 10-K (filing date: 2015-09-08), 10-K (filing date: 2014-09-09).

2019 Calculations

1 Financial leverage = Total assets ÷ Total Cisco shareholders’ equity
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Cisco shareholders’ equity
= ÷ =

Solvency 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 ratio increased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income
Total Cisco shareholders’ equity
Profitability Ratio
ROE1
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net income
Adjusted total Cisco shareholders’ equity
Profitability Ratio
Adjusted ROE2

Based on: 10-K (filing date: 2019-09-05), 10-K (filing date: 2018-09-06), 10-K (filing date: 2017-09-07), 10-K (filing date: 2016-09-08), 10-K (filing date: 2015-09-08), 10-K (filing date: 2014-09-09).

2019 Calculations

1 ROE = 100 × Net income ÷ Total Cisco shareholders’ equity
= 100 × ÷ =

2 Adjusted ROE = 100 × Net income ÷ Adjusted total Cisco shareholders’ equity
= 100 × ÷ =

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Cisco Systems Inc.’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income
Total assets
Profitability Ratio
ROA1
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net income
Adjusted total assets
Profitability Ratio
Adjusted ROA2

Based on: 10-K (filing date: 2019-09-05), 10-K (filing date: 2018-09-06), 10-K (filing date: 2017-09-07), 10-K (filing date: 2016-09-08), 10-K (filing date: 2015-09-08), 10-K (filing date: 2014-09-09).

2019 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ =

2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × ÷ =

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Cisco Systems Inc.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.