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Microsoft Excel LibreOffice Calc


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


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


Goodwill and Intangible Assets Disclosure

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

USD $ in millions

Microsoft Excel LibreOffice Calc
Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013
Technology hidden hidden hidden hidden hidden hidden
Customer relationships hidden hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden hidden
Purchased intangible assets with finite lives, gross hidden hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden hidden
Purchased intangible assets with finite lives, net hidden hidden hidden hidden hidden hidden
In-process research and development, with indefinite lives hidden hidden hidden hidden hidden hidden
Purchased intangible assets hidden hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden hidden
Goodwill and purchased intangible assets hidden hidden hidden hidden hidden hidden

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 2016 to 2017 and from 2017 to 2018.
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 2016 to 2017 and from 2017 to 2018.
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 2016 to 2017 and from 2017 to 2018.

Analyst Adjustments: Removal of Goodwill

Cisco Systems Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Total Cisco Shareholders' Equity
Total Cisco shareholders' equity (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total Cisco shareholders' equity (adjusted) hidden hidden hidden hidden hidden hidden

Adjusted Ratios: Removal of Goodwill (Summary)

Cisco Systems Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted ROE hidden% hidden% hidden% hidden% hidden% hidden%
Return on Assets (ROA)
Reported ROA hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted ROA hidden% hidden% hidden% hidden% hidden% hidden%
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 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
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 2016 to 2017 and from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Cisco Systems Inc.'s adjusted ROE deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Cisco Systems Inc.'s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013
As Reported
Revenue (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Revenue (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

2018 Calculations

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

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

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 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013
As Reported
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total Cisco shareholders' equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total Cisco shareholders' equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

2018 Calculations

1 Financial leverage = Total assets ÷ Total Cisco shareholders' equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Cisco shareholders' equity
= hidden ÷ hidden = hidden

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 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013
As Reported
Net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total Cisco shareholders' equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
ROE1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total Cisco shareholders' equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted ROE2 hidden% hidden% hidden% hidden% hidden% hidden%

2018 Calculations

1 ROE = 100 × Net income ÷ Total Cisco shareholders' equity
= 100 × hidden ÷ hidden = hidden%

2 Adjusted ROE = 100 × Net income ÷ Adjusted total Cisco shareholders' equity
= 100 × hidden ÷ hidden = hidden%

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 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013
As Reported
Net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
ROA1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted ROA2 hidden% hidden% hidden% hidden% hidden% hidden%

2018 Calculations

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

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

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 2016 to 2017 and from 2017 to 2018.