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Income Tax Accounting Policy

Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.

Cisco accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Cisco classifies the liability for unrecognized tax benefits as current to the extent that Cisco anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.

Source: Cisco Systems Inc., Annual Report

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Income Tax Expense (Benefit)

Cisco Systems Inc., income tax expense (benefit), continuing operations

USD $ in millions

 
12 months ended Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
Federal
State
Foreign
Current
Federal
State
Foreign
Deferred
Provision for income taxes

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

Item Description The company
Current The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. Cisco Systems Inc.'s current increased from 2015 to 2016 and from 2016 to 2017.
Deferred The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. Cisco Systems Inc.'s deferred declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Provision for income taxes The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. Cisco Systems Inc.'s provision for income taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Effective Income Tax Rate (EITR)

Cisco Systems Inc., effective income tax rate (EITR) reconciliation

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
Federal statutory tax rate % % % % % %
State taxes, net of federal tax benefit % % % % % %
Foreign income at other than U.S. rates % % % % % %
Tax credits % % % % % %
Domestic manufacturing deduction % % % % % %
Nondeductible compensation % % % % % %
Tax audit settlement % % % % % %
Other, net % % % % % %
Effective income tax rate % % % % % %

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

Item Description The company
Effective income tax rate A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. Cisco Systems Inc.'s effective income tax rate declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Components of Deferred Tax Assets and Liabilities

Cisco Systems Inc., components of deferred tax assets and liabilities

USD $ in millions

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
Allowance for doubtful accounts and returns
Sales-type and direct-financing leases
Inventory write-downs and capitalization
Investment provisions
IPR&D, goodwill, and purchased intangible assets
Deferred revenue
Credits and net operating loss carryforwards
Share-based compensation expense
Accrued compensation
Other
Gross deferred tax assets
Valuation allowance
Deferred tax assets
Purchased intangible assets
Depreciation
Unrealized gains on investments
Other
Deferred tax liabilities
Net deferred tax assets (liabilities)

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

Item Description The company
Gross deferred tax assets The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. Cisco Systems Inc.'s gross deferred tax assets increased from 2015 to 2016 and from 2016 to 2017.
Deferred tax assets The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Cisco Systems Inc.'s deferred tax assets increased from 2015 to 2016 but then slightly declined from 2016 to 2017.
Net deferred tax assets (liabilities) For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. Cisco Systems Inc.'s net deferred tax assets (liabilities) declined from 2015 to 2016 and from 2016 to 2017.

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Deferred Tax Assets and Liabilities, Classification

Cisco Systems Inc., deferred tax assets and liabilities, classification

USD $ in millions

 

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

Item Description The company
Deferred tax assets, current The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset.
Deferred tax liabilities, current Represents the current portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A current taxable temporary difference is a difference between the tax basis and the carrying amount of a current asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.
Deferred tax assets, noncurrent The noncurrent portion as of the balance sheet date of the aggregate carrying amount of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after the valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. Cisco Systems Inc.'s deferred tax assets, noncurrent increased from 2015 to 2016 but then slightly declined from 2016 to 2017.
Deferred tax liabilities, noncurrent Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. Cisco Systems Inc.'s deferred tax liabilities, noncurrent increased from 2015 to 2016 but then slightly declined from 2016 to 2017.

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Analyst Adjustments: Removal of Deferred Taxes

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 Current Assets
Current assets (as reported)
Less: Current deferred tax assets, net
Current assets (adjusted)
Adjustment to Total Assets
Total assets (as reported)
Less: Current deferred tax assets, net
Less: Noncurrent deferred tax assets, net
Total assets (adjusted)
Adjustment to Current Liabilities
Current liabilities (as reported)
Less: Current deferred tax liabilities, net
Current liabilities (adjusted)
Adjustment to Total Liabilities
Total liabilities (as reported)
Less: Current deferred tax liabilities, net
Less: Noncurrent deferred tax liabilities, net
Total liabilities (adjusted)
Adjustment to Total Cisco Shareholders' Equity
Total Cisco shareholders' equity (as reported)
Less: Net deferred tax assets (liabilities)
Total Cisco shareholders' equity (adjusted)
Adjustment to Net Income
Net income (as reported)
Add: Deferred income tax expense (benefit)
Net income (adjusted)

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Adjusted Ratios: Removal of Deferred Taxes (Summary)

Cisco Systems Inc., adjusted ratios

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
Current Ratio
Reported current ratio
Adjusted current ratio
Net Profit Margin
Reported net profit margin % % % % % %
Adjusted net profit margin % % % % % %
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 % % % % % %
Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Cisco Systems Inc.'s adjusted current ratio improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Cisco Systems Inc.'s adjusted net profit margin improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.
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 adjusted net income divided by adjusted shareholders' equity. Cisco Systems Inc.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted 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 Current Ratio

 
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
As Reported
Current assets (USD $ in millions)
Current liabilities (USD $ in millions)
Current ratio1
Adjusted for Deferred Taxes
Adjusted current assets (USD $ in millions)
Adjusted current liabilities (USD $ in millions)
Adjusted current ratio2

2017 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= ÷ =

2 Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= ÷ =

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Cisco Systems Inc.'s adjusted current ratio improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Net Profit Margin

 
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)
Revenue (USD $ in millions)
Net profit margin1 % % % % % %
Adjusted for Deferred Taxes
Adjusted net income (USD $ in millions)
Adjusted net profit margin2 % % % % % %

2017 Calculations

1 Net profit margin = 100 × Net income ÷ Revenue
= 100 × ÷ = %

2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenue
= 100 × ÷ = %

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Cisco Systems Inc.'s adjusted net profit margin improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.

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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)
Total assets (USD $ in millions)
Total asset turnover1
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions)
Adjusted total asset turnover2

2017 Calculations

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

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

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)
Total Cisco shareholders' equity (USD $ in millions)
Financial leverage1
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions)
Adjusted total Cisco shareholders' equity (USD $ in millions)
Adjusted financial leverage2

2017 Calculations

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

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

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)
Total Cisco shareholders' equity (USD $ in millions)
ROE1 % % % % % %
Adjusted for Deferred Taxes
Adjusted net income (USD $ in millions)
Adjusted total Cisco shareholders' equity (USD $ in millions)
Adjusted ROE2 % % % % % %

2017 Calculations

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

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

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

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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)
Total assets (USD $ in millions)
ROA1 % % % % % %
Adjusted for Deferred Taxes
Adjusted net income (USD $ in millions)
Adjusted total assets (USD $ in millions)
Adjusted ROA2 % % % % % %

2017 Calculations

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

2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × ÷ = %

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted 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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