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Microsoft Excel LibreOffice Calc


Analysis of Investments

Difficulty: Advanced


Investment Accounting Policy

Cash and Cash Equivalents

Cisco considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with various financial institutions.

Available-for-Sale Investments

Cisco classifies its investments in both fixed income securities and publicly traded equity securities as available-for-sale investments. Fixed income securities primarily consist of U.S. government securities, U.S. government agency securities, non-U.S. government and agency securities, corporate debt securities, and U.S. agency mortgage-backed securities. These available-for-sale investments are primarily held in the custody of a major financial institution. A specific identification method is used to determine the cost basis of fixed income and public equity securities sold. These investments are recorded in the Consolidated Balance Sheets at fair value. Unrealized gains and losses on these investments, to the extent the investments are unhedged, are included as a separate component of accumulated other comprehensive income (AOCI), net of tax. Cisco classifies its investments as current based on the nature of the investments and their availability for use in current operations.

Other-than-Temporary Impairments on Investments

When the fair value of a debt security is less than its amortized cost, it is deemed impaired, and Cisco will assess whether the impairment is other than temporary. An impairment is considered other than temporary if (i) Cisco has the intent to sell the security, (ii) it is more likely than not that Cisco will be required to sell the security before recovery of the entire amortized cost basis, or (iii) Cisco does not expect to recover the entire amortized cost basis of the security. If impairment is considered other than temporary based on condition (i) or (ii) described earlier, the entire difference between the amortized cost and the fair value of the debt security is recognized in earnings. If an impairment is considered other than temporary based on condition (iii), the amount representing credit losses (defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security) will be recognized in earnings, and the amount relating to all other factors will be recognized in other comprehensive income (OCI).

Cisco recognizes an impairment charge on publicly traded equity securities when a decline in the fair value of a security below the respective cost basis is judged to be other than temporary. Cisco considers various factors in determining whether a decline in the fair value of these investments is other than temporary, including the length of time and extent to which the fair value of the security has been less than Cisco's cost basis, the financial condition and near-term prospects of the issuer, and Cisco's intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Investments in privately held companies are included in other assets in the Consolidated Balance Sheets and are accounted for using either the cost or equity method. Cisco monitors these investments for impairments and makes reductions in carrying values if Cisco determines that an impairment charge is required based primarily on the financial condition and near-term prospects of these companies.

Source: Cisco Systems Inc., Annual Report


Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities

Cisco Systems Inc., adjustment to Net Income

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
Net income (as reported) hidden hidden hidden hidden hidden hidden
Add: Net change in unrealized gains (losses) on available-for-sale investments, net of tax hidden hidden hidden hidden hidden hidden
Net income (adjusted) hidden hidden hidden hidden hidden hidden

Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)

Cisco Systems Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014 Jul 27, 2013 Jul 28, 2012
Net Profit Margin
Reported net profit margin hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted net profit margin 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 net profit margin An indicator of profitability, calculated as adjusted net income divided by 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 ROE A profitability ratio calculated as adjusted net income divided by 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 total assets. Cisco Systems Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
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) hidden hidden hidden hidden hidden hidden
Revenue (USD $ in millions) hidden hidden hidden hidden hidden hidden
Net profit margin1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Revenue (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted net profit margin2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

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

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

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by 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 Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
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) 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: Mark to Market Available-for-sale Securities
Adjusted net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total Cisco shareholders' equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted ROE2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

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

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

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

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
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) 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: Mark to Market Available-for-sale Securities
Adjusted net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted ROA2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

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

2 Adjusted ROA = 100 × Adjusted net income ÷ Total assets
= 100 × hidden ÷ hidden = hidden%

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