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Analysis of Investments
Advanced level
Accounting Policy on Investments
Available-for-Sale Debt Investments
Cisco classifies the investments in fixed income securities as available-for-sale debt investments. Cisco’s available-for-sale debt investments primarily consist of U.S. government, U.S. government agency, non-U.S. government and agency, corporate debt, and U.S. agency mortgage-backed securities. These available-for-sale debt investments are primarily held in the custody of a major financial institution. A specific identification method is used to determine the cost basis of available-for-sale debt investments 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 the investments as current based on the nature of the investments and their availability for use in current operations.
Equity Instruments
Cisco’s equity investments are accounted for as follows:
- Marketable equity securities have readily determinable fair value (RDFV) that are measured and recorded at fair value through income.
- Non-marketable equity securities do not have RDFV and are measured using a measurement alternative recorded at cost less any impairment, plus or minus changes resulting from qualifying observable price changes. For certain of these securities, Cisco has elected to apply the net asset value (NAV) practical expedient. The NAV is the estimated fair value of these investments.
- Equity method investments are securities Cisco does not control, but is able to exert significant influence over the investee. These investments are measured at cost less any impairment, plus or minus Cisco’s share of equity method investee income or loss.
Source: 10-K (filing date: 2019-09-05).
Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities
Cisco Systems Inc., adjustment to net income
US$ in millions
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).
Adjusted Profitability Ratios: Mark to Market Available-for-sale Securities (Summary)
Cisco Systems Inc., adjusted profitability ratios
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).
| Profitability 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 ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by 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 adjusted net income divided by 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., Profitability Ratios: Reported vs. Adjusted
Adjusted Net Profit Margin
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 Net profit margin = 100 × Net income ÷ Revenue
= 100 × ÷ =
2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenue
= 100 × ÷ =
| Profitability 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 ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level. |
Adjusted Return on Equity (ROE)
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 × Adjusted net income ÷ Total Cisco shareholders’ equity
= 100 × ÷ =
| Profitability ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by 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)
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 × Adjusted net income ÷ Total assets
= 100 × ÷ =
| Profitability ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by total assets. | Cisco Systems Inc.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level. |