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Cisco Systems Inc. (NASDAQ:CSCO)

Analysis of Property, Plant and Equipment

Advanced level

Accounting Policy on Property, Plant and Equipment

Property and equipment are stated at cost, less accumulated depreciation or amortization, whenever applicable. Depreciation and amortization expenses for property and equipment were approximately $1.0 billion, $1.1 billion, and $1.1 billion for fiscal 2019, 2018, and 2017, respectively. Depreciation and amortization are computed using the straight-line method, generally over the following periods:

Asset Category Period
Buildings 25 years
Building improvements 10 years
Leasehold improvements Shorter of remaining lease term or up to 10 years
Computer equipment and related software 30 to 36 months
Production, engineering, and other equipment Up to 5 years
Operating lease assets Based on lease term
Furniture and fixtures 5 years

Source: 10-K (filing date: 2019-09-05).

Property, Plant and Equipment Disclosure

Cisco Systems Inc., balance sheet: property, plant and equipment

US$ in millions

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Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
Land, buildings, and building and leasehold improvements 4,545  4,710  4,926  4,778  4,495  4,468 
Computer equipment and related software 922  1,085  1,258  1,288  1,310  1,425 
Production, engineering, and other equipment 5,711  5,734  5,707  5,658  5,753  5,756 
Operating lease assets 485  356  356  296  372  362 
Furniture and fixtures 376  358  572  543  497  509 
Gross property and equipment 12,039  12,243  12,819  12,563  12,427  12,520 
Accumulated depreciation and amortization (9,250) (9,237) (9,497) (9,057) (9,095) (9,268)
Property and equipment, net 2,789  3,006  3,322  3,506  3,332  3,252 

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
Gross property and equipment Amount before accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. Cisco Systems Inc.’s gross property and equipment decreased from 2017 to 2018 and from 2018 to 2019.
Property and equipment, net Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. Cisco Systems Inc.’s property and equipment, net decreased from 2017 to 2018 and from 2018 to 2019.

Asset Age Ratios (Summary)

Cisco Systems Inc., asset age ratios

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Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
Average age ratio 76.83% 75.45% 74.09% 72.09% 73.19% 74.03%
Estimated total useful life (years) 12 11 12 13 11 10
Estimated age, time elapsed since purchase (years) 9 8 9 9 8 8
Estimated remaining life (years) 3 3 3 4 3 3

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).

Asset age ratio Description The company
Average age ratio As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company’s fixed asset base is old or new. Newer assets are likely to be more efficient. Cisco Systems Inc.’s average age ratio of depreciable property, plant and equipment deteriorated from 2017 to 2018 and from 2018 to 2019.
Estimated total useful life Over longer time periods, this ratio is a useful measure of company’s depreciation policy and can be used for comparisons with competitors. Cisco Systems Inc.’s estimated total useful life of depreciable property, plant and equipment decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.
Estimated time elapsed since purchase The approximate age in years of a company’s fixed assets. Useful for comparison purposes. Cisco Systems Inc.’s estimated time elapsed since purchase of depreciable property, plant and equipment improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Estimated remaining life Cisco Systems Inc.’s estimated remaining life of depreciable property, plant and equipment decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

Average Age

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Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
Selected Financial Data (US$ in millions)
Accumulated depreciation and amortization 9,250  9,237  9,497  9,057  9,095  9,268 
Gross property and equipment 12,039  12,243  12,819  12,563  12,427  12,520 
Asset Age Ratio
Average age1 76.83% 75.45% 74.09% 72.09% 73.19% 74.03%

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 Average age = 100 × Accumulated depreciation and amortization ÷ Gross property and equipment
= 100 × 9,250 ÷ 12,039 = 76.83%

Asset age ratio Description The company
Average age As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company’s fixed asset base is old or new. Newer assets are likely to be more efficient. Cisco Systems Inc.’s average age ratio of depreciable property, plant and equipment deteriorated from 2017 to 2018 and from 2018 to 2019.

Estimated Total Useful Life

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Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
Selected Financial Data (US$ in millions)
Gross property and equipment 12,039  12,243  12,819  12,563  12,427  12,520 
Depreciation and amortization expenses for property and equipment 1,000  1,100  1,100  1,000  1,100  1,200 
Asset Age Ratio (Years)
Estimated total useful life1 12 11 12 13 11 10

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 Estimated total useful life = Gross property and equipment ÷ Depreciation and amortization expenses for property and equipment
= 12,039 ÷ 1,000 = 12

Asset age ratio Description The company
Estimated total useful life Over longer time periods, this ratio is a useful measure of company’s depreciation policy and can be used for comparisons with competitors. Cisco Systems Inc.’s estimated total useful life of depreciable property, plant and equipment decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Estimated Age, Time Elapsed since Purchase

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Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
Selected Financial Data (US$ in millions)
Accumulated depreciation and amortization 9,250  9,237  9,497  9,057  9,095  9,268 
Depreciation and amortization expenses for property and equipment 1,000  1,100  1,100  1,000  1,100  1,200 
Asset Age Ratio (Years)
Time elapsed since purchase1 9 8 9 9 8 8

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 Time elapsed since purchase = Accumulated depreciation and amortization ÷ Depreciation and amortization expenses for property and equipment
= 9,250 ÷ 1,000 = 9

Asset age ratio Description The company
Estimated time elapsed since purchase The approximate age in years of a company’s fixed assets. Useful for comparison purposes. Cisco Systems Inc.’s estimated time elapsed since purchase of depreciable property, plant and equipment improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Estimated Remaining Life

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Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015 Jul 26, 2014
Selected Financial Data (US$ in millions)
Property and equipment, net 2,789  3,006  3,322  3,506  3,332  3,252 
Depreciation and amortization expenses for property and equipment 1,000  1,100  1,100  1,000  1,100  1,200 
Asset Age Ratio (Years)
Estimated remaining life1 3 3 3 4 3 3

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 Estimated remaining life = Property and equipment, net ÷ Depreciation and amortization expenses for property and equipment
= 2,789 ÷ 1,000 = 3

Asset age ratio Description The company
Estimated remaining life Cisco Systems Inc.’s estimated remaining life of depreciable property, plant and equipment decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.