Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Cisco Systems Inc. (NASDAQ:CSCO)

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Present Value of Free Cash Flow to Equity (FCFE)

Intermediate level

Intrinsic Stock Value (Valuation Summary)

Cisco Systems Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel LibreOffice Calc
Year Value FCFEt or Terminal value (TVt) Calculation Present value at
01 FCFE0
1 FCFE1 = × (1 + )
2 FCFE2 = × (1 + )
3 FCFE3 = × (1 + )
4 FCFE4 = × (1 + )
5 FCFE5 = × (1 + )
5 Terminal value (TV5) = × (1 + ) ÷ ()
Intrinsic value of Cisco Systems Inc.’s common stock
 
Intrinsic value of Cisco Systems Inc.’s common stock (per share)
Current share price

Based on: 10-K (filing date: 2020-09-03).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF
Expected rate of return on market portfolio2 E(RM)
Systematic risk of Cisco Systems Inc.’s common stock βCSCO
 
Required rate of return on Cisco Systems Inc.’s common stock3 rCSCO

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rCSCO = RF + βCSCO [E(RM) – RF]
= + []
=


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Cisco Systems Inc., PRAT model

Microsoft Excel LibreOffice Calc
Average Jul 25, 2020 Jul 27, 2019 Jul 28, 2018 Jul 29, 2017 Jul 30, 2016 Jul 25, 2015
Selected Financial Data (US$ in millions)
Cash dividends declared
Net income
Revenue
Total assets
Total Cisco shareholders’ equity
Financial Ratios
Retention rate1
Profit margin2
Asset turnover3
Financial leverage4
Averages
Retention rate
Profit margin
Asset turnover
Financial leverage
 
FCFE growth rate (g)5

Based on: 10-K (filing date: 2020-09-03), 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).

2020 Calculations

1 Retention rate = (Net income – Cash dividends declared) ÷ Net income
= () ÷ =

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × ÷ =

3 Asset turnover = Revenue ÷ Total assets
= ÷ =

4 Financial leverage = Total assets ÷ Total Cisco shareholders’ equity
= ÷ =

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= × × × =


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × ( × ) ÷ ( + ) =

where:
Equity market value0 = current market value of Cisco Systems Inc.’s common stock (US$ in millions)
FCFE0 = the last year Cisco Systems Inc.’s free cash flow to equity (US$ in millions)
r = required rate of return on Cisco Systems Inc.’s common stock


FCFE growth rate (g) forecast

Cisco Systems Inc., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1
2 g2
3 g3
4 g4
5 and thereafter g5

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= + () × (2 – 1) ÷ (5 – 1) =

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= + () × (3 – 1) ÷ (5 – 1) =

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= + () × (4 – 1) ÷ (5 – 1) =