Cisco Systems Inc. (NASDAQ:CSCO)

Net Operating Profit After Taxes (NOPAT)

The NOPAT experienced fluctuations over the observed periods. It decreased from 12,905 million USD in 2020 to 11,686 million USD in 2021, followed by a recovery to 12,468 million USD in 2022 and a continued increase to 12,636 million USD in 2023. However, there was a subsequent decline to 12,178 million USD in 2024 and a more pronounced drop to 9,841 million USD in 2025. This indicates variability in the company's operating profitability with an overall downward trend starting from 2023.

Cost of Capital

The cost of capital showed a slight upward trend from 12.26% in 2020 to a peak of 12.91% in 2023, after which it decreased to 11.98% in 2024 before rising again slightly to 12.35% in 2025. This fluctuation suggests changes in the company's risk profile or market conditions impacting its capital costs.

Invested Capital

Invested capital generally increased during the period. From 53,498 million USD in 2020, it steadily rose to 58,979 million USD by 2023, but there was a significant jump to 91,785 million USD in 2024, which remained roughly stable at 91,789 million USD in 2025. This sharp increase in 2024 reflects a substantial investment or acquisition, indicating an expansion in the capital base.

Economic Profit

Economic profit declined markedly over time. Starting at 6,348 million USD in 2020, it dropped to 4,393 million USD in 2021 and showed a modest recovery to just over 5,000 million USD during 2022 and 2023. However, there was a steep decrease to 1,179 million USD in 2024, turning negative to -1,492 million USD in 2025. The negative economic profit in the latest period signifies that the company failed to generate returns above its cost of capital, potentially due to the increased invested capital and declining NOPAT.

Net Income

The net income experienced a slight decline from 11,214 million USD in 2020 to 10,591 million USD in 2021, followed by an increase to a peak of 12,613 million USD in 2023. However, after this peak, net income decreased significantly in the subsequent years, reaching 10,320 million USD in 2024 and further down to 10,180 million USD in 2025. Overall, the trend demonstrates volatility with a general downward movement in the last two years.

Net Operating Profit After Taxes (NOPAT)

The NOPAT showed a declining trend from 12,905 million USD in 2020 to 11,686 million USD in 2021, then rose to 12,468 million USD in 2022 and stabilized somewhat in 2023 at 12,636 million USD. However, similar to net income, NOPAT decreased notably in 2024 and more sharply in 2025, falling to 12,178 million USD and 9,841 million USD respectively. This indicates decreasing operational profitability over the last two years examined.

Summary

Both net income and NOPAT exhibited fluctuations over the six-year period, with initial declines, mid-period recoveries, and then a marked decline in the most recent years. The declining net income and operating profit in 2024 and 2025 suggest challenges affecting profitability and operational efficiency. Such trends may warrant further investigation into factors impacting earnings and operational costs during these years.

Provision for Income Taxes

The provision for income taxes exhibits a downward trend over the analyzed period. Starting at $2,756 million in July 2020, the provision declines slightly to $2,671 million in July 2021 and remains relatively stable through July 2023, fluctuating marginally around the mid-2600s. A notable decrease occurs in July 2024 to $1,914 million, followed by a further significant reduction to $920 million in July 2025. This consistent decrease in income tax provision suggests either improved tax efficiency, changes in taxable income, or tax planning strategies reducing tax liabilities.

Cash Operating Taxes

Cash operating taxes demonstrate more variability across the same time frame. Beginning at $2,718 million in July 2020, the cash taxes increase steadily to peak at $4,688 million in July 2023, marking the highest point within the observed period. After this peak, cash operating taxes sharply decline to $2,835 million in July 2024 and further decrease to $2,211 million in July 2025. The increase through mid-2023, followed by a rapid fall, may reflect timing differences in tax payments, changes in cash tax obligations, or alterations in tax regulations impacting cash outflows.

Comparative Insights

While both provision for income taxes and cash operating taxes show declines in the latter years, the disparity in their patterns is notable. The provision decreases steadily, whereas cash taxes rise considerably before dropping. This divergence could indicate differences in accrued tax liabilities versus actual cash payments, highlighting potential timing differences, deferred tax impacts, or effective tax rate adjustments. The divergence may warrant further examination of tax expense recognition versus cash tax payments and their drivers.

The financial data reveals several notable trends over the examined periods.

Total reported debt & leases

This item shows a generally decreasing trend from July 2020 through July 2023, declining from 15,585 million US dollars to 9,411 million US dollars. However, there is a significant increase observed in the subsequent two years, with the value rising sharply to 32,232 million US dollars in July 2024, before slightly decreasing to 29,643 million US dollars in July 2025. This suggests a considerable increase in debt and lease obligations in the more recent years after a prior period of debt reduction.

Equity

Equity exhibits a consistent upward trend throughout the entire timeframe. Starting at 37,920 million US dollars in July 2020, it gradually increases with minor fluctuations to reach 46,843 million US dollars by July 2025. This progression indicates steady growth in shareholders' equity, reflecting either retained earnings accumulation or capital infusions over the years.

Invested capital

Invested capital remains relatively stable from July 2020 through July 2023, fluctuating moderately between approximately 53,498 million to 58,979 million US dollars. A marked increase occurs in July 2024, where invested capital jumps sharply to approximately 91,785 million US dollars, maintaining this level into July 2025. This significant upsurge aligns with the increase in total debt and leases, implying increased investment possibly funded by the higher debt levels.

Overall, the data reflects a strategic shift starting in 2024 characterized by elevated leverage and invested capital, while equity continues a steady growth path throughout the entire period. The increased debt suggests augmented financing activity, potentially for expansion or acquisition purposes, supported by the rise in invested capital. The stability and growth in equity throughout the years provide a positive signal regarding the company’s financial foundation.

Economic Profit

The economic profit exhibited a declining trend from 6,348 million US dollars in 2020 to a negative value of -1,492 million US dollars by 2025. Initially, there were fluctuations with a decrease to 4,393 million in 2021, followed by gradual recovery until 2023, but a significant decline occurred thereafter, resulting in economic losses in the latter two periods.

Invested Capital

The invested capital consistently increased over the observed period, starting at 53,498 million US dollars in 2020 and nearly doubling to 91,789 million US dollars by 2025. This steady growth indicates ongoing capital deployment or asset accumulation, particularly marked by an acceleration between 2023 and 2024.

Economic Spread Ratio

The economic spread ratio, reflecting the profitability relative to the cost of capital, showed a declining pattern similar to economic profit. It fell from 11.87% in 2020 to negative territory at -1.63% in 2025. Despite some recovery between 2021 and 2023, the ratio drastically diminished post-2023, denoting that the returns on invested capital fell below the cost of capital in the final years.

Overall Insights

The analysis reveals diminishing economic value creation over the timeframe despite increased capital investment. The transition of economic profit and spread ratio into negative figures signals potential challenges in generating sufficient returns on growing invested capital. This trend warrants further scrutiny into operational efficiency, capital allocation, and market conditions impacting profitability.

The financial data reveals notable trends in the company's economic profit, adjusted revenue, and economic profit margin over a six-year period.

Adjusted Revenue

The adjusted revenue shows a generally increasing trend from approximately 51.3 billion to nearly 59.3 billion US dollars between July 2020 and July 2023, indicating consistent growth in revenue during this period. However, there is a slight decline observed in the subsequent years, with revenue decreasing to around 56.7 billion in July 2024 and remaining relatively flat at approximately 56.96 billion in July 2025. This suggests a plateau or mild contraction in revenue after the initial growth phase.

Economic Profit

Economic profit experiences a downward trajectory overall. Starting at 6.35 billion in July 2020, it declines sharply to 4.39 billion in July 2021. While there is a modest recovery reaching approximately 5 billion in both July 2022 and July 2023, economic profit declines significantly thereafter, falling to roughly 1.18 billion in July 2024 and turning negative, at -1.49 billion, in July 2025. This negative value signals that the company experienced a loss in economic profit in the most recent year.

Economic Profit Margin

The economic profit margin parallels the trend observed in economic profit. It starts at a relatively strong 12.38% in July 2020 but declines sharply to 8.52% by July 2021. The margin fluctuates slightly in the next two years, maintaining levels just below 10%, before declining substantially to a low of 2.08% in July 2024. By July 2025, the margin turns negative at -2.62%, reflecting diminished profitability relative to revenue.

Overall, the data suggests that while revenue showed solid growth initially and then stabilized, profitability pressures increased over time. The decline in economic profit and margin, culminating in negative economic profit and margin in the latest period, point to challenges in maintaining economic value generation despite relatively stable revenue levels.