Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
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Cisco Systems Inc. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Income Statement
- Analysis of Profitability Ratios
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Price to Earnings (P/E) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Sales (P/S) since 2005
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Economic Profit
Cisco Systems Inc., economic profit calculation
US$ in millions
| 12 months ended: | Jul 27, 2024 | Jul 29, 2023 | Jul 30, 2022 | Jul 31, 2021 | Jul 25, 2020 | Jul 27, 2019 | |
|---|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | |||||||
| Cost of capital2 | |||||||
| Invested capital3 | |||||||
| Economic profit4 | |||||||
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT displayed an overall increasing trend from 2019 to 2023, rising from $9,686 million to a peak of $12,636 million in 2023. However, there was a slight decline in 2024 to $12,178 million, indicating a modest decrease in operating profitability after taxes in the most recent year compared to the previous year.
- Cost of Capital
- The cost of capital percentage showed a gradual upward trajectory from 12.39% in 2019, reaching a high point of 13.30% in 2023. In 2024, the cost of capital decreased to 12.33%, which may suggest a reduction in the risk perceived by investors or changes in the market environment affecting capital costs.
- Invested Capital
- The invested capital remained relatively stable from 2019 through 2023, fluctuating slightly around the mid-$50 billion range. However, there was a significant increase in 2024 to $91,785 million, which represents a substantial rise in the resources allocated or invested in the business during that year.
- Economic Profit
- Economic profit experienced considerable volatility over the period. It peaked in 2020 at $6,155 million, then declined over the following years to $864 million in 2024. This decline suggests a weakening in the value created beyond the cost of capital, possibly impacted by the sharp increase in invested capital and the recent NOPAT reductions.
Net Operating Profit after Taxes (NOPAT)
Cisco Systems Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit loss.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in product warranty liability.
5 Addition of increase (decrease) in restructuring liability.
6 Addition of increase (decrease) in equity equivalents to net income.
7 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
8 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
9 Addition of after taxes interest expense to net income.
10 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
11 Elimination of after taxes investment income.
- Net Income
- Net income demonstrates a fluctuating pattern over the six-year period. It starts at 11,621 million USD in 2019, experiencing a slight decrease to 11,214 million USD in 2020. The downward trend continues in 2021, reaching a low of 10,591 million USD. However, there is a recovery in 2022 and 2023, with net income increasing to 11,812 million USD and 12,613 million USD respectively. In 2024, net income declines significantly to 10,320 million USD.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT shows a trend distinct from net income, initially increasing from 9,686 million USD in 2019 to a peak of 12,905 million USD in 2020. It then declines to 11,686 million USD in 2021 but rebounds to 12,468 million USD in 2022. Following this, NOPAT remains relatively stable with a slight increase to 12,636 million USD in 2023 before decreasing to 12,178 million USD in 2024. Overall, NOPAT exhibits more resilience compared to net income, maintaining higher levels throughout most periods.
- Comparative Insights
- While net income declines sharply in the final year, NOPAT shows only a moderate reduction, indicating possible differences in operating performance versus overall profitability. The divergence suggests potential factors such as variations in non-operating items, tax impacts, or extraordinary items influencing net income more than operational profitability. The stability and higher levels of NOPAT relative to net income during several years point to consistent operating efficiency despite fluctuations in reported net income.
Cash Operating Taxes
Cisco Systems Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
The financial data reveals trends in the company's provision for income taxes and cash operating taxes over a six-year period.
- Provision for income taxes
- This metric shows a declining trend from 2019 to 2024. Starting at 2950 million USD in 2019, it decreased steadily each year with slight fluctuations, reaching 1914 million USD in 2024. The most notable drop appears between 2023 and 2024, signifying a significant reduction in the provision for income taxes.
- Cash operating taxes
- The cash operating taxes exhibit more variability over the same period. The value began at 3216 million USD in 2019, decreased to 2718 million USD in 2020, then rose again to 3009 million USD in 2021. It stabilized somewhat in 2022 at 2953 million USD, before sharply increasing to a peak of 4688 million USD in 2023. In 2024, it dropped back down to 2835 million USD. This fluctuation suggests variability in the company's cash tax payments, with a notable spike in 2023 followed by a substantial decrease the following year.
In summary, the provision for income taxes has experienced a consistent downward trajectory, while cash operating taxes have been more volatile, peaking significantly in 2023 before falling in 2024. These trends could indicate changes in the company's tax strategy, tax benefits, or earnings before tax over the years analyzed.
Invested Capital
Cisco Systems Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of deferred revenue.
5 Addition of product warranty liability.
6 Addition of restructuring liability.
7 Addition of equity equivalents to equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of marketable securities.
- Total reported debt & leases
- The total reported debt and leases exhibit a notable volatility over the analyzed period. Initially, there is a significant reduction from 25,761 million USD in July 2019 to 9,411 million USD by July 2023, reflecting a consistent deleveraging trend from year to year. However, in the latest period ending July 2024, the debt level sharply increases to 32,232 million USD, surpassing the initial figure of 2019 by a large margin. This marked spike suggests a substantial rise in financial liabilities or lease obligations in the most recent year.
- Equity
- Equity shows a steady upward trajectory throughout the years. Starting at 33,571 million USD in July 2019, it gradually increases with minor fluctuations, reaching 44,457 million USD in July 2024. This consistent growth indicates strengthening shareholders’ value and an accumulation of retained earnings or capital injections, reflecting an overall positive equity trend despite fluctuations in debt levels.
- Invested capital
- Invested capital experiences moderate growth from 53,469 million USD in July 2019 to around 58,979 million USD in July 2023, indicating stable investment activities or reinvestment of returns during this timeframe. In the final period ending July 2024, invested capital surges substantially to 91,785 million USD, mirroring the sharp increase in total reported debt and leases. This jump suggests a major expansion or acquisition, likely funded by increased leverage, resulting in a significantly larger asset base or capital investment.
Cost of Capital
Cisco Systems Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-07-27).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-07-29).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-07-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-07-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-07-25).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2019-07-27).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Cisco Systems Inc., economic spread ratio calculation, comparison to benchmarks
| Jul 27, 2024 | Jul 29, 2023 | Jul 30, 2022 | Jul 31, 2021 | Jul 25, 2020 | Jul 27, 2019 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | |||||||
| Invested capital2 | |||||||
| Performance Ratio | |||||||
| Economic spread ratio3 | |||||||
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Apple Inc. | |||||||
| Arista Networks Inc. | |||||||
| Dell Technologies Inc. | |||||||
| Super Micro Computer Inc. | |||||||
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit exhibited a notable increase from 3,061 million US dollars in 2019 to 6,155 million in 2020, representing more than a twofold rise. However, this profit decreased to 4,176 million in 2021 before showing modest growth in subsequent years, reaching 4,794 million in 2023. In 2024, there was a sharp decline to 864 million, indicating a significant drop in economic profitability in the most recent period.
- Invested Capital
- Invested capital remained relatively stable from 2019 through 2023, fluctuating slightly between approximately 53,000 and 59,000 million US dollars. In 2024, however, invested capital surged markedly to 91,785 million, which is a substantial increase compared to prior years. This surge suggests a major expansion or large-scale investment occurring in the latest year.
- Economic Spread Ratio
- The economic spread ratio mirrored the trend of economic profit, peaking at 11.5% in 2020, reflecting improved returns on invested capital. This ratio then declined to 7.27% in 2021 but experienced a slight recovery to around 8% in 2022 and 2023. In 2024, the spread ratio dropped drastically to 0.94%, signaling that the economic return on capital invested has diminished considerably.
- Overall Observations
- The data indicates a company that experienced strong economic profitability growth in 2020, followed by a gradual decline in profitability ratios through to 2023. The significant increase in invested capital in 2024 did not correspond with an increase in economic profit; rather, profitability substantially declined. This may suggest inefficiencies, increased cost of capital, or challenges in generating returns on recent investments during the latest period.
Economic Profit Margin
Cisco Systems Inc., economic profit margin calculation, comparison to benchmarks
| Jul 27, 2024 | Jul 29, 2023 | Jul 30, 2022 | Jul 31, 2021 | Jul 25, 2020 | Jul 27, 2019 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | |||||||
| Revenue | |||||||
| Add: Increase (decrease) in deferred revenue | |||||||
| Adjusted revenue | |||||||
| Performance Ratio | |||||||
| Economic profit margin2 | |||||||
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Apple Inc. | |||||||
| Arista Networks Inc. | |||||||
| Dell Technologies Inc. | |||||||
| Super Micro Computer Inc. | |||||||
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit displayed an overall fluctuating trend across the six-year period. Beginning at 3,061 million US dollars in 2019, it more than doubled to 6,155 million US dollars in 2020, indicating a significant improvement. However, this peak was followed by a decline to 4,176 million US dollars in 2021. The profit moderately recovered to 4,737 million in 2022 and stabilized around 4,794 million in 2023. In the most recent year, 2024, economic profit sharply decreased to 864 million US dollars, representing the lowest point since 2019.
- Adjusted Revenue
- Adjusted revenue demonstrated a generally increasing trend with some variability. Starting from 50,686 million US dollars in 2019, revenues gradually increased each year, reaching a peak of 59,284 million US dollars in 2023. However, a decline was observed in 2024, where revenue dropped to 56,728 million US dollars. Despite this decline, the revenue in 2024 remained higher than the values recorded from 2019 to 2022, indicating sustained growth over the longer term.
- Economic Profit Margin
- The economic profit margin showed marked fluctuations during the period. There was a pronounced rise from 6.04% in 2019 to 12% in 2020, followed by a decline to 8.1% in 2021. The margin demonstrated a slight increase to 9% in 2022, before decreasing again to 8.09% in 2023. The most significant drop occurred in 2024, where the margin fell sharply to 1.52%, the lowest level recorded in the period, suggesting diminished profitability relative to revenue.
- Summary
- Overall, the data reflects a peak in economic profit and profit margin in 2020, followed by a general downward trend through 2024. Adjusted revenue showed steady growth until 2023, after which a decline was noted in 2024. The sharp decrease in economic profit and its margin in 2024, despite relatively strong revenue figures, implies increased costs, reduced efficiency, or other unfavorable factors affecting profitability in the latest year. The patterns suggest that while growth in revenue was largely maintained over the years, economic profitability faced challenges towards the end of the period analyzed.