Independent University, Bangladesh

Assignment:
Ratio Analysis of Cisco Systems, Inc. (Year 2016-2020)

Introduction to Finance: FIN201

Section: 03

Submitted to:
Ms. Maria Muntahin

Submitted by:
Name ID
MD. Fahimuzzaman 1921991
Farzana Afrose 2010188
Somaya Zaman Limo 2022225
Abdullah Fahad 2022437
Intesar Maruf Apurbo 2022661

Date of Submission- 4th December 2021.

Letter of Transmittal

4th December, 2021

Ms. Maria Muntahin

Department of Finance,

Independent University, Bangladesh,

Dhaka, Bangladesh.

Subject: Submission of Report on Ratio Analysis of Cisco Systems Inc.

Dear Ma’am

With due respect, it is our privilege and honor to be students of a wonderful faculty like you and
for giving us the opportunity to present the ratio analysis report on Cisco Systems Inc. We did our
best while preparing the report to analyze and exhibit the ratios for the period 2016-2020. We have
given our best to provide a thorough analysis regarding the matter to portrait the situation before,
after and during the COVID-19 pandemic. We believe we have provided adequate information on
our observations and suggestions about Cisco Systems Inc. in the report.

We did our best to get the necessary information and we will be more than happy to answer any
queries and clarify it to your full understanding. Thank you for all your help and support in
preparing this report.

Sincerely,

Intesar Maruf Apurbo

On behalf of the group
FIN201, Section-03
Acknowledgement

With great pleasure and honor, we want to express our heartiest gratitude and obligation to our
course instructor Ms. Maria Muntahin. Her valuable guidance and advice have inspired us greatly
to work on this project. Her willingness to help and support us throughout the project has motivated
us to contribute to the project to our fullest.

We would like to thank the authority of Independent University, Bangladesh for providing us with
the tools and facilities to complete this project.

Lastly, we are grateful to those who have directly and indirectly contributed towards the
preparation of this project, especially our group members and our peers who helped us along.
 Ratio Analysis of Cisco Systems, Inc.

Table of Contents
Letter of Transmittal 2
Acknowledgement 3
Executive Summary 5
Company Overview 5
Cisco Systems Inc. Annual Financial Data (2016-2020) 6
Ratio Data of Cisco Systems, Inc. 6
Data Analysis 7
Profitability Ratios 7
Asset Utilization Ratios 11
Liquidity Ratios 18
Debt Utilization Ratio 21
The Effects of Covid-19 Pandemic in Fiscal year 2020 22
Conclusion 23
References 23
Executive Summary

Purpose of Report

Cisco Systems, Inc. is among the leading technology conglomerate companies in the world.
Cisco currently sells, manufactures, and develops telecommunication equipment, networking
hardware, software, and other high-tech products and services. It is an American multination
corporation operating in different parts of the world.

The purpose of this report is to:

• Identify and analyze the different financial ratios from 2016-2020.

• Determine the Impact of the COVID-19 pandemic on Cisco Systems.

Methodology

We conducted an analysis of Cisco's profitability, asset utilization, liquidity, and debt utilization
ratios. We analyzed the data available from the Annual Report, Income Statements, and Balance
Sheet of 2016-2020 and calculated the ratios for each year.

Findings and Conclusions

The analysis determined that from 2016-2020 profitability, asset utilization, and liquidity ratios
were on a path to ascension irrespective of the pandemic around the world. Due to the increase of
internet dependency during the pandemic, Cisco was able to maintain stability. Therefore, it can
be assumed that Cisco was able to grow during this economic depression caused by Covid-19.

Company Overview
Cisco Systems, Inc. is a communications and information technology company that designs,
manufactures, and sells Internet Protocol-based networking devices and services. The Americas,
EMEA, and APJC are the three geographical segments in which the company operates. Switches,
Routers, Wireless, Network Management Interfaces and Modules, Optical Networking, Access
Points, Outdoor and Industrial Access Points, Next-Generation Firewalls, Advanced Malware
Protection, VPN Security Clients, Email, and Web Security are among the company's product
categories. This company was founded by Sandra Lerner and Leonard Bosack on December 10,
1984, and it is based in San Jose, California.

Cisco Systems Inc. Annual Financial Data (2016-2020)

In the following segment, the income statement, balance sheet, and ratio data of Cisco Systems
are presented for the years 2016 to 2020.

Income Statement
(USD in Millions)
Breakdown 2020 2019 2018 2017 2016
Total Revenue 49,301 51,904 49,330 48,005 49,247
Net Income 11,214 11,621 110 9,609 10,739
Interest Expense 585 859 943 861 676
EBIT 13,620 14,219 12,309 11,973 12,660

Balance Sheet
(USD in Millions)
Breakdown 2020 2019 2018 2017 2016
Total Assets 94,853 97,793 108,784 129,818 121,652
Current Assets 43,573 47,755 61,837 83,703 78,719
Accounts Receivable 5,472 5,491 5,554 5,146 5,847
Total Non-Current Assets 51,280 50,038 46,947 46,115 42,933
Inventory 1,282 1,383 1,846 1,616 1,217
Current Liabilities 25,331 31,712 27,035 27,583 24,911
Total Liabilities 56,933 64,222 65,580 63,681 58,067
Total Equity 37,920 33,571 43,204 66,137 63,585

Ratio Data of Cisco Systems, Inc.

Profitability Ratios 2020 2019 2018 2017 2016

Profit Margin 22.75% 22.39% 0.22% 20.02% 21.81%
Return on Assets 11.82% 11.88% 0.10% 7.40% 8.83%
Return on Equity 29.57% 34.62% 0.25% 14.53% 16.89%
 Asset Utilization Ratios 2020 2019 2018 2017 2016
Receivable Turnover (Times) 9.01 9.45 8.88 9.33 8.42
Average Collection Period 40.51 38.61 41.09 39.13 43.34
(Days)
Inventory Turnover (Times) 38.46 37.53 26.72 29.71 40.47
Fixed Asset Turnover (Times) 0.96 1.04 1.05 1.04 1.15
Total Asset Turnover (Times) 0.52 0.53 0.45 0.37 0.40

Liquidity Ratios 2020 2019 2018 2017 2016

Current Ratio 1.72 1.51 2.29 3.03 3.16
Quick Ratio 1.67 1.46 2.22 2.98 3.11

Debt Utilization Ratios 2020 2019 2018 2017 2016

Debt to Total Assets 60.02% 65.67% 60.28% 49.05% 47.73%

Data Analysis

In the following segment, we will analyze the financial data of Cisco to understand the growth in
profitability, asset utilization, liquidity, and debt utilization.

Profitability Ratios

Profit Margin, Return on Assets & Return on Equity

35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2020 2019 2018 2017 2016

Profit Margin Return on Assets Return on Equity

Profit Margin:

Profit Margin is one of the most pivotal profitability ratios that indicate the ability of a company
to turn sales revenue into profit. Simply put, it indicates the profit that a company generates for
each dollar of revenue earned. We can identify profit margin by dividing Net Income by Total
Sales.

Profit Margin = Net Income / Total Sales (%)

Profit Margin
25.00%
22.75% 22.39% 21.81%
20.02%
20.00%

15.00%

10.00%

5.00%
0.22%

0.00%
2020 2019 2018 2017 2016

10739
2016: (
49247
) × 100 = 21.81%

9609
2017: (
48005
) × 100 = 20.02%

110
2018: (
49330
) × 100 = 0.22%

11621
2019: (
51904
) × 100 = 22.39%

11214
2020: (
49301
) × 100 = 22.75%
So, in the profit margin ratio, the company's profit margin was 21% in 2016. It was about the same
with 20% in 2017. But decreased to 0.22% in 2018. Then the profit margin increased to 22% again
in 2019 and remained the same in 2020.

Based on the profit margin ratio, the company calculates its profitability. The company standard
profit margin ratio is 6.70%. Analyzing the data, we see on 2016, the profit margin ratio was
excellent. In 2018 it decreased to a very low amount. In 2019, it increased again.

Return on Asset:

Return on Asset is another key profitability ratio that indicates income generated concerning the
total asset. In other words, it gauges for each dollar of asset available what is the net income of the
company, and we can identify Return on Asset by dividing Net Income by Total Asset

Return on Asset = Net Income / Total Asset (%)

12.00% 11.82% 11.88%

10.00% 8.83%
8.00% 7.40%

6.00%
4.00%
2.00% 0.10%

0.00%
2020 2019 2018 2017 2016

Return on Assets

10739
2016: (
121652
) × 100 = 8.83%

9609
2017: (
129818
) × 100 = 7.40%

110
2018: (
108784
) × 100 = 0.10%

11621
2019: (
97793
) × 100 = 11.88%
 11214
2020: (
94853
) × 100 = 11.82%

So, based on the return of asset ratio, the company's return on assets in 2016 was 8%. In 2017 it
was 7%. In 2018 it decreased to a very low amount of 0.10%. In 2019 it again raised to 11% and
stayed the same in 2020.

Based on the return on asset ratio company calculates the return on assets. This ratio indicates that
the company controls every dollar of assets and derives the profit percentage. If the ratio goes high,
it is suitable for the company. The company standard return on assets ratio is 10%.

Analyzing the data, the company showed a lower asset ratio in 2016 and 2017. It reduced to a very
low percentage in 2018. Then it increased to an average level in 2019 and constantly stayed at that
point in 2020.

Return on Equity:

The Return On Equity, which is a profitability ratio, assesses a company's capacity to profit from
its shareholders' investments in the business. This ratio illustrates how much return/equity
generates for equity investment.

Return on equity (ROE): Net Income / Total Equity (%)

Return on Equity
35.00% 34.62%
30.00% 29.57%

25.00%
20.00% 16.89%
14.53%
15.00%
10.00%
5.00% 0.25%

0.00%
2020 2019 2018 2017 2016

10739
2016: (
63586
) × 100 = 16.89%
 9609
2017: (
66137
) × 100 = 14.53%

110
2018: (
43204
) × 100 = 0.25%

11621
2019: (
33571
) × 100 = 34.62%

11214
2020: (
37920
) × 100 = 29.57%

So the return on equity ratio on equity in 2016 was 16%. In 2017, it was 14%. In 2018, the return
on equity decreased to 0.25%. But in 2019, it increased again to 34%. Finally, in 2020, it was
29%.

Based on the return on equity ratio company calculate return on equity. Return on equity
symbolizes the firm's ability to generate profit from every unit of shareholders. If the ratio goes
high, it is good for the company. The company's standard return on equity is 15%.

The analysis shows the company shows a close percentage to standard equity in 2016 and 2017.
But it decreased in 2018. Then it increased again in 2019.

Asset Utilization Ratios

0.40
1.15
2016 40.47 43.34
8.42
0.37
1.04
2017 29.71 39.13
9.33
0.45
1.05
2018 26.72 41.09
8.88
0.53
1.04
2019 37.53
38.61
9.45
0.52
0.96
2020 38.4640.51
9.01
— 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00

Total Asset Turnover (Times) Fixed Asset Turnover (Times) Inventory Turnover (Times)
Average Collection Period (Days) Receivable Turnover (Times)
The graph above illustrates the Asset Utilization Ratios. This ratio mainly relates to the proper
utilization of assets and measures the speed with which many accounts are converted into sales
or cash-inflows or outflows.

The efficiency with which the total assets are used for Cisco Systems, Inc. for the years 2016-
2020 are the receivable turnover ratio, average collection period, inventory turnover ratio, fixed
asset turnover ratio, and the total asset turnover ratio.

Receivable Turnover:

The receivables turnover ratio determines how well a company collects its accounts receivables
or money owed by customers or clients. This ratio assesses how well a company manages and
utilizes the credit it gives to the customers and how quickly that debt is recovered or paid. A
higher accounts receivables turnover ratio indicates the company efficiently collects its due
payments.

Receivables Turnover Ratio = Sales/Accounts Receivables (Times)

Receivable Turnover (Times)

9.60
9.45
9.40 9.33
9.20
9.01
9.00 8.88
8.80
8.60 8.42
8.40
8.20
8.00
7.80
2020 2019 2018 2017 2016

49247
2016: (
5847
) = 8.42 Times

48005
2017: (
5146
) = 9.33 Times

49330
2018: (
5554
) = 8.88 Times
 51904
2019: (
5491
) = 9.45 Times

49301
2020: (
5472
) = 9.01 Times

The graph above portrays Cisco’s receivables turnover ratio trend in the past 5 years. The
receivable turnover ratio in 2016 was 8.4 times and then bounced to 9.3 times in 2017. In 2018
the ratio was 8.9, which shows a marginal decrease from last year. In 2019, the ratio changed
positively to 9.5 times, but after Covid-19, the receivable turnover ratio went down to 9 times.
The change in the ratio in 2020 gives clarity about the effect in sales due to the pandemic.

Average Collection Period:

Average Collection Period is the calculation of the company’s average number of days between
the date a credit sale is made and the date the creditor pays for the sales. Usually the standard for
average collection period is less than 30 days.

Average Collection Period = (Accounts Receivable/Net Sales) *365 (days)

Average Collection Period (Days)

44.00
43.34
43.00
42.00
41.09
41.00 40.51
40.00 39.13
38.61
39.00
38.00
37.00
36.00
2020 2019 2018 2017 2016

5874
2016: (
49247
) × 365 = 43.34 Days

5146
2017: (
48005
) × 365 = 39.13 Days
 5554
2018: (
49330
) × 365 = 41.09 Days

5491
2019: (
51904
) × 365 = 38.61 Days

5472
2020: (
49301
) × 365 = 40.51 Days

In analyzing the average collection period, we can see that Cisco has quite a decent average
collection period rate from 2016 to 2020. In 2016, the ratio was about 43.34 days which
decreased to 39.13 days is 2017. But again in 2018, it raised to 41.09 days which is a bit higher
than the standard number of days for average collection period. However, in 2019 it was 38.61
days which is the best figure for Cisco compared to the last three years. But soon after the Covid-
19 pandemic breakout it again increase to 40.51 days in 2020. To sum it up, we can say that
Cisco has maintained an average ratio in their creditors collection for the last 5 years.

Inventory Turnover:

Inventory turnover ratio, it basically shows how fast a company is clearing their inventory and
making the sales. how many times a year they are clearing their inventory and making the sales.
Higher the ratio, the better it is for the company.

Inventory Turnover Ratio = Sales/Total Inventory (Times)

Inventory Turnover (Times)

45.00
40.47
40.00 38.46 37.53
35.00
29.71
30.00 26.72
25.00
20.00
15.00
10.00
5.00
—
2020 2019 2018 2017 2016

49247
2016: (
1217
) = 40.47 Times
 48005
2017: (
1616
) = 29.71 Times

49330
2018: (
1846
) = 26.72 Times

51904
2019: (
1383
) = 37.53 Times

49301
2020: (
1282
) = 38.46 Times

So, in the inventory turnover ratio, company's inventory turnover in 2016 was 40.46 times. On
2017, it was 29.70 times. And the inventory turnover was 26.72 times, 37.53 times and 38.45
times on the years 2018, 2019 and 2020.

Based on the inventory turnover ratio company calculate the inventory turnover or times
inventory is sold or used in a time period. Company's standard inventory turnover ratio is 7
times.

Analyzing the inventory turnover ratio, we see the company shows very good turnover ratio
during the time period. In 2016, the company shows the best turnover ratio. It reduced to the
lowest point in 2017. Then it started to rise again gradually.

Fixed Asset Turnover:

Fixed asset turnover ratio is the measurement of a company’s ability to generate the sales by
investing in its fixed assets. A higher fixed asset turnover ratio means that the company has
efficiently made the investments in fixed assets to make sales.

Fixed Asset Turnover Ratio = Sales/Fixed Assets (Times)

 Fixed Asset Turnover (Times)
1.15 1.15

1.10
1.05 1.04
1.05 1.04

1.00
0.96
0.95

0.90

0.85
2020 2019 2018 2017 2016

49247
2016: (
42933
) = 1.15 Times

48005
2017: (
46115
) = 1.04 Times

49330
2018: (
46947
) = 1.05 Times

51904
2019: (
50038
) = 1.04 Times

49301
2020: (
51280
) = 0.96 Times

As shown in the graph above, we can see Cisco’s Fixed asset turnover ratio trend in the past 5
years. In 2016 the ratio was 1.147 times which slightly decreased to 1.04 times in 2017. The
fixed in 2018 had increased to 1.05 times (increased about 0.01 times from 2017).

Advancing to 2019, the ratio again decreased very marginally to 1.037 times. Adding to the little
but constant decrease in the ratio year by year, in 2020(after the pandemic), the ratio further
decreased to 0.96 times. This shows that although the ratio did not decrease much after Covid-
19, the company still needs to be cautious about the constant decrease in the ratio over the years.

Total Asset Turnover Ratio:

This ratio differentiates the value of the revenues with the value of the total assets of a company.
A high total asset turnover ratio would suggest that the company is effectively using all its
assets to generate revenue.

Total Asset Turnover Ratio = Sales/Total Assets (Times)

Total Asset Turnover (Times)

0.60
0.52 0.53
0.50 0.45
0.40
0.40 0.37

0.30

0.20

0.10

—
2020 2019 2018 2017 2016

49247
2016: (
121652
) = 0.40 Times

48005
2017: (
129818
) = 0.37 Times

49330
2018: (
108784
) = 0.45 Times

51904
2019: (
97793
) = 0.53 Times

49301
2020: (
94853
) = 0.52 Times

Above is the graph showing the trend of total asset turnover ratio in the past 5 years. In 2016 the
ratio is 0.4 times, which vaguely goes down to 0.37 times in 2017. In 2018, the ratio jumps up to
0.45 times and it again goes up and reaches 0.53 times in 2019. After the Covid-19 in 2020, the
asset turnover ratio was 0.52 times, which is a very minimal decrease from last year.
Even though the pandemic did not have much effect on this ratio, the ratio is still average in the
last 5 years as the sales could be greater compared to the company’s total assets.

Liquidity Ratios

Current Ratios & Quick Ratios

4.00

3.00

2.00

1.00

—
2020 2019 2018 2017 2016

Current Ratio Quick Ratio

Current Ratio:

This liquidity ratio measures the ability of a company to pay off their short-term commitments
or the ones that are due within a year.

Current Ratio = Current Assets/ Current Liabilities

Current Ratio
3.50
3.03 3.16
3.00
2.50 2.29
2.00 1.72
1.51
1.50
1.00
0.50
—
2020 2019 2018 2017 2016

78719
2016: (
24911
) = 3.16
 83703
2017: (
24911
) = 3.03

61837
2018: (
27035
) = 2.29

47755
2019: (
31712
) = 1.51

43573
2020: (
25331
) = 1.72

The above analysis shows a declining trend in the current ratio for Cisco Company Inc. pre-
Covid. The company had a current ratio of 3.16 in 2016 indicating its capability to cover their
current liabilities three times more than an average company with a current ratio of 1.00.
However, the company might not have been efficient in using their current assets by properly
managing their working capital. From, 2017-2019 the current ratio for the company kept
decreasing but never went below 1.00. After Covid, the company managed to increase their
current ratio by 0.21, from 1.51 to 1.72 indication that the company is now more capable to pay
off their current liabilities by efficiently using their current assets to maximum.

Quick Ratio:

A Quick ratio measures a company’s ability to finance its current liabilities without selling
anything in the inventory or gaining any extra fund.

Quick Ratio = (Current assets-inventory)/Current Liabilities

 Quick Ratio
3.50
2.98 3.11
3.00
2.50 2.22
2.00 1.67
1.46
1.50
1.00
0.50
—
2020 2019 2018 2017 2016

78719−1217
2016: (
24911
) = 3.11

83703−1616
2017: (
24911
) = 2.98

61837−1846
2018: (
27035
) = 2.22

47755−1383
2019: (
31712
) = 1.46

43573−1282
2020: (
25331
) = 1.67

From the above analysis we can see, from a declining trend in the Quick ratio for Cisco Systems
Inc. From 2016-2018, pre Covid, the decline was not quite drastic. However, since 2019 as it can
be seen, there has been a sharp decline from 2.22 to 1.46. After Covid, in 2020 the company had
an increase of 0.21 from 1.46 to 1.67. Nevertheless, Cisco System Inc. has maintained a more
than standard quick ratio of 1, indicating the company has enough assets to cover their liabilities.
Debt Utilization Ratio

Debt to Total Assets

70.00%
65.67%
60.00% 60.02% 60.28%

50.00% 49.05% 47.73%

40.00%

30.00%

20.00%

10.00%

0.00%
2020 2019 2018 2017 2016

Debt to Total Assets

The last category of the classification system is debt utilization ratios. Debt utilization ratio
portrays the overall debt position of firms and evaluates the extent of leverages based on its
assets and earning power. It usually includes the debt to total asset ratio, times interest earned
ratio, and fixed charge coverage ratio.

Debts to Total Asset Ratio:

Debt to Total Assets Ratio, as the name suggests, is the percentage of a firm's assets that are
financed by debt. The debt can comprehend a company's leverage with that of other company's
to total assets ratio. A lower percentage of debt to total assets plays in favor of firms.

Debt to Total Asset = Debts / Total Asset (%)

58067
2016: (
121652
) = 47.73%

63681
2017: (
129818
) = 49.05%

65580
2018: (
108784
) = 60.28%

64222
2019: (
97793
) = 65.67%
 56933
2020: (
94853
) = 60.02%

As shown in the graph above, we can see Cisco's debt to total assets ratio trend in the past 5
years. In 2016, the debt ratio was 47.73%, which slightly increased by (49.05-47.73) = 1.32%
and became 49.05% in 2017. The debt ratio increased another (60.28-49.05) = 11.23% and
became 60.28% in 2018. This upturn in percentage is considered a bit alarming.

Moving on to 2019, the debt ratio again increased by another 5.39%, making it 65.67% that year.
But in 2020, there is a significant reduction, where it fell by 5.65%. This fall in the debt ratio
shows the positive effect of the pandemic in the tech industry, irrespective of the horrible
scenario in all other sectors.

It shows that Cisco was not doing that well from 2016 to 2018. The rise in debt ratio right before
COVID indicates the company got in more debt than 2020, which was during the pandemic. It's
worth noting that the company's ratio had never exceeded 100 percent, which means, even when
the debt rose by certain percentages before COVID, they still had more assets than debt.

The Effects of Covid-19 Pandemic in Fiscal year 2020

Overall, Cisco System Inc. has performed well financially compared to the other sectors of the
economy in the Fiscal Year 2020. Even compared to their own financial state, Cisco grew
remarkably during the Pandemic, with a profit margin of 22.75%, 2.75% more than the standard
profit margin of 20%. The company also managed to reduce its degree of Leverage and hence
reduced the risk in investments, with a lower debt-to-total assets ratio compared to previous
years. However, during the pandemic, the efficiency in using their assets declined, given there
might have been a decrement in the number of employees. In addition, Cisco had an Average
collection period (Days) well above the standard 30 days given for a company throughout the
five years, which increased more during the fiscal year 2020, indicating, the company faced
difficulties in collecting payments from their clients and should be communicating better in
collecting their debts and payments. Nevertheless, Cisco System Inc. has maintained stable
financial growth throughout 2020, with most of its financial Ratios being above the standard.
Conclusion
Through this report, we have analyzed the financial ratios and evaluated the operating
performance of Cisco Systems, Inc. for the years 2016 to 2020. The observation of financial
ratios from recent years represents the short-term and long-term financial and operating
performance of Cisco, which can help depict the trend to understand the pattern of growth and
interpret future events.

From the analysis of financial ratios above, we can see the trend change in profitability ratios,
asset utilization ratios, liquidity ratios, and debt utilization ratios and how each has affected the
company's operating performance for the past 5 years. The analysis determined that from 2016-
2020 profitability, asset utilization, and liquidity ratios were on a path to ascension irrespective
of the pandemic around the world. Due to the increase of internet dependency during the
pandemic, Cisco was able to maintain stability. Therefore, it can be assumed that Cisco was able
to grow during this economic depression caused by Covid-19.

We may conclude from the above analysis that Cisco didn't have to deal with that much of
hardship during the Coronavirus pandemic, like most other industries. While conducting the
trend analysis, we observe a slight incline in the financial health of Cisco Systems, Inc. in the
near future. We also found that COVID-19 somewhat influenced their performance positively.
This leads us to conclude that Cisco has to maintain its growth to improve its financial
performance and achieve long-term development.

References
▪ https://finance.yahoo.com/quote/CSCO/financials?p=CSCO
▪ https://finance.yahoo.com/quote/CSCO/analysis?p=CSCO
▪ Foundations of financial management / Stanley B. Block, Geoffrey A. Hirt, Bartley R.
▪ Danielsen.—Sixteenth edition.
▪ https://investor.cisco.com/financial-information/financial-results/default.aspx