Financial Analysis of Cisco: Profitability, Liquidity, Solvency and Market-Based Ratios

This article provides a comprehensive financial analysis of Cisco, including profitability, liquidity, solvency, and market-based ratios. The analysis helps investors make informed decisions about holding, buying, or selling Cisco stocks. The article includes a table of financial ratios, technical analysis of Cisco's stock price, and a recommendation for investors.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Introduction:...............................................................................................................................2
Analysis:.....................................................................................................................................2
Recommendation and Conclusion:............................................................................................6
Reference and Bibliography:......................................................................................................7

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Introduction:
The assessment aims in detecting the current financial position of Cisco, which could
allow investors to make relevant investment decisions to hold, buy or sell the stocks. In
addition, the evaluation also helps in detecting the current trajectory of the stock, which
might allow investors to understand the current financial trend and make adequate investment
decision. The financial ratios are also evaluated to understand the improvement in current
financial position of the company. The use of technical analysis is also conducted for
analysing the current trend and the returns, which can be generated from investment.
Analysis:
PROFITABILITY
RATIOS Formula 2017 2016 2015 2014
Net Profit Margin Net profit / sales
20.0
2%
21.8
1%
18.7
1%
15.9
5%
Gross Profit Margin Gross profit / sales
62.9
6%
62.8
7%
61.8
3%
56.3
9%
LIQUIDITY RATIOS Formula 2017 2016 2015 2014
Current ratio
Current Assets / Current
Liabilities 3.03 3.16 3.23 3.39
Quick ratio
Quick Assets / Current
Liabilities 2.98 3.11 3.16 3.31
LONG-TERM
SOLVENCY RATIOS Formula 2017 2016 2015 2014
Debt to equity
Total liabilities / total
shareholders’ equity 0.96 0.91 0.90 0.85
Debt ratio Total liabilities / total assets 0.49 0.48 0.47 0.46
Leverage ratio
Total assets / total shareholders’
equity 1.96 1.91 1.90 1.85
MARKET-BASED
RATIOS Formula 2017 2016 2015 2014
Price/Earnings
Market price per share /
earnings per share
16.5
9
12.5
4
16.2
3
15.2
4
Price to Book ratio Market Value per Share / Book

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Value per Share 2.39 2.10 2.43 2.10
Table 1: Financial Ratios of Cisco
(Source: As created by the author)
The above table represents the overall financial ratios such as profitability, liquidity,
solvency, leverage and market ratio for identifying the current financial performance of Cisco
for the past four years. In addition, the financial ratio such as profitability relevantly indicates
that the performance of the organisation has mainly improved over the period of four fiscal
years. Furthermore, the net profit margin of the company has mainly increased, where the
gross profit has also raised during the financial year of 2017 as compared to 2014. The
improvement in the current can be seen during the past three fiscal years, while the decline in
net profits has been witnessed during 2017. The increment in current gross profit margin is
detected, while the net profits has declined during the fiscal year of 2017, which indicates
that the administrative expenses of the organisation has relevantly increased over the period.
In this context, some researchers mentioned that investors with the help of financial ratios are
able to detect the current position of the company and its capability to continue the growth
trajectory (Czajor, Przemysław, and Marcin).
The further calculation is conducted on liquidity ratio of Cisco, which has declined
substantially over the period of 4 years. the current and quick ratio of the company has
mainly declined minutely during the period of four years. However, the valuation is
relevantly higher than the current standards which need to be maintained by companies.
Therefore, the liquidity ratio of Cisco is considered to be viable, where the organisation can
adequately pay its short-term obligations and continue its operations. On the contrary,
researchers argued that financial ratios are not able to depicts the accurate future growth,
which can be generated by the company in near term (Lukason et al.).

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The use of solvency ratio has directly indicated that the current financial position of
the organisation has improved over the period, which can be used for detecting the current
financial performance. In addition, the debt to equity ratio of the organisation has mainly
increased from the levels of 0.85 to 0.96, which directly indicates that high debt has been
accumulated by the organisation for supporting operations. the increment in the debt ratio is
also detected, where the total values have increased from 0.46 to 0.49, which indicates that
Cisco is using debt for purchasing assets for its operations. The leverage ratio has also
increased over the period, which was conducted to understand the current financial
performance of the organisation. Cisco has been raising the level of equity and debt at the
same time for supporting its operations and continuing the activities. Some researchers
indicated that the detection of solvency position of an organisation has allowed investor to
make adequate investment decision to improve returns from investment (Soares, Joao
Oliveira, and Pina).
The relevant calculations for the market-based ratios are also conducted for identified
the P/E ratio and P/B ratio for Cisco. Both the P/E ratio and P/B ratio has mainly increased
during the period of four fiscal years, which indicates the investment opportunity, which is
presented to the investors. the rising P/E ratio indicates that the adequate growth can be
witnessed in future for Cisco. Moreover, the calculations have indicated that the performance
of Cisco over the period is relevantly high, which can improve the company’s capability to
incur high growth. Nevertheless, the rising price to book ratio indicates the high valuation of
company share, which will not allow the investor to gain abnormal reruns. The price to book
ratio has increased and retracted during the past four fiscal years. The rising price to book
ratio reduces the enthusiasm of the investors for the stock, as further increment in the share
price is not anticipated. Researcher stated that fundamental analysis directly allows the

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investor to understand the long-term trend of the company, which can help in growing the
overall portfolio value in future (Laitinen).
Therefore, after evaluating the financial performance of Cisco and analysing its
current growth prospects its can be detected that the share value of the company will
eventually increase in future. The company has strengthened its capability to support the
short-term liability and continue with the high level of income from operations. The
operations of the organisation have improved adequately over the period of four years, which
depicts the financial performance that has been obtained by the organisation.
Figure 1: Cisco share price
(Source: Finance.yahoo.com)
The above figure relevantly indicates the level of changes in share price, which is
conducted for Cisco over the period of five fiscal years. The share price of the organisation is
witnessed to have increased from the leve of 20.24 to 47.77 over the period of five years. In
addition, the chart evaluation has directly indicated that the share price of Cisco is under an
uptrend, which can generate high level of income from investment over the period. The

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technical analysis measure moving average is used for understanding the current trend and
the potential progress, which can be made by Cisco. The increment in the overall valuation
has mainly allowed the organisation for generating high level of income from investment. the
moving average 10 days and 50 days is crafted in the above figure to indicate, whether the
investment in the share would provide higher returns. The moving average 10-day line is
higher than the moving average 50-day line, which directly indicates further growth in share
price of the organisation. Researchers mentioned that with the help of technical analysis
investors are able to understand the current trajectory of the share price movement and make
adequate investment decisions (Elhaj, et al.).
Recommendation and Conclusion:
After evaluating the financial ratios and technical chart, the improvements in the
current financial position of Cisco is detected. The company has generated high level of
income over the period of four fiscal years, which can continue over the fiscal years.
Therefore, the results obtained after the evaluation of financial ratios and the technical chart
direly indicate that buying the share of Cisco in the current valuation might allow the investor
to generate higher return over the period of time.

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Reference and Bibliography:
Atoom, Radi, Eyad Malkawi, and Basima Al Share. "Utilizing Australian Shareholders'
Association (ASA): Fifteen Top Financial Ratios to Evaluate Jordanian Banks'
Performance." Journal of Applied Finance and Banking 7.1 (2017): 119.
Cisco, About. "Annual Reports." Cisco. N. p., 2018. Web. 22 Sept. 2018.
Cisco.com. N. p., 2018. Web. 22 Sept. 2018.
Czajor, Przemysław, and Marcin Michalak. "Operating Lease Capitalization-Reasons and its
Impact on Financial Ratios of WIG30 and sWIG80 Companies." Przedsiębiorczość i
Zarządzanie 18.1, cz. 1 Practical and Theoretical Issues in Contemporary Financial
Management (2017): 23-36.
Elhaj, Mohamed Abulgasem A., Nurul Aini Muhamed, and Nathasa Mazna Ramli. "The
influence of corporate governance, financial ratios, and Sukuk structure on Sukuk
rating." Procedia Economics and Finance 31 (2015): 62-74.
Finance.yahoo.com. N. p., 2018. Web. 22 Sept. 2018.
Laitinen, Erkki K. "Financial Reporting: Long-Term Change of Financial Ratios." American
Journal of Industrial and Business Management 8.09 (2018): 1893.
Lukason, Oliver, Erkki K. Laitinen, and Arto Suvas. "Growth patterns of small
manufacturing firms before failure: interconnections with financial ratios and nonfinancial
variables." International Journal of Industrial Engineering and Management 6.2 (2015): 59-
66.

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Rey, Andrea, and Francesco Santelli. "The Relationship between Financial Ratios and
Sporting Performance in Italy’s Serie A." International Journal of Business and
Management12.12 (2017): 53.
Soares, João Oliveira, and Joaquim P. Pina. "Macro-Regions, Countries and Financial Ratios:
A Comparative Study in the Euro Area (2000-2009)." Revista Portuguesa de Estudos
Regionais 45 (2017): 84-92.