Cisco Systems Financial Statements and Financial Ratios Analyzed

For this section, I have chosen several different financial ratios to review for Cisco from 2015 to 2019.  In reviewing each of their financial ratios, I first start with defining the financial ratio.  Next, I supply the financial formula for calculating the specific ratio.  Finally, I offer a brief analysis of their important Financial ratios. 

Cisco Systems Current Ratio.

Cisco Systems ended 2015 with a current ratio of 3.23.  The gold standard which indicates financial solvency for the next 12 months is 1.0.  This indicates that the company had three times as much current assets as needed to ensure solvency.  In my most humble of opinion, this indicates that the company’s executive team is mismanaging its current assets.  A better strategy would be to either increase dividends to reduce their current asset position or utilize current assets in a more long-term manner like purchasing additional property, plant, equipment to help lay the foundation for future growth.  Fortunately, in the next four years, the organization would take action to substantially reduce its current ratio position ending 2019 with the current ratio of 1.51.

Cisco Systems Total Asset Turnover.

Cisco Systems ended 2015 with a total asset turnover of .43.  In the next two years, their total asset turnover would fall 2.37 in 2017.  This indicates that the company is using its total assets in a less efficient manner to generate revenues year-over-year.  In my opinion, this is a direct reflection as to lacks a daisy attitude by the executive team.  Fortunately, the total asset turnover for Cisco would slightly improve over the next two years ended 2019 with .53.  If this trend continues, this may indicate that the company has taken action to improve the usage of assets as a whole.

Cisco Systems Return on Assets.

In 2015, Cisco Systems ended the year with a return on asset ratio of 7.9%.  In the next four years, their return on assets would fluctuate between .1% and 8.8%, ending 2019 with a return on assets of 11.88%.  As an investor, when a company’s return on assets are over the board, this should throw up some serious red flags.  Additional research needs to be done to determine why a significant fluctuation in this ratio has been done.  Unfortunately, there is no real clear answer.

Cisco Systems Debt ratio.

Cisco Systems ended 2015 with the debt ratio of 18.9%.  The company would increase its debt ratio to 20.1% in 2016.  Fortunately, though in the next three years, the company would continuously reduce its debt ratio ending 2019 at 14.8%.  Reducing their debt ratio also reduces the risk of bankruptcy and insolvency.  From this perspective, kudos to Cisco’s executive team.  However, this should also indicate to investors that Cisco is running out of ideas for investments.  If they had innovative ideas, then the organization, from my opinion, would be tapping into debt to fund the future growth.  There’s nothing better than making money on borrowed money.  Unfortunately, this is not the case.  A technology industry that is running out of ideas is worrisome.