Intrinsic value of Cisco Systems - CSCO

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$33.75

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$33.75

 
Intrinsic value

$42.04

 
Up/down potential

+25%

 
Rating

buy

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CSCO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 169.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  0.17
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  49,247
  50,232
  51,387
  52,708
  54,191
  55,833
  57,636
  59,599
  61,724
  64,013
  66,470
  69,098
  71,902
  74,888
  78,061
  81,429
  84,997
  88,774
  92,769
  96,990
  101,446
  106,148
  111,107
  116,335
  121,842
  127,642
  133,750
  140,178
  146,942
  154,059
  161,544
Variable operating expenses, $m
 
  39,178
  40,018
  40,978
  42,056
  43,250
  44,560
  45,987
  47,532
  49,196
  50,982
  50,230
  52,268
  54,439
  56,746
  59,193
  61,787
  64,533
  67,437
  70,505
  73,745
  77,163
  80,768
  84,568
  88,571
  92,788
  97,227
  101,900
  106,818
  111,991
  117,432
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  36,587
  39,178
  40,018
  40,978
  42,056
  43,250
  44,560
  45,987
  47,532
  49,196
  50,982
  50,230
  52,268
  54,439
  56,746
  59,193
  61,787
  64,533
  67,437
  70,505
  73,745
  77,163
  80,768
  84,568
  88,571
  92,788
  97,227
  101,900
  106,818
  111,991
  117,432
Operating income, $m
  12,660
  11,054
  11,370
  11,730
  12,135
  12,584
  13,076
  13,612
  14,192
  14,817
  15,488
  18,868
  19,634
  20,449
  21,316
  22,235
  23,210
  24,241
  25,332
  26,484
  27,701
  28,985
  30,339
  31,767
  33,271
  34,855
  36,522
  38,278
  40,125
  42,068
  44,112
EBITDA, $m
  14,810
  14,126
  14,451
  14,822
  15,239
  15,701
  16,208
  16,760
  17,358
  18,001
  18,692
  19,431
  20,220
  21,060
  21,952
  22,899
  23,902
  24,965
  26,088
  27,275
  28,528
  29,851
  31,245
  32,715
  34,264
  35,895
  37,612
  39,420
  41,322
  43,324
  45,429
Interest expense (income), $m
  859
  857
  766
  808
  855
  908
  967
  1,031
  1,101
  1,177
  1,259
  1,347
  1,441
  1,541
  1,648
  1,761
  1,882
  2,009
  2,144
  2,287
  2,438
  2,597
  2,766
  2,943
  3,130
  3,327
  3,534
  3,752
  3,982
  4,224
  4,479
Earnings before tax, $m
  12,920
  10,197
  10,603
  10,923
  11,280
  11,676
  12,109
  12,581
  13,091
  13,640
  14,229
  17,521
  18,193
  18,908
  19,668
  20,474
  21,328
  22,232
  23,188
  24,197
  25,263
  26,388
  27,574
  28,824
  30,141
  31,528
  32,988
  34,525
  36,142
  37,844
  39,633
Tax expense, $m
  2,181
  2,753
  2,863
  2,949
  3,046
  3,152
  3,270
  3,397
  3,535
  3,683
  3,842
  4,731
  4,912
  5,105
  5,310
  5,528
  5,759
  6,003
  6,261
  6,533
  6,821
  7,125
  7,445
  7,782
  8,138
  8,513
  8,907
  9,322
  9,758
  10,218
  10,701
Net income, $m
  10,739
  7,444
  7,740
  7,974
  8,235
  8,523
  8,840
  9,184
  9,556
  9,957
  10,387
  12,791
  13,281
  13,803
  14,358
  14,946
  15,569
  16,229
  16,927
  17,664
  18,442
  19,263
  20,129
  21,042
  22,003
  23,015
  24,081
  25,203
  26,384
  27,626
  28,932

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  65,756
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  121,652
  57,017
  58,328
  59,827
  61,510
  63,375
  65,421
  67,649
  70,061
  72,659
  75,448
  78,431
  81,614
  85,003
  88,605
  92,427
  96,478
  100,766
  105,300
  110,090
  115,149
  120,486
  126,115
  132,048
  138,300
  144,884
  151,816
  159,112
  166,790
  174,868
  183,364
Adjusted assets (=assets-cash), $m
  55,896
  57,017
  58,328
  59,827
  61,510
  63,375
  65,421
  67,649
  70,061
  72,659
  75,448
  78,431
  81,614
  85,003
  88,605
  92,427
  96,478
  100,766
  105,300
  110,090
  115,149
  120,486
  126,115
  132,048
  138,300
  144,884
  151,816
  159,112
  166,790
  174,868
  183,364
Revenue / Adjusted assets
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
  0.881
Average production assets, $m
  5,858
  5,978
  6,115
  6,272
  6,449
  6,644
  6,859
  7,092
  7,345
  7,618
  7,910
  8,223
  8,556
  8,912
  9,289
  9,690
  10,115
  10,564
  11,040
  11,542
  12,072
  12,632
  13,222
  13,844
  14,499
  15,189
  15,916
  16,681
  17,486
  18,333
  19,224
Working capital, $m
  53,808
  -7,937
  -8,119
  -8,328
  -8,562
  -8,822
  -9,107
  -9,417
  -9,752
  -10,114
  -10,502
  -10,917
  -11,361
  -11,832
  -12,334
  -12,866
  -13,430
  -14,026
  -14,657
  -15,324
  -16,028
  -16,771
  -17,555
  -18,381
  -19,251
  -20,168
  -21,132
  -22,148
  -23,217
  -24,341
  -25,524
Total debt, $m
  28,643
  21,892
  23,073
  24,422
  25,936
  27,615
  29,456
  31,461
  33,632
  35,970
  38,480
  41,165
  44,030
  47,080
  50,322
  53,762
  57,407
  61,266
  65,347
  69,658
  74,211
  79,015
  84,081
  89,420
  95,047
  100,972
  107,211
  113,778
  120,688
  127,958
  135,605
Total liabilities, $m
  58,066
  51,315
  52,496
  53,845
  55,359
  57,038
  58,879
  60,884
  63,055
  65,393
  67,903
  70,588
  73,453
  76,503
  79,745
  83,185
  86,830
  90,689
  94,770
  99,081
  103,634
  108,438
  113,504
  118,843
  124,470
  130,395
  136,634
  143,201
  150,111
  157,381
  165,028
Total equity, $m
  63,586
  5,702
  5,833
  5,983
  6,151
  6,338
  6,542
  6,765
  7,006
  7,266
  7,545
  7,843
  8,161
  8,500
  8,861
  9,243
  9,648
  10,077
  10,530
  11,009
  11,515
  12,049
  12,612
  13,205
  13,830
  14,488
  15,182
  15,911
  16,679
  17,487
  18,336
Total liabilities and equity, $m
  121,652
  57,017
  58,329
  59,828
  61,510
  63,376
  65,421
  67,649
  70,061
  72,659
  75,448
  78,431
  81,614
  85,003
  88,606
  92,428
  96,478
  100,766
  105,300
  110,090
  115,149
  120,487
  126,116
  132,048
  138,300
  144,883
  151,816
  159,112
  166,790
  174,868
  183,364
Debt-to-equity ratio
  0.450
  3.840
  3.960
  4.080
  4.220
  4.360
  4.500
  4.650
  4.800
  4.950
  5.100
  5.250
  5.390
  5.540
  5.680
  5.820
  5.950
  6.080
  6.210
  6.330
  6.440
  6.560
  6.670
  6.770
  6.870
  6.970
  7.060
  7.150
  7.240
  7.320
  7.400
Adjusted equity ratio
  -0.039
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10,739
  7,444
  7,740
  7,974
  8,235
  8,523
  8,840
  9,184
  9,556
  9,957
  10,387
  12,791
  13,281
  13,803
  14,358
  14,946
  15,569
  16,229
  16,927
  17,664
  18,442
  19,263
  20,129
  21,042
  22,003
  23,015
  24,081
  25,203
  26,384
  27,626
  28,932
Depreciation, amort., depletion, $m
  2,150
  3,072
  3,081
  3,092
  3,104
  3,118
  3,132
  3,148
  3,166
  3,184
  3,204
  563
  586
  610
  636
  664
  693
  724
  756
  791
  827
  865
  906
  948
  993
  1,040
  1,090
  1,143
  1,198
  1,256
  1,317
Funds from operations, $m
  13,442
  10,516
  10,822
  11,066
  11,339
  11,641
  11,972
  12,332
  12,722
  13,141
  13,591
  13,354
  13,867
  14,413
  14,994
  15,610
  16,262
  16,953
  17,683
  18,455
  19,269
  20,128
  21,035
  21,990
  22,996
  24,056
  25,172
  26,346
  27,582
  28,882
  30,249
Change in working capital, $m
  -128
  -156
  -183
  -209
  -234
  -260
  -285
  -310
  -336
  -362
  -388
  -415
  -443
  -472
  -501
  -532
  -564
  -597
  -631
  -667
  -704
  -743
  -784
  -826
  -870
  -916
  -965
  -1,016
  -1,069
  -1,124
  -1,183
Cash from operations, $m
  13,570
  10,821
  11,004
  11,274
  11,573
  11,901
  12,257
  12,642
  13,058
  13,503
  13,980
  13,769
  14,310
  14,885
  15,495
  16,142
  16,826
  17,550
  18,314
  19,121
  19,973
  20,871
  21,818
  22,816
  23,866
  24,972
  26,137
  27,362
  28,650
  30,006
  31,432
Maintenance CAPEX, $m
  0
  -401
  -409
  -419
  -430
  -442
  -455
  -470
  -486
  -503
  -522
  -542
  -563
  -586
  -610
  -636
  -664
  -693
  -724
  -756
  -791
  -827
  -865
  -906
  -948
  -993
  -1,040
  -1,090
  -1,143
  -1,198
  -1,256
New CAPEX, $m
  -1,146
  -120
  -137
  -157
  -176
  -196
  -215
  -234
  -253
  -272
  -292
  -313
  -334
  -355
  -378
  -401
  -425
  -450
  -475
  -502
  -530
  -560
  -590
  -622
  -655
  -690
  -727
  -765
  -805
  -847
  -891
Cash from investing activities, $m
  -8,117
  -521
  -546
  -576
  -606
  -638
  -670
  -704
  -739
  -775
  -814
  -855
  -897
  -941
  -988
  -1,037
  -1,089
  -1,143
  -1,199
  -1,258
  -1,321
  -1,387
  -1,455
  -1,528
  -1,603
  -1,683
  -1,767
  -1,855
  -1,948
  -2,045
  -2,147
Free cash flow, $m
  5,453
  10,300
  10,457
  10,698
  10,967
  11,263
  11,587
  11,939
  12,319
  12,728
  13,165
  12,914
  13,413
  13,944
  14,507
  15,105
  15,738
  16,407
  17,115
  17,863
  18,652
  19,485
  20,363
  21,288
  22,263
  23,289
  24,369
  25,506
  26,703
  27,962
  29,285
Issuance/(repayment) of debt, $m
  3,111
  -2,591
  1,180
  1,349
  1,515
  1,678
  1,841
  2,005
  2,171
  2,338
  2,510
  2,685
  2,865
  3,050
  3,242
  3,440
  3,645
  3,859
  4,081
  4,312
  4,553
  4,804
  5,066
  5,340
  5,626
  5,926
  6,239
  6,567
  6,910
  7,270
  7,647
Issuance/(repurchase) of shares, $m
  -3,339
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  51
  -2,591
  1,180
  1,349
  1,515
  1,678
  1,841
  2,005
  2,171
  2,338
  2,510
  2,685
  2,865
  3,050
  3,242
  3,440
  3,645
  3,859
  4,081
  4,312
  4,553
  4,804
  5,066
  5,340
  5,626
  5,926
  6,239
  6,567
  6,910
  7,270
  7,647
Total cash flow (excl. dividends), $m
  5,504
  7,709
  11,638
  12,047
  12,482
  12,942
  13,429
  13,944
  14,490
  15,066
  15,675
  15,599
  16,278
  16,994
  17,749
  18,545
  19,383
  20,266
  21,196
  22,175
  23,205
  24,289
  25,429
  26,628
  27,889
  29,215
  30,608
  32,073
  33,613
  35,231
  36,932
Retained Cash Flow (-), $m
  -3,888
  -3,712
  -131
  -150
  -168
  -186
  -205
  -223
  -241
  -260
  -279
  -298
  -318
  -339
  -360
  -382
  -405
  -429
  -453
  -479
  -506
  -534
  -563
  -593
  -625
  -658
  -693
  -730
  -768
  -808
  -850
Prev. year cash balance distribution, $m
 
  61,596
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  65,593
  11,506
  11,898
  12,313
  12,755
  13,224
  13,722
  14,248
  14,806
  15,396
  15,301
  15,960
  16,655
  17,389
  18,163
  18,978
  19,837
  20,743
  21,696
  22,699
  23,755
  24,866
  26,035
  27,264
  28,556
  29,915
  31,344
  32,845
  34,424
  36,082
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  62,889
  10,534
  10,354
  10,139
  9,887
  9,597
  9,270
  8,906
  8,505
  8,072
  7,266
  6,811
  6,333
  5,838
  5,332
  4,823
  4,316
  3,820
  3,341
  2,884
  2,457
  2,063
  1,706
  1,389
  1,111
  873
  673
  508
  376
  272
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol (IP) based networking and other products related to the communications and information technology industry worldwide. It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points, and servers; and next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice, and video applications. The company also offers service provider video infrastructure, including set-top boxes, cable/telecommunications access products, and cable modems; and video software and solutions. In addition, it provides collaboration products comprising unified communications products, conferencing products, collaboration endpoints, and business messaging products; data center products, such as blade and rack servers, modular servers, fabric interconnects, software, and server access virtualization solutions; security products, including network and data center security, advanced threat protection, Web and email security, access and policy, unified threat management, and advisory, integration, and managed services; and other products, such as emerging technologies and other networking products. Further, the company offers wireless products consisting of wireless access points; network managed services; and standalone, switch-converged, and cloud managed solutions. Additionally, it provides technical support services and advanced services. The company serves businesses of various sizes, public institutions, governments, and communications service providers. Cisco Systems, Inc. sells its products directly, as well as through channel partners, such as systems integrators, service providers, other resellers, and distributors. The company was founded in 1984 and is headquartered in San Jose, California.

FINANCIAL RATIOS  of  Cisco Systems (CSCO)

Valuation Ratios
P/E Ratio 15.8
Price to Sales 3.4
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 12.5
Price to Free Cash Flow 13.7
Growth Rates
Sales Growth Rate 0.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -6.6%
Cap. Spend. - 3 Yr. Gr. Rate -0.2%
Financial Strength
Quick Ratio 16
Current Ratio 0.1
LT Debt to Equity 38.5%
Total Debt to Equity 45%
Interest Coverage 16
Management Effectiveness
Return On Assets 9.7%
Ret/ On Assets - 3 Yr. Avg. 8.9%
Return On Total Capital 12.1%
Ret/ On T. Cap. - 3 Yr. Avg. 11.1%
Return On Equity 17.4%
Return On Equity - 3 Yr. Avg. 15.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 62.9%
Gross Margin - 3 Yr. Avg. 60.7%
EBITDA Margin 32.3%
EBITDA Margin - 3 Yr. Avg. 29.6%
Operating Margin 25.7%
Oper. Margin - 3 Yr. Avg. 22.5%
Pre-Tax Margin 26.2%
Pre-Tax Margin - 3 Yr. Avg. 23.2%
Net Profit Margin 21.8%
Net Profit Margin - 3 Yr. Avg. 18.9%
Effective Tax Rate 16.9%
Eff/ Tax Rate - 3 Yr. Avg. 18.6%
Payout Ratio 44.2%

CSCO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CSCO stock intrinsic value calculation we used $49247 million for the last fiscal year's total revenue generated by Cisco Systems. The default revenue input number comes from 2016 income statement of Cisco Systems. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CSCO stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CSCO is calculated based on our internal credit rating of Cisco Systems, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Cisco Systems.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CSCO stock the variable cost ratio is equal to 78.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CSCO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Cisco Systems.

Corporate tax rate of 27% is the nominal tax rate for Cisco Systems. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CSCO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CSCO are equal to 11.9%.

Life of production assets of 14.6 years is the average useful life of capital assets used in Cisco Systems operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CSCO is equal to -15.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $63586 million for Cisco Systems - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 5016.86 million for Cisco Systems is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Cisco Systems at the current share price and the inputted number of shares is $169.3 billion.


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Stock chart of CSCO Financial statements of CSCO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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