Intrinsic value of Cisco Systems - CSCO

Previous Close

$32.34

  Intrinsic Value

$41.04

stock screener

  Rating & Target

buy

+27%

  Value-price divergence*

-28%

Previous close

$32.34

 
Intrinsic value

$41.04

 
Up/down potential

+27%

 
Rating

buy

 
Value-price divergence*

-28%

*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 161.6

 

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
  894
  938
  988
  1,045
  1,108
  1,177
  1,252
  1,334
  1,421
  1,515
  1,616
  1,723
  1,838
  1,959
  2,088
  2,225
  2,369
  2,522
  2,684
  2,855
  3,035
  3,225
  3,425
  3,636
  3,858
  4,092
  4,338
  4,597
  4,869
Earnings before tax, $m
  12,920
  10,197
  10,476
  10,792
  11,147
  11,538
  11,968
  12,435
  12,940
  13,483
  14,067
  17,353
  18,018
  18,726
  19,478
  20,276
  21,121
  22,016
  22,962
  23,962
  25,017
  26,131
  27,305
  28,542
  29,846
  31,219
  32,664
  34,186
  35,787
  37,471
  39,243
Tax expense, $m
  2,181
  2,753
  2,828
  2,914
  3,010
  3,115
  3,231
  3,357
  3,494
  3,641
  3,798
  4,685
  4,865
  5,056
  5,259
  5,475
  5,703
  5,944
  6,200
  6,470
  6,755
  7,055
  7,372
  7,706
  8,058
  8,429
  8,819
  9,230
  9,662
  10,117
  10,595
Net income, $m
  10,739
  7,444
  7,647
  7,878
  8,137
  8,423
  8,736
  9,077
  9,446
  9,843
  10,269
  12,667
  13,153
  13,670
  14,219
  14,801
  15,419
  16,072
  16,763
  17,492
  18,263
  19,075
  19,932
  20,836
  21,787
  22,790
  23,845
  24,956
  26,124
  27,354
  28,647

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
  66,532
  68,063
  69,812
  71,776
  73,952
  76,339
  78,939
  81,753
  84,785
  88,039
  91,520
  95,235
  99,189
  103,392
  107,852
  112,579
  117,582
  122,873
  128,463
  134,366
  140,594
  147,162
  154,085
  161,380
  169,063
  177,152
  185,666
  194,626
  204,051
  213,966
Adjusted assets (=assets-cash), $m
  55,896
  66,532
  68,063
  69,812
  71,776
  73,952
  76,339
  78,939
  81,753
  84,785
  88,039
  91,520
  95,235
  99,189
  103,392
  107,852
  112,579
  117,582
  122,873
  128,463
  134,366
  140,594
  147,162
  154,085
  161,380
  169,063
  177,152
  185,666
  194,626
  204,051
  213,966
Revenue / Adjusted assets
  0.881
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
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
  -5,023
  -5,139
  -5,271
  -5,419
  -5,583
  -5,764
  -5,960
  -6,172
  -6,401
  -6,647
  -6,910
  -7,190
  -7,489
  -7,806
  -8,143
  -8,500
  -8,877
  -9,277
  -9,699
  -10,145
  -10,615
  -11,111
  -11,633
  -12,184
  -12,764
  -13,375
  -14,018
  -14,694
  -15,406
  -16,154
Total debt, $m
  28,643
  25,533
  26,797
  28,242
  29,864
  31,661
  33,633
  35,781
  38,105
  40,610
  43,297
  46,173
  49,241
  52,507
  55,979
  59,663
  63,567
  67,700
  72,070
  76,688
  81,563
  86,708
  92,133
  97,852
  103,877
  110,223
  116,904
  123,937
  131,338
  139,123
  147,313
Total liabilities, $m
  58,066
  54,956
  56,220
  57,665
  59,287
  61,084
  63,056
  65,204
  67,528
  70,033
  72,720
  75,596
  78,664
  81,930
  85,402
  89,086
  92,990
  97,123
  101,493
  106,111
  110,986
  116,131
  121,556
  127,275
  133,300
  139,646
  146,327
  153,360
  160,761
  168,546
  176,736
Total equity, $m
  63,586
  11,577
  11,843
  12,147
  12,489
  12,868
  13,283
  13,735
  14,225
  14,753
  15,319
  15,924
  16,571
  17,259
  17,990
  18,766
  19,589
  20,459
  21,380
  22,353
  23,380
  24,463
  25,606
  26,811
  28,080
  29,417
  30,824
  32,306
  33,865
  35,505
  37,230
Total liabilities and equity, $m
  121,652
  66,533
  68,063
  69,812
  71,776
  73,952
  76,339
  78,939
  81,753
  84,786
  88,039
  91,520
  95,235
  99,189
  103,392
  107,852
  112,579
  117,582
  122,873
  128,464
  134,366
  140,594
  147,162
  154,086
  161,380
  169,063
  177,151
  185,666
  194,626
  204,051
  213,966
Debt-to-equity ratio
  0.450
  2.210
  2.260
  2.320
  2.390
  2.460
  2.530
  2.600
  2.680
  2.750
  2.830
  2.900
  2.970
  3.040
  3.110
  3.180
  3.250
  3.310
  3.370
  3.430
  3.490
  3.540
  3.600
  3.650
  3.700
  3.750
  3.790
  3.840
  3.880
  3.920
  3.960
Adjusted equity ratio
  -0.039
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174
  0.174

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10,739
  7,444
  7,647
  7,878
  8,137
  8,423
  8,736
  9,077
  9,446
  9,843
  10,269
  12,667
  13,153
  13,670
  14,219
  14,801
  15,419
  16,072
  16,763
  17,492
  18,263
  19,075
  19,932
  20,836
  21,787
  22,790
  23,845
  24,956
  26,124
  27,354
  28,647
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
  10,729
  10,970
  11,241
  11,541
  11,869
  12,226
  12,612
  13,027
  13,473
  13,231
  13,739
  14,280
  14,855
  15,465
  16,111
  16,795
  17,519
  18,283
  19,089
  19,941
  20,838
  21,784
  22,781
  23,830
  24,935
  26,098
  27,322
  28,610
  29,964
Change in working capital, $m
  -128
  -98
  -116
  -132
  -148
  -164
  -180
  -196
  -212
  -229
  -246
  -263
  -280
  -299
  -317
  -337
  -357
  -378
  -399
  -422
  -446
  -470
  -496
  -523
  -551
  -580
  -611
  -643
  -676
  -712
  -749
Cash from operations, $m
  13,570
  10,614
  10,844
  11,103
  11,389
  11,705
  12,049
  12,422
  12,824
  13,256
  13,719
  13,493
  14,020
  14,579
  15,173
  15,802
  16,468
  17,173
  17,918
  18,705
  19,535
  20,411
  21,334
  22,307
  23,331
  24,410
  25,546
  26,741
  27,999
  29,321
  30,712
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
  10,093
  10,297
  10,527
  10,783
  11,068
  11,379
  11,719
  12,085
  12,481
  12,904
  12,639
  13,123
  13,637
  14,184
  14,765
  15,380
  16,031
  16,719
  17,446
  18,214
  19,024
  19,879
  20,779
  21,728
  22,727
  23,779
  24,886
  26,051
  27,277
  28,566
Issuance/(repayment) of debt, $m
  3,111
  1,050
  1,264
  1,445
  1,622
  1,797
  1,972
  2,147
  2,325
  2,504
  2,688
  2,875
  3,068
  3,267
  3,472
  3,684
  3,904
  4,133
  4,370
  4,618
  4,876
  5,145
  5,425
  5,719
  6,025
  6,346
  6,682
  7,033
  7,400
  7,786
  8,189
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
  1,050
  1,264
  1,445
  1,622
  1,797
  1,972
  2,147
  2,325
  2,504
  2,688
  2,875
  3,068
  3,267
  3,472
  3,684
  3,904
  4,133
  4,370
  4,618
  4,876
  5,145
  5,425
  5,719
  6,025
  6,346
  6,682
  7,033
  7,400
  7,786
  8,189
Total cash flow (excl. dividends), $m
  5,504
  11,143
  11,561
  11,971
  12,406
  12,865
  13,351
  13,866
  14,410
  14,985
  15,592
  15,514
  16,191
  16,904
  17,656
  18,449
  19,284
  20,163
  21,089
  22,064
  23,090
  24,169
  25,304
  26,498
  27,753
  29,073
  30,460
  31,919
  33,452
  35,062
  36,755
Retained Cash Flow (-), $m
  -3,888
  -256
  -266
  -304
  -342
  -379
  -415
  -452
  -490
  -528
  -566
  -606
  -646
  -688
  -731
  -776
  -822
  -871
  -921
  -973
  -1,027
  -1,084
  -1,143
  -1,205
  -1,269
  -1,337
  -1,407
  -1,481
  -1,559
  -1,640
  -1,725
Prev. year cash balance distribution, $m
 
  52,265
  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
 
  63,152
  11,295
  11,667
  12,064
  12,486
  12,936
  13,414
  13,920
  14,457
  15,026
  14,909
  15,544
  16,216
  16,925
  17,673
  18,462
  19,293
  20,169
  21,091
  22,063
  23,085
  24,161
  25,293
  26,484
  27,736
  29,053
  30,437
  31,893
  33,422
  35,030
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
 
  60,549
  10,340
  10,153
  9,933
  9,679
  9,388
  9,062
  8,701
  8,305
  7,878
  7,080
  6,633
  6,166
  5,682
  5,188
  4,691
  4,198
  3,714
  3,247
  2,803
  2,388
  2,005
  1,658
  1,349
  1,079
  848
  653
  493
  365
  264
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 15.1
Price to Sales 3.3
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 12
Price to Free Cash Flow 13.1
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 -10%. 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 4996.23 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 $161.6 billion.

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COMPANY NEWS

▶ Markets Right Now: Stocks slide on Wall Street   [11:57AM  Associated Press]
▶ ETFs in Focus Post Cisco Results   [10:41AM  Zacks]
▶ Stocks Open Lower As These 2 Dow Names Dive   [09:35AM  Investor's Business Daily]
▶ Cisco meets 4Q profit forecasts   [Aug-16-17 09:21PM  Associated Press]
▶ [$$] Cisco's Long, Slow Decline   [06:52PM  The Wall Street Journal]
▶ [$$] Cisco Predicts Another Drop In Sales   [04:42PM  The Wall Street Journal]
▶ Cisco earnings: Did Trump slump continue?   [03:35PM  MarketWatch]
▶ [$$] Cisco Earnings: What to Watch   [02:47PM  The Wall Street Journal]
▶ Can Cisco Topple Slow-Moving Team Trump?   [02:25PM  TheStreet.com]
▶ Yacktman Fund 2nd Quarter Commentary   [04:16PM  GuruFocus.com]
▶ L.A. to launch cybersecurity threat partnership with businesses   [03:00PM  American City Business Journals]
▶ What To Expect From Cisco Earnings   [11:53AM  Investor's Business Daily]
▶ Cisco's Earnings Won't Be Pretty   [Aug-14-17 09:20PM  Motley Fool]
▶ The Apple-Cisco Plot to Undercut Competitors   [07:36AM  Market Realist]
▶ 3 High-Yield Dividend Stocks I'd Buy Right Now   [Aug-12-17 11:44AM  Motley Fool]
▶ US Market Indexes Gain on Friday   [09:09AM  GuruFocus.com]
▶ [$$] Cisco Could Raise Its Dividend   [Aug-11-17 02:20PM  Barrons.com]
▶ Losses Continue for US Market Indexes   [11:34AM  GuruFocus.com]
▶ Growth for Cisco Systems Services Business   [10:36AM  Market Realist]
▶ How Does Cisco Systems View Its Collaboration Segment?   [Aug-10-17 10:37AM  Market Realist]
▶ How the Meraki Acquisition Benefits Cisco   [09:08AM  Market Realist]
▶ What Analysts Expect from Cisco Systems in Fiscal 4Q17   [Aug-09-17 05:23PM  Market Realist]
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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