Intrinsic value of Cisco Systems - CSCO

Previous Close

$37.96

  Intrinsic Value

$47.77

stock screener

  Rating & Target

buy

+26%

Previous close

$37.96

 
Intrinsic value

$47.77

 
Up/down potential

+26%

 
Rating

buy

*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 2017), $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 188.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -2.52
  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
  48,005
  48,965
  50,091
  51,379
  52,824
  54,425
  56,183
  58,096
  60,167
  62,398
  64,793
  67,355
  70,089
  72,999
  76,093
  79,375
  82,853
  86,536
  90,429
  94,544
  98,888
  103,471
  108,305
  113,401
  118,769
  124,423
  130,377
  136,643
  143,236
  150,173
  157,470
Variable operating expenses, $m
 
  21,828
  22,261
  22,757
  23,313
  23,930
  24,607
  25,343
  26,141
  27,000
  27,922
  25,931
  26,984
  28,104
  29,295
  30,559
  31,898
  33,316
  34,815
  36,399
  38,071
  39,836
  41,697
  43,659
  45,725
  47,902
  50,194
  52,607
  55,145
  57,816
  60,625
Fixed operating expenses, $m
 
  15,319
  15,702
  16,094
  16,496
  16,909
  17,332
  17,765
  18,209
  18,664
  19,131
  19,609
  20,099
  20,602
  21,117
  21,645
  22,186
  22,741
  23,309
  23,892
  24,489
  25,101
  25,729
  26,372
  27,031
  27,707
  28,400
  29,110
  29,838
  30,584
  31,348
Total operating expenses, $m
  36,032
  37,147
  37,963
  38,851
  39,809
  40,839
  41,939
  43,108
  44,350
  45,664
  47,053
  45,540
  47,083
  48,706
  50,412
  52,204
  54,084
  56,057
  58,124
  60,291
  62,560
  64,937
  67,426
  70,031
  72,756
  75,609
  78,594
  81,717
  84,983
  88,400
  91,973
Operating income, $m
  11,973
  11,819
  12,128
  12,527
  13,014
  13,586
  14,244
  14,988
  15,818
  16,735
  17,741
  21,815
  23,006
  24,293
  25,681
  27,171
  28,769
  30,479
  32,306
  34,253
  36,327
  38,534
  40,880
  43,370
  46,012
  48,814
  51,783
  54,926
  58,254
  61,774
  65,497
EBITDA, $m
  14,259
  15,203
  15,522
  15,932
  16,430
  17,016
  17,689
  18,448
  19,295
  20,230
  21,257
  22,375
  23,589
  24,901
  26,314
  27,832
  29,459
  31,199
  33,058
  35,040
  37,150
  39,395
  41,781
  44,314
  47,001
  49,849
  52,868
  56,063
  59,446
  63,024
  66,807
Interest expense (income), $m
  897
  900
  858
  902
  952
  1,008
  1,070
  1,139
  1,213
  1,294
  1,381
  1,474
  1,574
  1,680
  1,794
  1,914
  2,042
  2,177
  2,321
  2,472
  2,633
  2,802
  2,980
  3,168
  3,367
  3,576
  3,796
  4,028
  4,272
  4,528
  4,799
Earnings before tax, $m
  12,287
  10,918
  11,270
  11,626
  12,062
  12,578
  13,174
  13,849
  14,604
  15,441
  16,360
  20,341
  21,432
  22,613
  23,887
  25,257
  26,728
  28,302
  29,985
  31,781
  33,695
  35,733
  37,899
  40,202
  42,646
  45,238
  47,987
  50,898
  53,982
  57,246
  60,698
Tax expense, $m
  2,678
  2,948
  3,043
  3,139
  3,257
  3,396
  3,557
  3,739
  3,943
  4,169
  4,417
  5,492
  5,787
  6,105
  6,449
  6,819
  7,216
  7,642
  8,096
  8,581
  9,098
  9,648
  10,233
  10,854
  11,514
  12,214
  12,956
  13,743
  14,575
  15,456
  16,389
Net income, $m
  9,609
  7,970
  8,227
  8,487
  8,805
  9,182
  9,617
  10,110
  10,661
  11,272
  11,943
  14,849
  15,645
  16,507
  17,437
  18,438
  19,511
  20,660
  21,889
  23,200
  24,597
  26,085
  27,667
  29,347
  31,131
  33,024
  35,030
  37,156
  39,407
  41,789
  44,310

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  70,492
  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
  129,818
  60,525
  61,918
  63,509
  65,295
  67,275
  69,447
  71,812
  74,372
  77,130
  80,090
  83,257
  86,636
  90,234
  94,058
  98,115
  102,415
  106,966
  111,779
  116,865
  122,234
  127,900
  133,876
  140,174
  146,810
  153,799
  161,158
  168,903
  177,054
  185,628
  194,648
Adjusted assets (=assets-cash), $m
  59,326
  60,525
  61,918
  63,509
  65,295
  67,275
  69,447
  71,812
  74,372
  77,130
  80,090
  83,257
  86,636
  90,234
  94,058
  98,115
  102,415
  106,966
  111,779
  116,865
  122,234
  127,900
  133,876
  140,174
  146,810
  153,799
  161,158
  168,903
  177,054
  185,628
  194,648
Revenue / Adjusted assets
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
  0.809
Average production assets, $m
  5,934
  6,072
  6,211
  6,371
  6,550
  6,749
  6,967
  7,204
  7,461
  7,737
  8,034
  8,352
  8,691
  9,052
  9,435
  9,842
  10,274
  10,730
  11,213
  11,723
  12,262
  12,830
  13,430
  14,062
  14,727
  15,428
  16,167
  16,944
  17,761
  18,621
  19,526
Working capital, $m
  56,120
  -6,512
  -6,662
  -6,833
  -7,026
  -7,239
  -7,472
  -7,727
  -8,002
  -8,299
  -8,617
  -8,958
  -9,322
  -9,709
  -10,120
  -10,557
  -11,020
  -11,509
  -12,027
  -12,574
  -13,152
  -13,762
  -14,405
  -15,082
  -15,796
  -16,548
  -17,340
  -18,173
  -19,050
  -19,973
  -20,943
Total debt, $m
  33,717
  24,509
  25,762
  27,194
  28,802
  30,583
  32,538
  34,667
  36,971
  39,453
  42,117
  44,967
  48,009
  51,247
  54,688
  58,339
  62,209
  66,305
  70,637
  75,214
  80,047
  85,146
  90,524
  96,192
  102,165
  108,455
  115,078
  122,049
  129,384
  137,102
  145,219
Total liabilities, $m
  63,681
  54,473
  55,726
  57,158
  58,766
  60,547
  62,502
  64,631
  66,935
  69,417
  72,081
  74,931
  77,973
  81,211
  84,652
  88,303
  92,173
  96,269
  100,601
  105,178
  110,011
  115,110
  120,488
  126,156
  132,129
  138,419
  145,042
  152,013
  159,348
  167,066
  175,183
Total equity, $m
  66,137
  6,053
  6,192
  6,351
  6,530
  6,727
  6,945
  7,181
  7,437
  7,713
  8,009
  8,326
  8,664
  9,023
  9,406
  9,811
  10,241
  10,697
  11,178
  11,686
  12,223
  12,790
  13,388
  14,017
  14,681
  15,380
  16,116
  16,890
  17,705
  18,563
  19,465
Total liabilities and equity, $m
  129,818
  60,526
  61,918
  63,509
  65,296
  67,274
  69,447
  71,812
  74,372
  77,130
  80,090
  83,257
  86,637
  90,234
  94,058
  98,114
  102,414
  106,966
  111,779
  116,864
  122,234
  127,900
  133,876
  140,173
  146,810
  153,799
  161,158
  168,903
  177,053
  185,629
  194,648
Debt-to-equity ratio
  0.510
  4.050
  4.160
  4.280
  4.410
  4.550
  4.690
  4.830
  4.970
  5.120
  5.260
  5.400
  5.540
  5.680
  5.810
  5.950
  6.070
  6.200
  6.320
  6.440
  6.550
  6.660
  6.760
  6.860
  6.960
  7.050
  7.140
  7.230
  7.310
  7.390
  7.460
Adjusted equity ratio
  -0.019
  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
  9,609
  7,970
  8,227
  8,487
  8,805
  9,182
  9,617
  10,110
  10,661
  11,272
  11,943
  14,849
  15,645
  16,507
  17,437
  18,438
  19,511
  20,660
  21,889
  23,200
  24,597
  26,085
  27,667
  29,347
  31,131
  33,024
  35,030
  37,156
  39,407
  41,789
  44,310
Depreciation, amort., depletion, $m
  2,286
  3,384
  3,393
  3,404
  3,416
  3,430
  3,444
  3,460
  3,477
  3,496
  3,516
  561
  583
  608
  633
  661
  690
  720
  753
  787
  823
  861
  901
  944
  988
  1,035
  1,085
  1,137
  1,192
  1,250
  1,310
Funds from operations, $m
  14,462
  11,354
  11,621
  11,891
  12,222
  12,612
  13,061
  13,570
  14,138
  14,768
  15,459
  15,409
  16,228
  17,115
  18,071
  19,098
  20,201
  21,381
  22,641
  23,987
  25,420
  26,946
  28,568
  30,291
  32,120
  34,059
  36,115
  38,293
  40,599
  43,039
  45,620
Change in working capital, $m
  586
  -128
  -150
  -171
  -192
  -213
  -234
  -254
  -275
  -297
  -318
  -341
  -364
  -387
  -411
  -437
  -463
  -490
  -518
  -547
  -578
  -610
  -643
  -678
  -714
  -752
  -792
  -833
  -877
  -923
  -970
Cash from operations, $m
  13,876
  11,482
  11,771
  12,062
  12,414
  12,825
  13,295
  13,824
  14,414
  15,064
  15,777
  15,750
  16,592
  17,502
  18,482
  19,535
  20,663
  21,870
  23,159
  24,534
  25,998
  27,555
  29,211
  30,969
  32,834
  34,811
  36,907
  39,126
  41,476
  43,962
  46,591
Maintenance CAPEX, $m
  0
  -398
  -407
  -417
  -428
  -440
  -453
  -468
  -483
  -501
  -519
  -539
  -561
  -583
  -608
  -633
  -661
  -690
  -720
  -753
  -787
  -823
  -861
  -901
  -944
  -988
  -1,035
  -1,085
  -1,137
  -1,192
  -1,250
New CAPEX, $m
  -964
  -138
  -140
  -160
  -179
  -199
  -218
  -237
  -257
  -277
  -297
  -318
  -339
  -361
  -384
  -407
  -431
  -457
  -483
  -510
  -539
  -568
  -599
  -632
  -666
  -701
  -738
  -777
  -818
  -860
  -905
Cash from investing activities, $m
  -5,993
  -536
  -547
  -577
  -607
  -639
  -671
  -705
  -740
  -778
  -816
  -857
  -900
  -944
  -992
  -1,040
  -1,092
  -1,147
  -1,203
  -1,263
  -1,326
  -1,391
  -1,460
  -1,533
  -1,610
  -1,689
  -1,773
  -1,862
  -1,955
  -2,052
  -2,155
Free cash flow, $m
  7,883
  10,946
  11,224
  11,486
  11,807
  12,187
  12,624
  13,120
  13,674
  14,287
  14,961
  14,893
  15,693
  16,558
  17,491
  18,495
  19,571
  20,724
  21,956
  23,271
  24,673
  26,164
  27,750
  29,435
  31,224
  33,122
  35,133
  37,264
  39,521
  41,909
  44,436
Issuance/(repayment) of debt, $m
  5,326
  -1,216
  1,253
  1,432
  1,608
  1,782
  1,955
  2,129
  2,304
  2,482
  2,664
  2,850
  3,041
  3,238
  3,441
  3,652
  3,870
  4,096
  4,332
  4,577
  4,833
  5,099
  5,378
  5,668
  5,972
  6,290
  6,623
  6,971
  7,335
  7,717
  8,117
Issuance/(repurchase) of shares, $m
  -3,596
  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
  0
Cash from financing (excl. dividends), $m  
  1,705
  -1,216
  1,253
  1,432
  1,608
  1,782
  1,955
  2,129
  2,304
  2,482
  2,664
  2,850
  3,041
  3,238
  3,441
  3,652
  3,870
  4,096
  4,332
  4,577
  4,833
  5,099
  5,378
  5,668
  5,972
  6,290
  6,623
  6,971
  7,335
  7,717
  8,117
Total cash flow (excl. dividends), $m
  9,588
  9,730
  12,476
  12,918
  13,415
  13,968
  14,579
  15,248
  15,978
  16,769
  17,625
  17,743
  18,734
  19,796
  20,932
  22,146
  23,441
  24,820
  26,288
  27,848
  29,505
  31,263
  33,128
  35,104
  37,197
  39,412
  41,756
  44,235
  46,857
  49,627
  52,553
Retained Cash Flow (-), $m
  -2,551
  -2,416
  -139
  -159
  -179
  -198
  -217
  -237
  -256
  -276
  -296
  -317
  -338
  -360
  -382
  -406
  -430
  -455
  -481
  -509
  -537
  -567
  -598
  -630
  -664
  -699
  -736
  -775
  -815
  -857
  -902
Prev. year cash balance distribution, $m
 
  62,500
  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
 
  69,815
  12,337
  12,759
  13,236
  13,770
  14,362
  15,012
  15,722
  16,493
  17,329
  17,426
  18,396
  19,436
  20,550
  21,741
  23,011
  24,365
  25,807
  27,340
  28,968
  30,697
  32,530
  34,474
  36,533
  38,713
  41,020
  43,461
  46,041
  48,769
  51,651
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
 
  66,936
  11,294
  11,104
  10,899
  10,674
  10,423
  10,142
  9,826
  9,475
  9,085
  8,276
  7,850
  7,390
  6,899
  6,383
  5,848
  5,301
  4,753
  4,210
  3,681
  3,175
  2,699
  2,259
  1,861
  1,506
  1,197
  933
  712
  532
  389
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 and sells a range of products, provides services and delivers integrated solutions to develop and connect networks around the world. The Company operates through three geographic segments: Americas; Europe, the Middle East and Africa (EMEA), and Asia Pacific, Japan and China (APJC). The Company groups its products and technologies into various categories, such as Switching; Next-Generation Network (NGN) Routing; Collaboration; Data Center; Wireless; Service Provider Video; Security, and Other Products. In addition to its product offerings, the Company provides a range of service offerings, including technical support services and advanced services. The Company delivers its technology and services to its customers as solutions for their priorities, including cloud, video, mobility, security, collaboration and analytics. The Company serves customers, including businesses of all sizes, public institutions, governments and service providers.

FINANCIAL RATIOS  of  Cisco Systems (CSCO)

Valuation Ratios
P/E Ratio 19.7
Price to Sales 3.9
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 13.6
Price to Free Cash Flow 14.6
Growth Rates
Sales Growth Rate -2.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -15.9%
Cap. Spend. - 3 Yr. Gr. Rate -5.4%
Financial Strength
Quick Ratio 9
Current Ratio 0.1
LT Debt to Equity 38.9%
Total Debt to Equity 51%
Interest Coverage 15
Management Effectiveness
Return On Assets 8.2%
Ret/ On Assets - 3 Yr. Avg. 8.9%
Return On Total Capital 10%
Ret/ On T. Cap. - 3 Yr. Avg. 11.1%
Return On Equity 14.8%
Return On Equity - 3 Yr. Avg. 15.9%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 63%
Gross Margin - 3 Yr. Avg. 62.1%
EBITDA Margin 32.2%
EBITDA Margin - 3 Yr. Avg. 31.3%
Operating Margin 24.9%
Oper. Margin - 3 Yr. Avg. 24.2%
Pre-Tax Margin 25.6%
Pre-Tax Margin - 3 Yr. Avg. 24.9%
Net Profit Margin 20%
Net Profit Margin - 3 Yr. Avg. 20%
Effective Tax Rate 21.8%
Eff/ Tax Rate - 3 Yr. Avg. 19.5%
Payout Ratio 57.4%

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 $48005 million for the last fiscal year's total revenue generated by Cisco Systems. The default revenue input number comes from 2017 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 44.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $14945 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 12.4%.

Life of production assets of 14.9 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 -13.3%. 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 - $66137 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 4951.83 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 $188.0 billion.

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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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