Financial Analysis Of Cisco: Evaluating The Current Financial Performance
Analysis
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.
|
PROFITABILITY RATIOS |
Formula |
2017 |
2016 |
2015 |
2014 |
|
Net Profit Margin |
Net profit / sales |
20.02% |
21.81% |
18.71% |
15.95% |
|
Gross Profit Margin |
Gross profit / sales |
62.96% |
62.87% |
61.83% |
56.39% |
|
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 |
16.59 |
12.54 |
16.23 |
15.24 |
|
Price to Book ratio |
Market Value per Share / Book 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, Przemys?aw, 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.).
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).
Profitability Ratios
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 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.
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 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.
Reference and Bibliography:
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Cisco.com. N. p., 2018. Web. 22 Sept. 2018.
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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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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.