Cisco Systems Inc. (NASDAQ:CSCO)

The analysis of the financial data over the periods from July 2019 to July 2024 reveals several significant trends in the composition and valuation of goodwill and intangible assets.

Goodwill

There is a consistent upward trend in the value of goodwill from 33,529 million USD in July 2019 to 58,660 million USD in July 2024. This represents a substantial increase of approximately 75%, indicating considerable acquisitions or revaluations over the period.

Customer Related Intangible Assets

Values showed some fluctuations, decreasing from 840 million USD in 2019 to 760 million USD in 2020, then increasing to 1,387 million USD in 2021. This was followed by a moderate decline through 2023 before a sharp rise to 6,844 million USD in 2024. The dramatic increase in the latest period suggests recent significant investments or acquisitions impacting this asset class.

Technology Intangible Assets

The technology asset values remained relatively stable between 3,270 million USD and 3,629 million USD from 2019 through 2021 but dropped notably to 2,631 million USD in 2022, followed by a recovery to 2,998 million USD in 2023 and a substantial rise to 6,680 million USD in 2024. This volatility could indicate disposal or impairment followed by new technology investments or acquisitions.

Trade Name

No values were recorded until the most recent period, which shows a value of 553 million USD in 2024. This new recognition points to either new intangible assets being capitalized or adjustments in asset classification.

Other Intangibles

Values were relatively minor and inconsistent, fluctuating around 40 million USD with no clear trend and missing data in 2024, indicating their minor role in the overall intangible asset structure.

Purchased Intangible Assets with Finite Lives (Gross)

This category exhibited volatility, declining from 4,151 million USD in 2019 to 4,084 million USD in 2020, peaking at 5,087 million USD in 2021, then decreasing substantially over the next two years before escalating sharply to 14,077 million USD in 2024. The sharp increase in the latest year suggests significant acquisitions or capitalization of new assets.

Accumulated Amortization

Accumulated amortization increased in magnitude from -2,286 million USD in 2019 to -2,884 million USD in 2024, reflecting ongoing amortization of finite-lived intangible assets. The values, however, show some variability without a consistent linear trend.

Purchased Intangible Assets with Finite Lives (Net)

Mirroring the gross values and accumulated amortization trends, the net figure fluctuated considerably over the period, dropping from 1,865 million USD in 2019 to 1,363 million USD in 2020, climbing to 3,114 million USD in 2021, then falling to a low of 1,648 million USD in 2023, followed by a strong increase to 11,193 million USD in 2024. This indicates significant investments and subsequent amortizations influencing these assets' net recorded values.

In-Process Research and Development with Indefinite Lives

This asset category showed a declining trend from 336 million USD in 2019 to 26 million USD in 2024, indicating either amortization, impairment, completion and capitalization, or disposal of these assets over time.

Purchased Intangible Assets

Total purchased intangible assets displayed volatility, with a peak of 3,619 million USD in 2021, a trough at 1,818 million USD in 2023, and a significant increase to 11,219 million USD in 2024, consistent with the trends in the finite life intangibles.

Goodwill and Purchased Intangible Assets (Total)

The combined total exhibited a general rising trend from 35,730 million USD in 2019 to 69,879 million USD in 2024. Although there were minor fluctuations between 2020 and 2023, the overall growth reflects substantial intangible asset accumulation. The pronounced increase in 2024 coincides with sharp rises across multiple individual categories, particularly goodwill and purchased intangibles, suggesting considerable recent strategic transactions.

Overall, the data indicates a pattern of significant growth in intangible assets and goodwill primarily in the most recent fiscal year, reflecting possible acquisitions, capitalizations, or asset revaluations. Prior years show typical fluctuations consistent with amortization and asset management activities. The substantial rise in 2024 highlights an important shift in asset composition that may impact future financial performance and amortization expenses.

The analysis of the financial data over the six-year period reveals several notable trends in asset and equity figures under both reported and goodwill-adjusted bases.

Total Assets

Reported total assets have fluctuated moderately, beginning around 97.8 billion USD in 2019, dipping slightly in subsequent years before rising sharply to approximately 124.4 billion USD by 2024. This indicates an overall growth trajectory, particularly pronounced in the most recent year.

In contrast, the adjusted total assets, which exclude goodwill effects, have shown a consistent declining trend from about 64.3 billion USD in 2019 down to approximately 55.7 billion USD in 2022, before rebounding to 65.8 billion USD in 2024. The decline over the middle years suggests impairment or write-downs of intangible assets, with a partial recovery in the latest figures.

Equity

Reported equity presents steady growth, increasing from roughly 33.6 billion USD in 2019 to 45.5 billion USD in 2024. Despite a slight decrease from 2021 to 2022, the overall trend is upward, reflecting strengthening shareholder value or retained earnings accumulation.

Adjusted equity shows significant volatility. Starting at a minimal 42 million USD in 2019, it rises sharply to over 4 billion USD in 2020 but then declines sharply in the following years, reaching a negative figure of about -13.2 billion USD by 2024. This fluctuation and eventual negative adjusted equity suggest substantial goodwill impairments or other adjustments that reduce the tangible equity base.

Comparative Insights

The divergence between reported and adjusted figures highlights the impact of intangible assets, particularly goodwill, on the company's balance sheet. While reported total assets and equity appear to grow or remain stable, adjusted figures indicate underlying asset base shrinkage and deteriorating tangible equity.

This pattern could imply increasing reliance on intangible assets to support the company's valuation and financial position, with potential risks if these assets are impaired or considered less reliable in valuation.

Total Asset Turnover

The reported total asset turnover shows a generally stable trend with minor fluctuations, starting at 0.53 in 2019 and remaining close to this level through 2023, before declining to 0.43 in 2024. The adjusted total asset turnover, which accounts for goodwill, is consistently higher, beginning at 0.81 in 2019 and increasing to a peak of 0.93 in 2022, before decreasing slightly to 0.82 in 2024. This pattern indicates that when goodwill is excluded from assets, the company is more efficient at generating revenue from its asset base, although recent years show some decline in turnover efficiency.

Financial Leverage

Reported financial leverage has exhibited a gradual decrease from 2.91 in 2019 to 2.3 in 2023, followed by an uptick to 2.74 in 2024. In contrast, adjusted financial leverage, which excludes goodwill, shows significant volatility with extremely high values in 2019 (1530.1) and 2022 (37.92), and much lower values in other years, culminating in an absence of data for 2024. This suggests significant variability and perhaps instability in the capital structure when goodwill is excluded, potentially indicating changes in non-goodwill liabilities or intangible assets.

Return on Equity (ROE)

The reported ROE demonstrates a decreasing trend over the period, from a high of 34.62% in 2019 to 22.7% in 2024, with a slight rebound in 2022. The adjusted ROE values, which exclude goodwill, are substantially higher and more volatile, with extremely large values in early years (27,669.05% in 2019) dropping to 216.79% in 2023 and missing data thereafter. This disparity indicates that goodwill has a significant impact on equity figures, and excluding it reveals a considerably higher profitability level relative to adjusted equity, though such extreme values suggest caution in interpretation due to potential distortions or asset base adjustments.

Return on Assets (ROA)

Reported ROA remains relatively stable, fluctuating slightly around 11-12% from 2019 to 2023 before declining to 8.29% in 2024. Adjusted ROA presents consistently higher values, ranging from 17.85% to 21.21% in the earlier years and decreasing to 15.7% by 2024. This indicates that excluding goodwill results in an improved view of asset profitability, with a modest decreasing trend in recent years, highlighting either reduced asset efficiency or heightened asset base after adjustments.

Total Assets (Reported vs. Adjusted)

Reported total assets show fluctuation over the analyzed periods, starting at 97,793 million US dollars in 2019 and experiencing a decline in the following years, reaching a low of 94,002 million in 2022. Subsequently, there is a noticeable increase in 2023 and 2024, culminating at 124,413 million in the latest period. Adjusted total assets, which presumably exclude goodwill and other intangible assets, exhibit a declining trend from 64,264 million in 2019 to 55,698 million in 2022, followed by a recovery to 65,753 million by 2024. The gap between reported and adjusted total assets widens over time, indicating increased goodwill or intangible asset recognition.

Total Asset Turnover (Reported vs. Adjusted)

Reported total asset turnover ratios demonstrate relative stability between 2019 and 2021, fluctuating slightly around the 0.51 to 0.53 range. A mild increase is observed in 2022 and 2023, reaching 0.56, before a significant decline to 0.43 in 2024. This suggests a reduced efficiency in utilizing reported total assets to generate revenues in the latest period. In contrast, adjusted total asset turnover ratios remain consistently higher, starting at 0.81 in 2019 and showing a gradual increase up to 0.93 in 2022, indicating improved efficiency when excluding goodwill. A slight decline occurs in 2023 and 2024, settling at 0.82, but the adjusted turnover ratio remains substantially above the reported figure across all periods.

Overall Analysis

The increasing divergence between reported and adjusted total assets over the years implies a growing proportion of intangible assets such as goodwill in the asset base. The reported total asset turnover's decrease in the most recent year contrasts with the relatively stable adjusted turnover ratio, suggesting that asset efficiency metrics are significantly influenced by intangible assets. The adjusted figures indicate a generally stable to improving ability to generate revenue from tangible and non-goodwill assets through 2022, with some recent softness. The overall patterns emphasize the importance of considering adjusted metrics to obtain a clearer view of operational asset efficiency.

The reported total assets show a fluctuating trend from 2019 to 2024. The value initially decreases from $97,793 million in 2019 to $94,002 million in 2022, followed by a notable increase reaching $124,413 million in 2024. In contrast, adjusted total assets, which presumably exclude goodwill or intangible adjustments, display a steady decline from $64,264 million in 2019 to $55,698 million in 2022, before gradually rising to $65,753 million in 2024. This suggests that the company's tangible asset base contracted over the earlier period but stabilized and recovered somewhat by 2024.

Reported equity exhibits a generally upward trend, rising from $33,571 million in 2019 to $45,457 million in 2024, indicating an overall strengthening of the company’s net asset position despite some minor fluctuations. However, adjusted equity presents a markedly different and more volatile pattern. Starting at a very low $42 million in 2019, it improves to $4,114 million in 2020, then declines gradually to $1,469 million by 2022. A recovery to $5,818 million occurs in 2023, but adjusted equity significantly drops to a negative $13,203 million in 2024, signaling potential impairment or write-downs impacting the adjusted net worth negatively in that year.

Financial leverage ratios also reveal contrasting dynamics between reported and adjusted measures. Reported financial leverage consistently decreases from 2.91 in 2019 to 2.3 in 2023, before increasing to 2.74 in 2024, reflecting a general reduction in the use of debt relative to equity over most of the period followed by a rise in leverage. The adjusted financial leverage ratio displays extreme volatility with an extraordinarily high ratio of 1530.1 in 2019, declining sharply to 14.84 in 2020 and fluctuating significantly thereafter, peaking again at 37.92 in 2022 before falling to 10.88 in 2023. No data is available for 2024. The high and variable adjusted leverage ratios indicate considerable sensitivity to adjustments for goodwill or intangible assets, resulting in unstable leverage assessments when these factors are excluded.

Overall, the reported figures suggest steady growth in equity and an eventual increase in asset base by 2024 after earlier declines, accompanied by moderate variations in financial leverage. Adjusted figures paint a more complex and volatile picture, with declining tangible assets, fluctuating equity possibly due to impairments or revaluations, and highly unstable leverage ratios. This divergence points to the significant impact of goodwill and intangible asset adjustments on the company's financial structure and leverage measurements over time.

Reported Equity

The reported equity shows a generally increasing trend from 2019 to 2024. It rose from 33,571 million USD in 2019 to 45,457 million USD in 2024, indicating overall growth in the company's net asset base. The equity increased steadily each year except for a slight decline in 2022, where it decreased from 41,275 million USD in 2021 to 39,773 million USD, before recovering again in subsequent years.

Adjusted Equity

Adjusted equity exhibits significant fluctuations over the period. It started very low at 42 million USD in 2019, sharply increased to 4,114 million USD in 2020, then decreased to 3,107 million USD in 2021 and further dropped to 1,469 million USD in 2022. In 2023, adjusted equity rebounded to 5,818 million USD but experienced a substantial negative value of -13,203 million USD in 2024. This volatility suggests considerable adjustments related to goodwill or other intangible assets, highlighting potential impairment or revaluation impacts in the later years.

Reported Return on Equity (ROE)

The reported ROE demonstrates a downward trend over the six-year period. It started at a high level of 34.62% in 2019, dropped to 29.57% in 2020, and continued to decline steadily to 22.7% by 2024. Although the ROE experienced minor increases in 2022 and 2023, the overall pattern indicates a gradual reduction in profitability relative to reported equity.

Adjusted Return on Equity (ROE)

The adjusted ROE presents extraordinarily high and inconsistent values compared to the reported ROE, suggesting volatility introduced by adjustments. Values ranged from an extreme 27,669.05% in 2019 to 804.08% in 2022, with a notable drop to 216.79% in 2023. The absence of a figure in 2024 hinders full comparison for the final year. These extreme figures can be attributed to the very low or negative adjusted equity base in some years, inflating the ROE measure and implying a cautionary interpretation when using adjusted metrics alone.

The financial data reveals several notable trends over the six annual periods analyzed.

Total Assets

Reported total assets exhibit a fluctuating but generally upward trajectory, starting at 97,793 million US dollars in 2019, declining slightly in the subsequent years before increasing to 124,413 million US dollars by 2024. This indicates moderate asset growth overall with some volatility.

Adjusted total assets, which likely exclude goodwill, show a consistent decline from 64,264 million US dollars in 2019 to a low point of 55,698 million US dollars in 2022, followed by recovery to 65,753 million US dollars in 2024. The pattern suggests asset base contraction excluding goodwill in the first part of the period, with a modest rebound occurring afterwards.

Return on Assets (ROA)

Reported ROA remains relatively stable between 11.88% and 12.57% from 2019 through 2023, indicating consistent asset profitability. However, there is a marked decline to 8.29% in 2024, signaling decreased efficiency in generating net income from total assets in the latest period.

Adjusted ROA, which more accurately reflects returns from core assets excluding goodwill, is higher throughout and fluctuates between 17.85% and 21.21%. It peaks in 2022 at 21.21%, then declines to 15.7% in 2024. This decline in the last two years suggests a weakening in the returns generated by the company's core assets.

Comparative Insights

The consistently higher adjusted ROA compared to reported ROA highlights the positive impact of excluding goodwill in assessing asset profitability, implying that goodwill may be diluting reported returns.

The disparity in trends between reported and adjusted total assets also underscores the influence of goodwill and intangible assets on the reported balance sheet size, as goodwill seems to contribute significantly to the larger reported asset base without proportionally enhancing return performance.

Overall Interpretation

The data suggests that while the company's total reported assets have grown in recent years, underlying core assets excluding goodwill have faced contraction and only moderate recovery. Profitability as measured by adjusted ROA has declined after peaking, indicating challenges in maintaining prior efficiency levels. The sudden drop in reported ROA in the latest period could merit further investigation to understand underlying causes such as changes in asset composition, income generation, or extraordinary items.