With a market cap of $153 Billion, Cisco Systems, Inc. (NASDAQ:CSCO) is the largest company in our Large Cap 1000 Screener, which you can access for free here.
Cisco designs, manufactures, and sells Internet Protocol (IP) based networking and other products related to the communications and information technology industry worldwide.
While there’s been a lot written about Cisco, I believe the company is still a major powerhouse in the technology space. Today I’ll provide some detailed analysis and a little history lesson on just why.
When you subtract the $8.1 Billion associated with Cisco’s investing activities from the $13.5 Billion in its operating cashflows, the company has $5.4 Billion in cashflows after investing.
This provided the company the opportunity to pay dividends totaling $4.7 Billion and other financing costs of $279 million, while still leaving a surplus of $982 million.
Even with this excess after investing of $982 million, the company still decided to issue new shares valued at $1.1 Billion, and borrowed an additional $6.98 Billion, which it used to pay $3.86 Billion of existing debt. Cisco also spent $3.9 Billion repurchasing its own stock and $557 Million on repurchasing shares for tax withholdings on vesting of restricted stock units.
All of this resulted in a net change of $754 Million in the cash that the company put in the bank.
What does all that mean?
To get a better understand of whether that’s good or bad you need to look at Cisco’s statement of cashflows over the past 10 years.
This is a company that has successfully generated significant amounts of cashflow out of its operations to easily cover its investing actitivies. In fact, over the past 10 years Cisco has generated $115 Billion out of its operations while spending $78 Billion on its investing activities. This means that the company has accumulated $37 Billion in cashflows after investing.
Why is that good?
Companies that generate significant amounts of cashflow from their operations after paying for their investments have a lot more choices. They can repurchase their own stock, pay down debt, or distribute money back to their shareholders in the form of a dividend.
Over the past 10 years Cisco paid dividends totaling $18 Billion and repurchased $39 Billion worth of its own stock, all of which is good news for its shareholders.
You can’t do this unless you’re generating significant amounts of cash from your operations over and above your investments.
Financial Leverage
In terms of financial leverage. Right now, Cisco has $65.7 Billion in cash and short term investments compared to $28.6 Billion in debt. When you subtract the debt from its cash and short term investments you’re left with $37.1 Billion. Divide that number by the company’s current equity of $63.6 Billion and you get (-58%). i.e. A net debt to equity ratio of negative 58%.
Take it one step further…
As mentioned above, Cisco has cash and short term investments totaling $65.7 Billion. Its total liabilities are $58 Billion. That means that Cisco has $7.7 Billion in cash and short term investments in excess of its total liabilities.
Valuation
Cisco’s current market cap is $153 Billion. When you subtract the net debt mentioned above ($37 Billion), the company has an enterprise value of $116 Billion or 9.12 times operating earnings and it’s trading on a P/E of 14.2. The company also provides a handy little shareholder yield of 7%, made up of a dividend yield of 3% and a buyback yield of 2%.
If history tell us anything, Cisco will continue to generate significant amounts of operating cashflow which will continue to be good news for its shareholders.
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