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Cisco Systems (NAS:CSCO) WACC %

:8.99% (As of Today)
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As of today (2022-12-03), Cisco Systems's weighted average cost of capital is 8.99%. Cisco Systems's ROIC % is 14.33% (calculated using TTM income statement data). Cisco Systems generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.


Cisco Systems (NAS:CSCO) WACC % Historical Data

The historical data trend for Cisco Systems's WACC % can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

Cisco Systems Annual Data
Trend Jul13 Jul14 Jul15 Jul16 Jul17 Jul18 Jul19 Jul20 Jul21 Jul22
WACC % Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 8.44 7.29 5.44 6.66 8.16

Cisco Systems Quarterly Data
Jan18 Apr18 Jul18 Oct18 Jan19 Apr19 Jul19 Oct19 Jan20 Apr20 Jul20 Oct20 Jan21 Apr21 Jul21 Oct21 Jan22 Apr22 Jul22 Oct22
WACC % Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 7.00 7.53 8.46 8.16 9.53

Cisco Systems (NAS:CSCO) WACC % Competitive Comparison

For the Communication Equipment subindustry, Cisco Systems's WACC %, along with its competitors' market caps and WACC % data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.

   

Cisco Systems (NAS:CSCO) WACC % Distribution

For the Hardware industry and Technology sector, Cisco Systems's WACC % distribution charts can be found below:

* The bar in red indicates where Cisco Systems's WACC % falls into.



Cisco Systems WACC % Calculation

The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm's cost of capital. Generally speaking, a company's assets are financed by debt and equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances.

WACC=E/(E + D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate)

1. Weights:
Generally speaking, a company's assets are financed by debt and equity. We need to calculate the weight of equity and the weight of debt.
The market value of equity (E) is also called "Market Cap". As of today, Cisco Systems's market capitalization (E) is $204172.722 Mil.
The market value of debt is typically difficult to calculate, therefore, GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding the latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together. As of Oct. 2022, Cisco Systems's latest two-year average Short-Term Debt & Capital Lease Obligation was $1803.5 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was $8717 Mil. The total Book Value of Debt (D) is $10520.5 Mil.
a) weight of equity = E / (E + D) = 204172.722 / (204172.722 + 10520.5) = 0.951
b) weight of debt = D / (E + D) = 10520.5 / (204172.722 + 10520.5) = 0.049

2. Cost of Equity:
GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of return. The formula is:
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return)
a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is updated daily. The current risk-free rate is 3.49200000%. Please go to Economic Indicators page for more information. Please note that we use the 10-Year Treasury Constant Maturity Rate of the country/region where the company is headquartered. If the data for that country/region is not available, then we will use the 10-Year Treasury Constant Maturity Rate of the United States as default.
b) Beta is the sensitivity of the expected excess asset returns to the expected excess market returns. Cisco Systems's beta is 0.97.
c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.
Cost of Equity = 3.49200000% + 0.97 * 6% = 9.312%

3. Cost of Debt:
GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.
As of Jul. 2022, Cisco Systems's interest expense (positive number) was $360 Mil. Its total Book Value of Debt (D) is $10520.5 Mil.
Cost of Debt = 360 / 10520.5 = 3.4219%.

4. Multiply by one minus Average Tax Rate:
GuruFocus uses the latest two-year average tax rate to do the calculation. The calculated average tax rate is limited to between 0% and 100%. If the calculated average tax rate is higher than 100%, it is set to 100%. If the calculated average tax rate is less than 0%, it is set to 0%.
The latest Two-year Average Tax Rate is 19.275%.

Cisco Systems's Weighted Average Cost Of Capital (WACC) for Today is calculated as:

WACC=E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate)
=0.951*9.312%+0.049*3.4219%*(1 - 19.275%)
=8.99%

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.


Cisco Systems  (NAS:CSCO) WACC % Explanation

Because it costs money to raise capital. A firm that generates higher ROIC % than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.

As of today, Cisco Systems's weighted average cost of capital is 8.99%. Cisco Systems's ROIC % is 14.33% (calculated using TTM income statement data). Cisco Systems generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.


Be Aware

1. GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding latest two-year average Short-Term Debt & Capital Lease Obligation and Long-Term Debt & Capital Lease Obligation together.

2. The WACC formula discussed above does not include Preferred Stock. Please adjust if preferred stock is considered.

3. (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%.

4. GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt.


Related Terms

Cisco Systems (NAS:CSCO) Business Description

Cisco Systems logo
Address
170 West Tasman Drive, San Jose, CA, USA, 95134-1706
Cisco Systems, Inc. is the world's largest hardware and software supplier within the networking solutions sector. The secure, agile networks business contains switching, routing, and wireless solutions. The hybrid work division has products for collaboration and contact center needs. The end-to-end security group has products spanning a variety of threat prevention necessities. The Internet for the future division has routed optical networks, silicon, and optics. Optimized application experiences offer solutions such as full stack observability. Services are Cisco's technical support and advanced services offerings. In collaboration with Cisco's initiative on growing software and services, its revenue model is focused on increasing subscriptions and recurring sales.
Executives
Sharritts Jeffery S. officer: EVP & Chief Cust & Prtnr Offcr 1200 ABERNATHY RD., NE STE 1200 ATLANTA GA 30328
Stahlkopf Deborah L officer: EVP and Chief Legal Officer C/O CISCO SYSTEMS, INC. 170 WEST TASMAN DRIVE SAN JOSE CA 95134
Tessel Marianna director C/O INTUIT INC. 2700 COAST AVENUE MOUNTAIN VIEW CA 94043
Harris John D director C/O FLEXTRONICS INTERNATIONAL USA, INC. 6201 AMERICA CENTER DRIVE SAN JOSE CA 95002
Herren Richard Scott officer: EVP and CFO 851 WEST CYPRESS CREEK ROAD FORT LAUDERDALE FL 33309
Bush Wesley G director 333 MAPLE AVENUE EAST #3080 VIENNA VA 22180
Su Lisa T director C/O ADVANCED MICRO DEVICES, INC. 2485 AUGUSTINE DRIVE SANTA CLARA CA 95054
Tome Carol B director 55 GLENLAKE PARKWAY, NE ATLANTA GA 30328
Elliott Geraldine officer: EVP, Chief Sales & Mktg Offcr 1194 N. MATHILDA AVE. SUNNYVALE CA 94089
Martinez Maria officer: EVP, Chief Customer Exp Offcr THE LANDMARK @ 1 MARKET STREET SUITE 300 SAN FRANCISCO CA 94105
Garrett Mark director 106 EAST BABCOCK STREET SUITE 3A BOZEMAN MT 59715
Tan Irving officer: SVP, Operations and Digital 170 WEST TASMAN DRIVE SAN JOSE CA 95134
Goeckeler David officer: EVP, Networking and Security C/O WESTERN DIGITAL CORPORATION 5601 GREAT OAKS PARKWAY SAN JOSE CA 95119
Saunders Brent L director 2000 GALLOPING HILL ROAD C/O SCHERING PLOUGH CORP KENILWORTH NJ 07033
Chang Amy director 2100 SEAPORT BLVD. C/O INFORMATICA CORPORATION REDWOOD CITY CA 94063

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