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Cisco financial analysis

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case study
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  1. Presentation
    1. Trends of the global market
  2. Financial Analysis
    1. Stock Market
    2. Financial Structure
    3. Profitability
    4. Liquidity
    5. Coverage: long term solvency
  3. Key Assets for the future

The computer network industry had undergone an economic slowdown of 4% in 2002/2003, after two years of sustained growth with two figures. Moreover, many computer network suppliers outsource their production to reduce their cost. As a consequence there were mass redundancies in Alcatel, Cisco and particularly in Lucent Technologies which divided its workforce by two in three years (50000 redundancies).

[...] Nowadays, as the market is stagnating, Cisco is increasing its gross margin by decreasing its COGS. We can also say that Cisco has a good position in terms of gross margin when compared to its competitors which, as Nortel Networks, can reach a ratio of COGS in the operating revenue of 72%. Evolution of the Operating income The company reduced its Operating Expenses for 2003 which, combined with the gross margin increase, allows a 67% growth of the operating income. [...]

[...] That means that the financial situation is relatively safe for the short term: Cisco has enough liquid assets to cover its short term liabilities. We think that those two ratios are above as we said earlier, because of a good management of the customers and suppliers delays. Since 2001, the suppliers delay has been shorter than the customers delay. That's why Cisco recorded a decrease of 43% between fiscal year 2002 and 2003 of its working capital. The 2 ratios are close because of a quite low level of inventories (near 900 million of total current liabilities). [...]

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