Cisco Systems, Inc. is an American company that specializes in the production and design of various consumer technologies. With the headquarters in San Jose California, the company is well known for its networking and communication technologies and is one of the leading electronics company in the state at present (Cisco: The Network 1). Being a multinational company, Cisco Systems Inc serves the international market, as it manages production and the delivery of its company services in more than one country. The company’s operating activities take place in the competitive computer networking industry, and for that reason, the company has a variety of competitors both from within the company’s headquarter locations and outside. The key competitors of Cisco Systems Inc. include Alcatel-Lucent (ALU), Hewlett Packard Company (HPQ), Jupiter Networks Inc. (JNPR), ARRIS Group Inc., and the Aruba Networks Inc. among others (Yahoo Finance 1).
A closer examination of the company’s annual report reveals that the company’s business strategy revolves around market expansion and product value. As a company, Cisco Systems Inc. has managed to expand its market share over a short period of time and this has been through their innovative products and services. The company has managed to utilize all its resources in a way that ensures the company is up to date with the changing trends in the industry, hence providing their customers with what they need. Price Water House Coopers LLP has been charged with the duty of auditing Cisco Systems Inc., and their opinion regarding Cisco’s financial statement and internal control is substantial (Cisco: The Network 1). According to the most recent auditor’s report, the company’s financial statement and internal control illustrate that the company is well positioned financially and there are prospects for future growth. The company’s management report also supports the auditor’s report in that it records the possibility of future growth owing to Cisco’s ability to manage and control its finances accordingly. In addition to this, the managers’ report suggests that Cisco Systems Inc. has discovered a number of investment opportunities, which it has taken advantage of for profitability.
Activity Ratio Analysis
Based on the financial statements presented over the last three years, it is evident that as a company that seeks market expansion, growth, and profitability, Cisco Systems Inc. is likely to achieve its financial goals and objectives. The operating efficiency of Cisco Systems Inc. in the last three years illustrates the company’s ability to generate sales and control operations costs (Cisco: The Network 1). Evidently, the company’s team of managers has developed appropriate business and operations strategies to assure the company of a proper operating efficiency. Seeing as Alcatel-Lucent is the company’s closest competitor, a comparison of Cisco’s operating efficiency and that of ALU reveals a large difference between the two companies (Yahoo Finance 1). At the outset, ALU’s financial records for the last three years illustrate a bit of inconsistency in the management of company sales against operations costs. Though the most current financial reports record more sales than the actual operations costs, the preceding two years illustrate a big difference in the two, hence a poor operations efficiency in the company. Accordingly, ALU is experiencing growth in the efficiency of its operations means that the managers have taken up strategies that favor the control of company sales and operations costs in each financial year.
Based on ALU’s financial records, it is safe to assume that the company is yet to reach to Cisco’s level in relation to operations efficiency. However, because the company has shown to have the ability to improve and increase the efficiency of its operations, then there exists a possibility of ALU and Cisco Systems Inc. were on the same level at one point. Some of the factors that distinguish Cisco’s operating performance and ALU’s operating performance include company employees, access to raw materials, and the company’s marketing strategies and efforts (Alcatel-Lucent 1). At the outset, a comparison of the two organizations reveals a difference in the number of employees, which is considered a key factor in determining a company’s operations efficiency. Having more employees, as in the case of ALU increases the company’s operating costs and because the sales are not high enough to compensate for the costs, the company experiences low operations efficiency. Secondly, access to raw materials for the production of goods also distinguishes the two companies’ operations efficiency. Whereas Cisco Systems Inc. has access to plenty of raw materials for their production activities, ALU relies on secondary sources thus increasing their operations costs (Alcatel-Lucent 1). An increase in the operations costs presents a variance in the operations efficiency as the sales do not match the company’s operations costs. Lastly, the companies’ marketing strategies also distinguish the operations efficiencies of the two companies. Cisco Systems Inc. has employed a proper marketing strategy that has allowed the company to make more sales for their products and services (Cisco: The Network 1). ALU’s marketing strategy, on the other hand, has failed to generate the company as many sales as Cisco’s thus lowering the efficiency of its operations. Cisco’s business environment and business strategy affect the activity ratios in that it determines the amount of money the company makes as income.
Profitability Ratio Analysis
A closer examination of Cisco’s profitability indicates that the company’s profitability has been on an upward spiral for the last three years. The company’s profitability can be estimated through an assessment of the current after-tax run-rate gross income (Cisco: The Network 1). This assessment is carried out both with the consideration of cash and non-cash financial records so as to estimate the actual value with relation to profitability. After adjusting Cisco’s financial statements, several return values were revealed in relation to the cost of funds and other financial activities in the company. For example, the company’s financial records reveal an increased firm value owing to the net invested capital and financial growth (Cisco: The Network 1). This, in turn, means with the same strategies employed in the years to come, the company is likely to experience more profitability in the following years. Additionally, the company is more likely to increase its firm value, hence the likelihood of more profit for the company in its industry.
Evidently, Cisco’s operating performance has been differentiated from that of its closest competitor ALU as a result of factors such as profit strategy, profit margins, and product mix (Alcatel-Lucent 1). In relation to profit strategy, Cisco Systems Inc. has successfully managed to employ a complex profit strategy that has allowed the company to make a considerable profit in the last three years. One of the profit strategies is the acquisition of companies and market expansion, a strategy that ALU has not employed in its operations activities. Cisco’s business environment and business strategy affect the profitability ratios in that they determine the amount of profit that the company makes with each financial year. For example, because the company has concentrated on product differentiation as their business strategy, it has managed to ensure the sale of its products hence profitability. Unlike, ALU, Cisco Systems Inc. has produced electronic equipment based on the changing trends in computer networking hence assuring the company of product sales.
Liquidity Ratio Analysis
Cisco’s liquidity in the past three years, as well as, the years before has been constant, as the company has managed to acquire assets that could easily be converted to cash over the years (Cisco: The Network 1). This is also one of the company’s business strategies for the assurance of having a return on capital investment throughout its business operations. Evidently, the company’s possesses plenty of cash to cover its daily operations activities such as production and sales. In addition to this, the company is also in possession of assets that can be convertible into cash to cover for the company’s cash requiring activities. Accordingly, Cisco’s possession of such cash assets assures the company of the ability to pay its debts and short-term obligations (Cisco: The Network 1). This means that Cisco’s liquidity ratios are appropriate for the company’s operations in the industry. When compared to ALU’s liquidity, Cisco’s liquidity is similar to that of ALU as both companies demonstrate the ability to pay their short-term debts and liabilities (Alcatel-Lucent 1). Cisco’s business environment and business strategy affect the liquidity ratios in that it provides access to the money required to sustain the company’s liquidity and liquidity ratios. Specifically, the business strategy increases the sales opportunities for the company, hence allowing the company to gain more income which they can maintain as cash assets or convert into other assets for the company.
Coverage Ratio Analysis
A closer examination of Cisco’s coverage ratios in the last three years reveals that the company has been able to meet its operational obligations as expected and with minimal disruptions. Because the coverage ratios encompass certain types of financial ratios, the assessment was carried out by a comparison of the company’s assets and liabilities for the determination of the company’s actual coverage ratios (Cisco: The Network 1). Accordingly, Cisco’s assets have the ability to cover for the company’s liabilities. When compared to that of its closest competitor, ALU, Cisco’s coverage ratios are considerably on the higher side in that the coverage ratios of Cisco Systems Inc. are much higher than those of ALU. ALU’s assets and liabilities reveal a margin between these two, and for that reason, the coverage ratios are much lower than those of Cisco Systems Inc. (Alcatel-Lucent 1). Some of the factors that contribute to the differences in coverage ratios between Cisco Systems Inc. and ALU include annual sales and revenue, as well as, operations costs. Cisco’s business environment and business strategy also affect the coverage ratios.
This is because the business environment and strategies determine the company’s ability to generate income, thus purchase assets, or operate on credit. Because the company has managed to generate enough income for itself, it has also successfully managed to use this income to maintain a proper balance in its coverage ratios. Conclusively, Cisco Systems Inc. has managed to finance its operating and investing activities in the last three years, as well as, the years before through shareholder’s investments, as well as, the daily operational revenue that the company makes (Cisco: The Network 1).
“Alcatel-Lucent Third Quarter 2011 Earnings”. Alcatel-Lucent. 4 November 2011. Web. 12
November 2011. <<http://www.alcatel-lucent.com/wps/portal/!ut/p/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLd4x3tXDUL8h2VAQAURh_Yw!!?LMSG_CABINET=Docs_and_Resource_Ctr&LMSG_CONTENT_FILE=News_Releases_2011/News_Article_002544.xml>>
“Cisco Reports Fourth Quarter and Fiscal Year 2011 Earnings”. Cisco: The Network. n.d. Web.
12 November 2011. <<http://newsroom.cisco.com/press-release-content?type=webcontent&articleId=456320>>
“Cisco Systems Inc.: Competitors”. Yahoo Finance. 11 November 2011. Web. 12 November
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