Question

Formulating Financial Statements from Raw Data
Following is selected financial information from Cisco Systems, Inc., for its fiscal year ended July 30, 2016 ($ millions).

Cash, ending year	$7,631	Total liabilities	$58,067
Cash from operating activities	13,570	Cash from financing activities	(4,699)
Sales	49,247	Noncash assets	114,021
Stockholders' equity	63,585	Cash from investing activities	(8,117)
Cost of goods sold	18,287	Net income	10,739
Total expense (other than cost of goods sold)	20,221	Cash, beginning year	6,877

(a) Prepare the income statement, the balance sheet, and the statement of cash flows for Cisco Systems for the fiscal year ended July 30, 2016.

Hint: Enter negative numbers only in answers for the statement of cash flows (if applicable).

Cisco Systems, Inc Income Statement ($ millions) For Year Ended July 30, 2016
Sales	$Answer
AnswerExpensesCost of goods soldCash, ending year	Answer
Gross profit	Answer
AnswerExpensesCost of goods soldCash, ending year	Answer
Net income	$Answer

Cisco Systems, Inc Balance Sheet ($ millions)            July 30, 2016
Cash	$Answer		Total liabilities	$Answer
AnswerNoncash assetsNet incomeCash, beginning yearStockholders' equity	Answer		AnswerNoncash assetsNet incomeCash, beginning yearStockholders' equity	Answer
Total assets	$Answer		Total liabilities and equity	$Answer

Cisco Systems, Inc Statement of Cash Flows ($ millions) For Year Ended July 30, 2016
Cash from operating activities	$Answer
AnswerNoncash assetsCash from investing activitiesCash, beginning yearNet income	Answer
Cash from financing activities	Answer
Net change in cash	Answer
AnswerNoncash assetsCash used in investing activitiesCash, beginning yearNet income	Answer
Cash, ending year	$Answer

(b) Do the negative amounts for cash from investing activities and cash from financing activities concern us? Explain.

A negative amount for cash from financing activities implies that the company is unable to pay its debts as they come due and should be interpreted negatively.

A negative amount for cash from investing activities is the result of additional borrowings. Because the additional funds are invested in earnings-generating assets, this should be viewed positively.

A negative amount for cash from investing activities implies that the market value of the company's long-term assets has declined and this change should be viewed negatively.

A negative amount for cash from financing activities reflects the reduction of long-term debt, which is a positive sign of the company’s ability to retire debt obligations.

(c) Using the statements prepared for part a. compute the following ratios (for this part only, use the year-end balance instead of the average for assets and stockholders' equity):

Round answers to two decimal places (example for percentage answers: 0.12345 = 12.35%)

(i) Profit margin
Answer%
(ii) Asset turnover
Answer
(iii) Return on assets
Answer%
(iv) Return on equity
Answer%

Answer 1

a)

Income Statement

Sales	$49247
Less: Cost of goods sold	$18287
Gross profit	$30960
Less: Expenses (other than cost of goods sold)	$20221
Net Income	$10739

Balance sheet

Cash	$7631	Total liabilities	$58067
Non cash assets	$114021	Stockholder's Equity	$63585
Total assets	$121652	Total liabilities and equity	$121652

Cash flow statement

Cash from operating activities	$13570
Cash from investing activities	($8117)
Cash from financing activities	($4699)
Net change in cash	$754
Add: Beginning cash	$6877
Ending cash	$7631

b) A negative amount for cash from financing activities reflects the reduction of long-term debt, which is a positive sign of the company’s ability to retire debt obligations.

c) Profit margin = (net income / sales) x 100 = (10739 / 49247) x 100 = 21.81%

Asset turnover = Sales / Total assets = 49247 / 121652 = 0.40

Return on assets = (net income / Total assets) x 100 = (10739 / 121652) x 100 = 8.83%

Return on equity = (net income / stockholders equity) x 100 = (10739 / 63585) x 100 = 16.89%