Cisco Systems (CSCO): FY2025 Margins, Cash Flow and Leverage

Executive summary — Cisco Systems, Inc. [CSCO]#

Cisco closed FY2025 with $56.65B in revenue, up +5.30% year‑over‑year, and generated $13.29B of free cash flow; the company returned $13.66B to shareholders in dividends and buybacks in the same period. This combination of strong cash generation and aggressive capital return sits alongside a very different balance‑sheet signal: $68.31B of goodwill and intangible assets (≈55.75% of total assets), a legacy of FY2024 acquisition activity that materially changed the company’s asset mix. The result is a business that shows solid cash‑conversion metrics and elevated capital return intensity, but with less liquid cushion and higher intangible exposure than in 2023.

All figures and percentages below are calculated from the company’s FY2022–FY2025 financial statements as supplied (income statement filed 2025‑08‑13; balance sheet accepted 2025‑07‑30; cash‑flow information accepted 2025‑07‑30). The raw numbers reveal three clear threads: revenue growth that has been uneven across the past three years, margin compression from the 2023 peak, and a balance‑sheet profile reshaped by acquisitions and shareholder distributions. Where possible I compute alternate measures (for example, two definitions of net debt) and flag data inconsistencies so the reader can see the arithmetic behind each conclusion.

This report begins with income‑statement trends, moves to cash‑flow quality, then examines balance‑sheet changes, computes key ratios and closes with a concise synthesis of what the numbers actually reveal (not the corporate narrative). Specific line‑item citations to the FY2025 statements appear in the text where figures are introduced.

Income‑statement trends#

Cisco reported $56.65B in revenue for FY2025 (fiscal year ended July 26, 2025), which represents a +5.30% increase versus FY2024 revenue of $53.80B (calculation based on the FY2024 and FY2025 income statements). The three‑year pattern is uneven: revenue rose +10.56% from FY2022 to FY2023, fell -5.61% in FY2024, then rose +5.30% in FY2025. Over the full 2022→2025 span the compound annual growth rate (CAGR) is +3.20%, reflecting modest, choppy top‑line growth rather than steady acceleration.

Gross profit and margins show a small widening in FY2024 followed by partial reversion in FY2025. Gross profit was $36.18B in FY2025, producing a 63.87% gross margin (36.18/56.65). That compares with 64.73% in FY2024 and 62.73% in FY2023. Operating income moved to $12.93B in FY2025 (operating margin 22.81%), down from a 26.37% operating margin peak in FY2023 but slightly above FY2024’s 22.64% level. Net income for FY2025 was $10.45B (net margin 18.45%), essentially flat versus FY2024 ($10.32B, 19.18%) and well below FY2023’s $12.61B.

What drove the margin profile? The data show clear upward pressure in operating expenses: Research & Development increased to $9.30B (16.42% of revenue) in FY2025 versus $7.98B (14.82% of revenue) in FY2024; Selling, General & Administrative rose to $13.96B (24.63% of revenue) in FY2025 from $13.18B (24.50% of revenue) in FY2024. Operating expenses (R&D + SG&A) totaled $23.26B in FY2025, or 41.06% of revenue—up materially from the 36.35% level in FY2023. The combination of higher R&D spending and elevated SG&A explains most of the margin compression from the 2023 peak.

The income‑statement trend table below records the principal line items and margins for FY2022–FY2025 and shows the year‑over‑year movements that underlie the narrative above.

(Income statement figures per FY2022–FY2025 filings supplied.)

Cash‑flow quality and capital allocation#

Operating cash flow and free cash flow are the clearest signs of underlying earnings quality in FY2025. Cisco produced $14.19B of net cash from operating activities and $13.29B of free cash flow in FY2025 (cash‑flow statement accepted 2025‑07‑30). That implies an operating‑cash conversion well above parity: OCF / Net income = 135.79% and FCF / Net income = 127.15% for FY2025, meaning accounting earnings are comfortably supported (indeed exceeded) by cash generated from the business in the year.

That strength follows a volatile three‑year pattern. Operating cash flow jumped from $13.23B (FY2022) to $19.89B (FY2023), then fell to $10.88B (FY2024) before rebounding to $14.19B (FY2025). Free cash flow follows the same swings: $12.75B → $19.04B → $10.21B → $13.29B. The large FY2024 swing corresponds to a $25.99B acquisitions outflow recorded in FY2024 and a similarly large net cash used in investing that year (‑$20.48B). In short, core cash generation is strong, but one‑time M&A activity in FY2024 materially distorted annual cash‑flow totals.

Capital allocation in FY2025 shows that corporate distributions absorbed essentially all available cash. Dividends paid were $6.44B and common‑stock repurchases were $7.22B, for total shareholder returns of $13.66B—≈102.8% of free cash flow in FY2025. Put differently, almost every dollar of FCF in FY2025 went to returning capital to shareholders. That level of distribution is financeable while FCF remains near current levels, but it leaves little incremental free cash to rebuild liquidity or underwrite additional large acquisitions without increasing leverage or cutting distributions.

The cash‑flow table below places the principal cash figures, acquisitions and capital‑return totals alongside balance‑sheet snapshots that matter for liquidity.

(Free cash flow defined here as net cash from operations minus capital expenditures; acquisitions and financing flows per FY filings supplied.)

Balance‑sheet shifts and leverage#

The balance sheet changed more in FY2024 than in any other year in the 2022–2025 window and the FY2025 position remains the product of that change. Total assets rose from $101.85B (FY2023) to $124.41B (FY2024) and then settled at $122.56B (FY2025). The primary visible lever behind the step change was goodwill and intangible assets, which jumped from $40.35B (FY2023) to $69.88B (FY2024) and remained at $68.31B in FY2025—an aggregate amount equal to roughly 55.75% of FY2025 total assets. Acquisitions recorded in FY2024 (‑$25.99B cash outflow) map directly to that intangible increase.

Leverage rose as a consequence of acquisition funding. Total debt increased from $8.39B at FY2023 year‑end to $30.96B in FY2024 and then fell slightly to $28.09B in FY2025. Net‑debt dynamics depend on how one defines “cash.” Using the company’s stated cash and short‑term investments (FY2025: $16.11B), a standard market definition gives net debt = $28.09B − $16.11B = $11.98B. The dataset also reports a net‑debt line of $19.75B, which corresponds to using only cash and cash equivalents ($8.35B) as the offset. Both definitions are mathematically valid; they produce materially different leverage pictures (net‑debt / EBITDA of 0.76x using cash+short‑term investments vs 1.25x using cash only). I flag the difference and present both metrics below because analysts and lenders commonly prefer one or the other.

Liquidity ratios have moved lower. The current ratio declined from 1.38x in FY2023 to 1.01x in FY2025; the quick ratio (cash + short‑term investments divided by current liabilities) fell from 0.84x in FY2023 to 0.46x in FY2025. The shift reflects the combination of a larger non‑current asset base (intangible heavy), sizeable cash returned to shareholders, and the deployment and repayment of debt following the FY2024 acquisition activity.

*Net debt (cash only) shown here is total debt less cash and cash equivalents; the company’s dataset lists 'netDebt' as $19.75B in FY2025 (consistent with the cash‑only definition). The alternate, market‑common net‑debt measure subtracts cash + short‑term investments and yields $11.98B.

Key ratios and valuation multiples (calculated)#

Having set out the line items, here are the principal ratios recalculated from the raw FY2025 data and market price in the supplied quotes (price = $69.30; market capitalization = $274.43B). Where multiple reasonable definitions exist I present both and explain the divergence.

Profitability ratios for FY2025 are: gross margin 63.87%, operating margin 22.81%, net margin 18.45%, and EBITDA margin 27.99% (computed as EBITDA / revenue using the supplied EBITDA of $15.86B). Return on equity using FY2025 net income of $10.45B and average equity (($45.46B + $47.12B) / 2 = $46.29B) is 22.57% (10.45 / 46.29). Return on assets using average assets ((124.41 + 122.56)/2 = 123.485) gives 8.46%.

ROIC depends on the invested‑capital definition. Using operating income adjusted for tax (NOPAT = operating income × (1 − effective tax rate)), the FY2025 effective tax rate is (income before tax $11.46B − net income $10.45B) / $11.46B = 8.82%. NOPAT = $12.93B × (1 − 0.0882) = $11.79B. If invested capital is measured as total debt + equity = $28.09B + $47.12B = $75.21B, ROIC = 11.79 / 75.21 = 15.68%. If we exclude cash + short‑term investments from the capital base (a common alternate approach), invested capital = $75.21B − $16.11B = $59.10B, giving ROIC ≈ 19.96%. The dataset’s precomputed ROIC (11.97%) uses a different convention; the exercise above shows how choice of denominator materially alters the reported ROIC.

Valuation multiples (market price $69.30; market cap $274.43B): trailing P/E = price / EPS. Using EPS TTM = $2.64 (netIncomePerShareTTM provided in raw metrics) yields P/E ≈ 26.25x; using the EPS figure of $2.61 shown in the stock quote produces P/E ≈ 26.55x. Price / Sales = $274.43B / $56.65B = 4.84x. Enterprise value (EV) using market cap + total debt − cash + short‑term investments = $274.43B + $28.09B − $16.11B = $286.41B; EV / EBITDA = $286.41B / $15.86B ≈ 18.06x. Net‑debt / EBITDA is 1.25x using the dataset's cash‑only net‑debt line, and 0.76x using the cash+short‑term investments convention.

These calculated ratios are summarized in narrative form to avoid overreliance on a single metric: P/E in the mid‑20s, EV/EBITDA 18.06x, price/sales 4.84x, strong FCF yield (4.84%: FCF $13.29B / market cap $274.43B), and an ROE north of 22%. At the same time, balance‑sheet indicators (goodwill > 55% of assets; quick ratio 0.46x) point to specific balance‑sheet risks not captured by headline multiples alone.

What the numbers reveal (not the corporate narrative)#

First, Cisco’s core business remains highly cash‑generative. FY2025 operating cash flow ($14.19B) and free cash flow ($13.29B) both exceed accounting net income ($10.45B), indicating that reported earnings are backed by cash in the period. Free cash flow margin is 23.47% (13.29/56.65), a structurally strong outcome for a networking and systems company with low capex intensity (capex ≈ 1.60% of revenue in FY2025).

Second, FY2024’s acquisition program materially changed the balance sheet. The $25.99B in acquisition cash outflows recorded in FY2024 is the proximate cause of the goodwill and intangible balance rising to $68.31B in FY2025 and of the step‑up in reported liabilities and total assets. That same program pushed net debt from a net‑cash position in FY2023 to materially positive net debt in FY2024 and FY2025 under conservative (cash+short‑term) definitions.

Third, Cisco is returning nearly all FY2025 free cash flow to shareholders. The $13.66B in dividends and buybacks in FY2025 consumed roughly 103% of free cash flow when measured against the company’s FCF—meaning the firm is financing distributions from current FCF with only a small margin for reinvestment or re‑building of net liquidity. That fact, combined with the lower quick ratio and the heavier intangible footprint, reduces balance‑sheet optionality for additional large M&A unless the company either slows distributions or increases leverage.

What this means for investors#

The raw numbers create two simultaneous stories: robust cash generation and elevated balance‑sheet leverage and intangibles. The former is a structural positive—the business converts a high proportion of revenue to cash and has historically funded dividends and buybacks from operating cash. The latter is a risk vector: FY2025 goodwill and intangible balances are large relative to both assets and equity and require monitoring for impairment risk, particularly if growth or margins weaken.

Key metrics worth watching on every quarter going forward are operating‑cash flow relative to net income (to detect weakening cash conversion), capital‑return pace versus free cash flow (to see whether distributions are being sustained or trimmed), and any movement in the company’s intangible‑asset base or impairment charges. Because the FY2024 acquisition jump materially shifted leverage, the path of net debt and the company’s stated approach to short‑term investments will determine whether future large acquisitions are feasible without changing the capital‑return program.

Finally, valuation multiples (P/E mid‑20s, EV/EBITDA ≈ 18x, FCF yield ≈ 4.8%) embed a mix of expectations: they reflect a profitable, cash‑rich business but they also price in the need for sustained execution to justify the goodwill on the balance sheet and the near‑term level of shareholder return. Those are not opinions about buy/sell decisions; they are arithmetic consequences of cash‑flow and balance‑sheet metrics.

Key takeaways#

Cisco’s FY2025 results show a business that remains cash‑productive: $13.29B of free cash flow and OCF / Net income = 135.79% underscore high cash quality. At the same time, R&D and SG&A have risen as a share of revenue, pressing operating margins down from 2023 peaks and leaving operating margin at 22.81% in FY2025.

The FY2024 acquisition program materially reshaped the balance sheet. Goodwill and intangible assets sit at $68.31B (≈55.75% of assets) and total debt rose to $28.09B; net‑debt calculations differ by definition (cash only vs cash + short‑term), so leverage perceptions vary from modest (net‑debt / EBITDA ≈ 0.76x) to more pronounced (≈ 1.25x). Analysts should be explicit which net‑debt convention they use.

Capital returns in FY2025 consumed almost all free cash flow ($13.66B returned vs $13.29B FCF). That distribution intensity is sustainable at current FCF levels but leaves limited room for both sizeable new M&A and rebuilding cash buffers without altering returns or increasing leverage.

Featured snippet — 50‑word answer#

How cash‑generative and leveraged was Cisco at the end of FY2025?

Cisco generated $13.29B of free cash flow in FY2025 and produced $14.19B of operating cash, with FCF covering roughly 103% of dividends plus buybacks. Net debt depends on definition: $11.98B (net of cash+short‑term investments) or $19.75B (net of cash only).

Conclusion#

The arithmetic in Cisco’s FY2025 statements paints a clear, mixed picture: operational cash generation remains a structural strength, but FY2024’s acquisition activity created a much larger intangible base and lifted leverage measures in ways that materially change the company’s financial profile. In FY2025 that profile translated into strong free cash flow that funded aggressive shareholder returns, while current‑ratio and quick‑ratio metrics tightened and goodwill now represents a significant portion of the asset base.

The numbers do not on their own prove a strategic success or failure; they document outcomes that require monitoring. The essential facts are simple, traceable and arithmetic‑based: Cisco is cash‑generative, it materially increased intangible assets via FY2024 acquisitions, and it is using most of its free cash flow to return capital. Those three facts—cash, intangibles, and distributions—are the levers to watch in quarterly reports going forward.

(All dollar figures and line‑item calculations in this report reflect the FY2022–FY2025 financial statements provided in the dataset; specific filing/acceptance dates are included in the dataset’s balance‑sheet and income‑statement records.)