Cisco and Juniper Financial Analysis

Topics: Balance sheet, Asset, Generally Accepted Accounting Principles Pages: 5 (1399 words) Published: October 6, 2007
In view of comparing the various accounting parameters of Cisco and Juniper, financial statements for the fiscal year 2006 are used for both the companies.

Stock Options grants:
Both the Companies have adopted the Statement of financial accounting standards No. 123 (revised 2004) SFAS 123(R). This standard requires the measurement and recognition of compensation expense for all share based payment awards made to employees and directors including employee stock options and employee stock purchases based on estimated fair value.

In 2006 Juniper had to restate its past financial results after an internal audit found problems with the way the company accounted for the stock options grants.

The investigation concluded that the recorded grant dates of certain stock-options differed from the actual measurement dates that should have been used for the accounting purposes. The company had indulged in backdating of stock options that were not accounted properly. Backdating means that the company awards its employees stock options on a date when its share price was low. Due to this the stock options of the employees become more valuable. Backdating can lead to overstating of earnings by a company. After Juniper recognized this discrepancy, they adjusted the measurement dates for options covering a total of 110.5 million shares of common stock covered by options granted during the relevant period. They recorded approximately $900 million charge as a result of the improprieties in its stock option granting practices. Juniper adopted SFAS123(R) on January 1 , 2006.

Its restated balance for common stock shares at December 2005 was 568.24 million. During the year 2006 in connection with employee stock purchase plan, the company issued 1.74 million shares. Stock options exercised by the employees were 9.31 million shares. The company repurchased and retired 10.07 million shares.

This left a balance of 569.23 million shares as of the end of December 2006.

In view of this, Cisco Systems reviewed its stock options practices and found no problems with it. Cisco had adopted the SFAS123(R) as on July 31, 2005.
Its balance outstanding shares as of July 2005 were 6,331 million shares. They granted 230 million shares for employee stock options. 84 million shares were cancelled, forfeited or expired.
136 million shares were exercised as employee stock options. After a net issuance of 162 million shares and repurchase of net 435 million shares, the balance outstanding common stock as of July 2006 were 6,059 million shares.

Trade and other receivable:

The reporting of account receivables is more or less similar in Cisco and Juniper. Net account receivable for Cisco is stated as $3,303 million. This includes deductions of allowance for doubtful accounts, amounting to $175 million which is 5.5 % of the gross account receivable balance. Allowances are considered on factors such as historical experiences, credit quality, age of account receivable balance and current economic conditions that may impact the customer.

There has been a significant increase in the account receivable as on July 2006 as compared to July 2005 figures. It is amounting to almost 32% increase. There is also a high increase in the Days Sale is Account Receivable. In 2006 it is 38 days as compared to 31 days in 2005.This is due to the linearity in shipments and collection performance. An unproportional increase in the account receivable might not be a good sign of company's performance if there is no proper reason given for the same. Juniper on the other hand shows a 7% decrease in its account receivables. However there is a contrasting increase in the annual revenues of the company. It has increased by almost 10% in December end 2006 as compared to December end 2005. This is a good sign for the company, which can be interpreted as, that the company is able to obtain revenues from its customers.

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