Boththebookvalueofequityandcapitalareaugmentedby
thevalueoftheresearchasset.Sincemeasuresofreturnon
capitaland equityarebased ontheprioryear’s values,we
computed thevalueoftheresearchasset attheend ofthe
previousfiscalyear,usingthesameapproachthatweusedfor
the current year and obtained a value of $9,878 million.
2
Thebookvalueofcapitalisidentical,sincethefirmhasno
debt outstanding. The returns on equity and capital are
reported with both the unadjusted and adjusted numbers:
While the profitability ratios for Cisco remain impressive
evenaftertheadjustment,theydeclinesignificantlyfromthe
unadjustednumbers.Thisislikelytohappenformostfirms
that earn high returns on equity and capital and have
substantial R&D expenses.
3
Capitalizing Other Operating Expenses
While R&D expenses arethe most prominent example of
capitalexpensesbeingtreatedasoperatingexpenses,thereare