No Miscues at Cisco: Fool by Numbers

On Feb. 6, networking expert Cisco Systems (Nasdaq: CSCO  ) released second-quarter 2007 earnings for the period ending Jan. 27.

  • Cisco delivered more sales than either Wall Street or company management expected, with a return to strong net margins. So, earnings per share met the lofty expectations set by the market, and the stock is trading up by more than 4% today.
  • Return on equity got a nice boost, even though the company's common equity balance increased by 15.8% year over year. That's normally the hallmark of a small growth stock, not one with a $170-odd billion market cap and 23 years of operating history.
  • Free cash flow is growing about as fast as net income, which is a sign of conservative accounting practices -- and a healthy business.

(Figures in millions, except per-share data)

Income Statement Highlights

Q2 2007

Q2 2006

Change

Sales

$8,439

$6,628

27.3%

Net Profit

$1,921

$1,375

39.7%

EPS

$0.31

$0.22

40.9%

Diluted Shares

6,291

6,248

0.7%



Get back to basics with a look at the income statement.

Margin Checkup

Q2 2007

Q2 2006

Change*

Gross Margin

63.9%

67.4%

(3.5)

Operating Margin

25.2%

26.1%

(0.9)

Net Margin

22.8%

20.8%

2.0

*Expressed in percentage points.

Margins are the earnings engine. See how they work.

Management Effectiveness

Q2 2007

Q2 2006

Change*

Return on Assets

16.9%

16.8%

0.1

Return on Equity

29.5%

24.8%

4.7

*Expressed in percentage points.

See how management puts its financial tools to work.

Balance Sheet Highlights

Assets

Q2 2007

Q2 2006

Change

Cash + ST Invest.

$20,681

$14,989

38.0%

Accounts Rec.

$2,908

$2,819

3.2%

Inventory

$1,642

$1,345

22.1%



Liabilities

Q2 2007

Q2 2006

Change

Accounts Payable

$931

$684

36.1%

Long-Term Debt

$6,416

$0

N/A



Learn the ways of the balance sheet.

Cash Flow Highlights

Q2 2007

Q2 2006

Change

Cash From Ops.

$2,658

$1,865

42.5%

Capital Expenditures

$334

$179

86.6%

Free Cash Flow

$2,324

$1,686

37.8%

Owner Earnings

$1,869

$1,450

28.9%



Find out why Fools always follow the money.

Cash Conversion Checkup

Q2 2007

Q2 2006

Change

Days in Inventory

46.0

55.4

(9.4)

Days in Receivables

33.7

36.8

(3.1)

Days Payables Outstanding

26.5

29.2

(2.7)

Cash Conversion Cycle

53.2

63.0

(9.8)



Read up on cash conversion metrics.

Related Companies:

  • Microsoft (Nasdaq: MSFT  )
  • Nortel Networks (NYSE: NT  )
  • Motorola (NYSE: MOT  )
  • TiVo (Nasdaq: TIVO  )
  • Openwave Systems (Nasdaq: OPWV  )
  • Hewlett-Packard (NYSE: HPQ  )

Related Foolishness:

Microsoft is a Motley Fool Inside Value selection, TiVo is a Motley Fool Stock Advisor pick, and Openwave is a bona fide Rule Breaker. Read up on Cisco's competition with a handful of free 30-day trial subscriptions.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund had no position in any company mentioned. Fool rules are here.


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