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:

• Foolish Forecast: Crusher Cisco
• Top Stocks for Self-Directed Investors
• Openwave: Still a Closed Book
• Foolish Fundamentals: The Balance Sheet

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.