The thing I like most about SEC filings is that companies remove almost all the rah-rah that plagues earnings press releases. This is the case with Cisco Systems' (NASDAQ:CSCO) 10-K filing, available at the SEC website for the past couple of weeks, and Cisco's fourth-quarter and year-end press release available at the company's website.

The press release is full of information about how much earnings grew and each financial record set. The SEC filing is just the facts and more of them. That said, Cisco did throw up some pretty impressive growth numbers last year. For the first time since 2001, sales growth was up for the year, and sales increased more briskly each quarter, concluding with a 26% gain for the fourth quarter and 16.8% for the year.

When taken alone that's impressive sales growth for a company of any size, let alone a titan such as Cisco. Ah, but when Cisco's sales are compared with accounts receivable and inventory growth, the story doesn't look as compelling. As seen in the table below, in every quarter last year accounts receivable and inventory grew faster than sales.

Quarterly Growth vs. Same Quarter 2003

Q4 Q3 Q2 Q1
Sales Growth 26% 21.7% 14.5% 5.3%
A/R Growth 35.1% 33.1% 84.3% 25.2%
Inv Growth 39% 48.8% 21.6% 8.3%

The most common causes of rapid accounts receivable growth are collection problems and giving customers generous terms in order to recognize sales. Neither should make you feel warm and fuzzy inside, though both are fixable if not allowed to get entirely out of control. What makes Cisco's case interesting is that the company has previously done a pretty good job here.

Inventory increasing faster than sales generally means that either the company made the wrong stuff or its sales forecast was overly ambitious. Again both are correctable if contained early enough, and Cisco has been burned here before.

Companies with abnormal accounts receivable and inventory growth often miss future earnings estimates, because sales that would have fallen into future periods were pulled forward, inventory gets written down, or the balance sheet becomes so bloated that the company can't respond to the demands of the marketplace.

In Cisco's case the balance sheet is still rock solid with $19 billion in cash. This allows Cisco flexibility that competitors Nortel (NYSE:NT), Lucent (NYSE:LU), and Juniper (NASDAQ:JNPR) can't match. However, analysts are expecting another year of robust growth from Cisco, and Cisco's forward P/E of 20 reflects those expectations. All this means that Cisco's 2005 isn't a cakewalk financially, and investors should keep a close eye on the balance sheet.

Fool contributor Nathan Parmelee does not own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.