On Feb. 1, data center equipment specialist Rackable Systems (Nsadaq: RACK) released full-year 2006 earnings for the period ended Dec. 30.

  • Sales and profits grew at a respectable clip, but the bottom-line gains were negated by even bigger dilution. That's one of the side effects you have to endure when investing in small companies with a penchant for share-swap acquisitions.
  • If the ROE drop looks impossibly steep, it's because average shareholder equity was nearly nothing in 2005. Return on the stated equity on the 2006 and 2005 balance sheets was 3.6% and 6.9%, respectively.
  • Rackable Systems has a three-star rating in our Motley Fool CAPS investor database.

(Figures in thousands, except per-share data)

Income Statement Highlights

FY 2006

FY 2005

Change

Sales

$360,376

$214,985

67.6%

Net Profit

$11,472

$8,512

34.8%

EPS

$0.40

$0.47

(14.9%)

Diluted Shares

28,618

18,040

58.6%



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

Margin Checkup

FY 2006

FY 2005

Change*

Gross Margin

21.4%

23.1%

(1.7)

Operating Margin

3.2%

11.0%

(7.8)

Net Margin

3.2%

4.0%

(0.8)

*Expressed in percentage points.

Margins are the earnings engine. See how they work.

Management Effectiveness

FY 2006

FY 2005

Change*

Return on Assets

15.7%

29.3%

(13.6)

Return on Equity

5.2%

92.0%

(86.7)

*Expressed in percentage points.

See how management puts its financial tools to work.

Balance Sheet Highlights

Assets

FY 2006

FY 2005

Change

Cash + ST Invest.

$160,471

$54,164

196.3%

Accounts Rec.

$104,070

$49,700

109.4%

Inventory

$68,137

$40,649

67.6%



Liabilities

FY 2006

FY 2005

Change

Accounts Payable

$61,102

$28,226

116.5%

Long-Term Debt

$0.0

$0.0

N/A



Learn the ways of the balance sheet.

Cash Flow Highlights

FY 2006

FY 2005

Change

Cash From Ops.

($17,584)

($28,384)

38.0%

Capital Expenditures

$3,938

$1,801

118.7%

Free Cash Flow

($21,522)

($30,185)

28.7%

Owner Earnings

$13,940

$14,829

(6.0%)



Find out why Fools always follow the money.

Cash Conversion Checkup

FY 2006

FY 2005

Change

Days in Inventory

70.1

61.9

8.1

Days in Receivables

77.9

50.1

27.7

Days Payables Outstanding

57.5

43.1

14.4

Cash Conversion Cycle

90.4

68.9

21.5



Read up on cash conversion metrics.

Related Companies:

  • Sun Microsystems (NASDAQ:SUNW)
  • Dell (NASDAQ:DELL)
  • IBM (NYSE:IBM)
  • EMC (NYSE:EMC)
  • Hewlett-Packard (NYSE:HPQ)
  • Network Appliance (Nsadaq: NTAP)

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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.