On Feb. 6, Cisco Systems (Nasdaq: CSCO) released second-quarter earnings for the period ended Jan. 26.

  • Companies with quarterly sales that compare favorably to the gross domestic product of Jamaica or Albania have the luxury to plan for the long term. A deal here and a miss there just don't move that weighty financial needle very far.
  • That said, management saw fewer incoming orders in January than it would have liked, which will hamstring the next quarter's shipped-and-paid sales a bit. Expectations are for 10% revenue growth from the last Q3, rather than the steady 16% results we've seen lately.
  • Cisco's margins shrank a bit this time, both from last year and sequentially. It looks like the culprits are increased R&D spending, which is OK by this Fool, and higher administrative expenses, which isn't quite as cool.

(Figures in millions, except per-share data)

Income Statement Highlights

Q2 2008

Q2 2007

Change

Sales

$9,831

$8,439

16.5%

Net Profit

$2,060

$1,921

7.2%

EPS

$0.33

$0.31

6.5%

Diluted Shares

6,202

6,291

(1.4%)

Get back to basics with the income statement.

Margin Checkup

Q2 2008

Q2 2007

Change*

Gross Margin

64.5%

63.9%

0.6

Operating Margin

24.5%

25.2%

(0.7)

Net Margin

21.0%

22.8%

(1.8)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q2 2008

Q2 2007

Change

Cash + ST Invest.

$22,693

$20,681

9.7%

Accounts Rec.

$4,165

$3,267

27.5%

Inventory

$1,267

$1,642

(22.8%)

Liabilities

Q2 2008

Q2 2007

Change

Accounts Payable

$763

$931

(18.0%)

Long-Term Debt

$6,851

$6,416

6.8%

The balance sheet reflects the company's health.

Cash Flow Highlights

Q2 2008

Q2 2007

Change

Cash From Ops.

$2,443

$2,658

(8.1%)

Capital Expenditures

$295

$334

(11.7%)

Free Cash Flow

$2,148

$2,324

(7.6%)

Owner Earnings

$2,222

$1,929

15.2%

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating

International Business Machines (NYSE: IBM)

$141,930

14.2

***

Cisco

$141,118

17.5

****

Nokia (NYSE: NOK)

$137,540

18.0

****

Motorola (NYSE: MOT)

$26,320

N/A

**

Nortel Networks (NYSE: NT)

$4,910

N/A

*

Using the latest reported numbers from Capital IQ.

Keep your partners close and the competition in your vest pocket.

Related Foolishness:

Fool by Numbers provides raw earnings information in a timely, convenient package. But since numbers never provide the whole story, check Fool.com for more in-depth discussion of the meaning behind the earnings.

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