A Fool asked Benjamin Graham,
"Is it greater to grow,
Or to reward investors with borrowed funds?"
Graham said
"Yes."

This attempted koan is provided as a courtesy to you, in honor of National Poetry Month.

On April 17, data storage, management, and security expert EMC (NYSE:EMC) released first-quarter earnings for the period ending March 31.

  • EMC acquired data security specialist RSA last summer, but that operation contributed a mere $120 million to this quarter's revenues. In other words, most of the sales growth here is organic.
  • This isn't the only IT company with a generous share buyback plan -- for example, Novell (NASDAQ:NOVL), Symantec (NASDAQ:SYMC), and Applied Materials (NASDAQ:AMAT) have all reduced their share counts by about 12% over the past year -- but it is by far the largest tech company to retire at least 10% of its shares over the past 12 months.
  • Do keep in mind that some of the share concentration was paid for with borrowed money. The RSA acquisition cost $2.2 billion, but was financed with $3.45 billion in convertible senior notes -- and the company spent $946 million on buybacks the day it closed its financing.

(Figures in millions, except per-share data)

Income Statement Highlights

Q1 2007

Q1 2006

Change

Sales

$2,975

$2,551

16.6%

Net Profit

$313

$272

14.7%

EPS

$0.15

$0.11

36.4%

Diluted Shares

2121.8

2400.3

(11.6%)

Get back to basics with the income statement.

Margin Checkup

Q1 2007

Q1 2006

Change*

Gross Margin

52.8%

52.3%

0.5

Operating Margin

11.5%

11.9%

(0.4)

Net Margin

10.5%

10.7%

(0.2)
*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q1 2007

Q1 2006

Change

Cash + ST Invest.

$4,284

$3,605

18.8%

Accounts Rec.

$1,542

$1,202

28.3%

Inventory

$825

$693

18.9%

Liabilities

Q1 2007

Q1 2006

Change

Accounts Payable

$727

$640

13.6%

Long-Term Debt

$3,450

$0

N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

Q1 2007

Q1 2006

Change

Cash From Ops.

$809

$637

26.9%

Capital Expenditures

$171

$161

6.2%

Free Cash Flow

$638

$477

33.9%

Owner Earnings

$355

$297

19.6%

Free cash flow is a Fool's best friend.

Related Foolishness:

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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, Fool contributor Anders Bylund had no position in any company mentioned. Fool rules are here.