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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: mtnlady who wrote (34414)11/6/2000 9:00:07 PM
From: EdR   of 54805
 
<Can someone explain why the market was so skitterish afterwards? What has the market spooked in the Cisco numbers?>

The following snip from an article by Matt Ritchey of MF may add to an understanding if others feel like he does....

<snip>
First the sweet. Cisco's top-line sales growth rang in at 66.4% compared to the year-ago result. That marks the 11th consecutive quarter of year-over-year sales growth acceleration. Such growth for a company with over $20 billion in trailing annual sales is beyond phenomenal.

But now the bitter. The balance sheet reveals that Cisco is having to invest substantially in receivables and inventory in order to fuel this growth. Since Q1 of last year, Cisco has increased its combined investment in receivables and inventory by $2.8 billion -- an increase of 137%. It's never good to see receivables and inventory growing faster than sales. And when those accounts are growing twice as fast as sales growth, that spells potential trouble. Without having listened to the conference call, I'd suspect this reflects Cisco's move into the telecom space, where carriers demand more liberal payment terms and more demo equipment.

In brief, Cisco's heavy investment in receivables and inventory will drag down free cash flow. If this trend continues, it would indicate a deterioration in Cisco's cash earnings power.
<snip>
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