First, CSCO's business does exhibit a degree of seasonality, thus looking at sequential A/R changes doesn't always give you an idea of what's going on. When you look at the current A/R DSO, it is below CSCO's historical average, although certainly above the two most recent quarters. One place that bears watching is the allowance for doubtful accounts, a place where the numbers could easily be manipulated. It is here that I would be most worried if I was a CSCO shareholder. Even though quarterly revenues are approximately triple their level of 1997, the allowance for doubtful accounts has only increased by 30%--big difference. And, when compared to the level of July 98, the allowance is actually 25% lower. There might be an alarm there.
Second, contrary to what you assert, if CSCO does indeed have a problem with the credit of its customers, the odds are that it will show up in the financial statements prior to it having a strong impact on the stock price. One of the wonderful things that is an offshoot of the current market environment is that while issues in the income statement tend to be immediately reflected in the stock price of a company, issues on the balance sheet for some reason take their time in getting reflected in the stock price. Although this rule isn't absolute, it is pretty reliable, and it keeps me from getting my shorts blown off, so to speak. |
