Thanks mindmeld,
Funny we should see things similarly once again. The world she is a changin'... Or maybe it's just relative perspective.
Regarding being stuck in the corner. We are similarly biased here. Some facts. And a few observations.
Between July '98 and July '01 Cisco increased shareholder equity by approximately 20 billions. Sounds impressive.
There are a few devils in the details however:
Firstly, Cisco's growth in Equity per Share that wasn't due to financing from the equity market over the last four years is 3.5 Billions. Compared to the 20 Billions by which shareholder equity increased it's not like Cisco is using equity financing lightly!!!
Second, Cisco's growth in Equity per Share that was due to financing from the equity market came to 16.5 Billions. According to Cisco's 10-K. And has been accompanied by a dilution of 1.06 billion shares, split adjusted. Which is a mind boggling number. 300 million a year. We've already discussed the implications of this ad nauseum.
Third, according to Yahoo historical quotes I get an average daily closing price of $37 for CSCO in between these two dates. Which is a reasonable approximation for what Cisco could have achieved had it been diluting itself uniformly through this period by selling shares on the open market. Minus some commissions. However, Cisco received an average of only about $15.50 per share. Or in other words, this 16.5 Billion in "increased" equity came at a cost to shareholders of approximately 39 Billion in dilution.
Shareholders could have borrowed 16.5 Billion on their cuumulative visa cards through this period of time, stuffed the cash in their mattresses for three years and pay it off at the end and get identical returns. That is, if Visa would have let them get away with it.
Finally, this equity is not being put to good use. Over this time, Cisco's investments have returned them an absolute loss that's just shy of half a billion. Yet folks keep talking about Cisco's 20 billion pile of cash, which indicates that the entire exercise of turning 37 Billions into 16.5 Billions has been so that it can sit in a bank vault and become 16 Billions.
Not to mention that the missing 22.5 Billion is a bit more than SIX TIMES the equity that the company accrued through operations during this period.
So it surprises me to hear folks talk about Cisco as a powerful cash generating machine. It is a pretty phenomenal cash magnet. Absolutely. No doubt about it. Except it's SHAREHOLDERS who are contributing the cash that is piling up on their behalf.
Mindmeld, it's more than just the number of shares that is of great concern. It's not just Cisco. Try similar math on some of the other darlings.
Which as you relayed is unfortunate. Because from an operating and executing perspective the company has been phenomenal. Just amazing.
John
Your opinion metric is interesting. I guess the fact that I still have 114% of mine shows, huh <vbg> |
