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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 73.69+0.4%Jan 21 3:59 PM EST
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To: RetiredNow who wrote (57438)2/11/2002 12:31:40 AM
From: Stock Farmer  Read Replies (1) of 77400
 
Multi Part Reply Part 2: On Inventory

While we're on the subject of questioning management's ability to estimate value, I don't grok how you get 90% of supposedly zero worth inventory actually turned out to be worth zero.

Not so long ago, management informed us that $2,220 Millions of Inventory was worth zero and subtracted this amount from earnings and thus from shareholder equity. Then they sold $121 Million of stuff worth zero (benefit to shareholder equity), used another $283 Million of stuff worth zero instead of buying/making more (benefit to shareholder equity) and bartered 447 million of stuff worth zero against future pending accounts payable (reduction in contractual future debit [=benefit] to shareholder equity)...

Looks to me like the only stuff really worth zero (no benefit to shareholder equity) was the 555 million that was scrapped. By my math, management was correct about 555 out of 2200, or 25%.

You mentioned that using inventory is a benefit to earnings, but "not materially". Perhaps. If we agree to call 15-20% of something being "not materially" then we agree. By that measure, Cisco's stock price hasn't changed materially in the last week, eh?

Nevertheless, Cisco will have to grow economic profit by 15% in order to show the same accounting profit next quarter for the same revenue.
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