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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 75.19-0.1%Jan 16 9:30 AM EST
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To: hueyone who wrote (58479)3/13/2002 12:02:53 PM
From: RetiredNow  Read Replies (3) of 77400
 
OK. Let me clarify. If sales continue to go up, but A/R remains the same, then wouldn't you say that the business is getting more efficient at collecting? Well if A/R continue to go up as sales do, that is only natural.

Short term assets and liabilities will always fluctuate. So over the long term, those fluctuations become immaterial to the overall calculation of free cash flows. What John was asserting was that Cisco was generating current cash flows from their changes in net working capital, which is hogwash.

The way to calculate free cash flows should really be up for debate here. It's pretty simple. As far as Spredgar, I looked into it and I don't think they calculate it the way Brealy and Myers do, so forget that idea.

I think the reason why John is confused with my calculation is that I started with Operating Cash Flows and worked backwards to get to Free Cash Flows, whereas he started from Net Income and worked forwards to get it. Both are valid and we both actually included changes in net working capital as is appropriate. What John did was add those changes back to net income, whereas I just left them in operating cash flows, which is to say we did the exact same thing.
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