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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: RetiredNow who wrote (46046)	1/5/2001 12:18:28 PM
From: Stock Farmer	Read Replies (4) \| Respond to of 77400

mindmeld - absolutely... CISCO cash flow is where it's at. Check out 2000 10K 2.6 B cash from operations, 2.5 B tax bene from option exercise l.0 B misc puts and takes. ----- 6.1 B cash generated by the business 1.5 B cash from issuing stock options ----- 7.6 B cash positive before investing activities. Of which 4.0 B or 53% is from stock options. Let's compare to 1999. 2.0 B operations 0.8 B tax bene from options 1.5 B misc puts and takes ------ 4.3 B 1.0 B issuance of options ----- 5.3 B of which 1.8 or 34% is from stock options. Discounting effect of stock options, change in cash is illuminating: 3.6 non-option operating cash in 2000 3.5 non-option operating cash in 1999 Annual growth in cash generated by the business: 2.9% Annual growth in cash generated by options: 55% !!! Hmmm... get an idea of what is driving CSCO's growth? All of the growth driving stock price appreciation is because of stock price appreciation!!! This is why I continue to point to the fundamental importance of CSCO's stock price to their business. The next point someone is likely to make is that the investments they are making are phenomenal and should not be discounted from the cash flow. Good point. Let's look at the cumulative effect of this investment activity. This shows up in the 10K as well. In 2000 10K, amortized cost of investments was 10.8 B$ and reported value was 16.3 B$ for about 5.5 B$ of unrealized gains. For all intents and purposes derived entirely from "corporate equity securities" (cost base 0.6 B$) On the surface, this is nearly 10:1 return which is where all the crowing of great stuff comes from. But it's not quite so for two reasons. First, 3.2 B$ of this was between July 29, '99 and July 29 '00 - before the market took us back slightly. CSCO stock weathered very well... but the numbers will depend on who Cisco invested in. We will have to wait to see. Second, returns on all other segments are slightly in the red. Weighted "unrealized" returns are more in line with 50% over the entire lifetime of the investment, not just in FY2000. This is not a big deal. Less than the return on the equity market over the equivalent period of time. Conclusion? Cisco is a business where the operating cash flow growth is coming from the stock price, and where the majority of the remaining cash growth is exposed to a bear market! OUCH. This is not as rosy a picture as people would make it out to be! John