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

To: kvkkc1 who wrote (51347)	4/12/2001 5:03:28 PM
From: Stock Farmer	Respond to of 77399

Woah nellie... this is what I mean about skewed accounting. You're using GROSS margin to calculate return. As if the R&D, SG&A, Marketing etc. expenses get allocated over the rest of the business? Which isn't how things work in the real world. These products are attracting costs in terms of R&D, SG&A, Marketing etc. Arguably more or less of a fair share. So you have to use NET margins and allocate across. Net margins in the period were generously 15% (actually 14% in 2000 and 15% so far in 2001) according to SEC filings. Using 15% x 1 B$ in '00 and 3 B$ in '01 you have a credit of .15 B$ in '00 and $0.45 credit in '01 for total credit of .60 B cuumulative or about 4% on the total 7.4 B$ annualized. Considering that shareholders would want to achieve EQUITY rates of return, rather than T-BILL rates of return, looks like a pitiful way to use shareholder equity to me. If you further consider that if the shares had been sold for CASH, held through the same period and then used to buy back CSCO shares... well, that would have been a good return. If however the 7.4 B$ had been put in with the rest of the company's investments, it would have been a truly lousy return. So Montery and Cerent aren't quite the good investments you make them out to be. For fun, maybe figure out how long 'till the principle is accounted for (forget the interest)? John.