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

To: Stock Farmer who wrote (57781)	2/21/2002 10:06:30 AM
From: RetiredNow	Read Replies (2) \| Respond to of 77400

Let's see, I used operating cash flows excluding the following things: provision for doubtful accounts, provision for inventory, tax benefits from employee stock options, restructuring costs, and net gain/loss from investments. You're right it's not exactly free cash flows, but it's close. As far as full cost of equity financing, that should be accounted for as an ongoing dilution of equity through growth of o/s shares. So I factored in a growth of 3% annually. For "squeezing the assets", I'm pretty sure that I excluded all the equity financing shenanigans from my number. Remember some of this stuff gets included in the investing and financing section, which I don't include in my figures. Actually, year zero adjusted cash flows ended up being $3.637 Billion. The way I figured this was taking the last 5 years and excluding all investment and options cash contributions to get a decent estimate of true cash contribution from operations (you see all my adjustments above). Then I get a 5 year average of adjusted operating cash flows as a percentage of revenues, which comes to around 19%. Then I use this to forecast out cash flows based on my revenue growth projections. Simplistic, but it works. The thing you may argue here is that adjust cash flows as a percentage of revenues decreased in the final two years and that's true. But it has started to increase again. The main reason why it decreased in the final two years is because the company was structured for growth to $50 billion in revenues when they were only a $20 billion revenue company. We saw that in their plummeting revenue per employee figures. Now they've trimmed the fat and are much leaner and getting more lean every day, so adjusted operating cash flows will trend upwards as a percentage of revenues. My assumption is that this trend will regress to the mean of 19% of revenues over the long term. If you disagree with that assumption, then everything else flows out of that. So much of your discussion as to my calculations are moot. I excluded all the things you are concerned about. Instead, I suspect your reparte is going to center on my estimate of adjusted cash flows as a percentage of revenues in your next post to me. So let's talk about that. :) As to why I won't buy now, I've made that clear in the past. All purchases have to be based on two major things for everyone: 1) your own estimate of where the price will be in the future and 2) your risk tolerance. I believe the stock will be at $25, but I am very conservative when it comes to my sweat money. So I try to minimize risk as much as possible at all times. I haven't lost money buying Cisco since 1995 when I traded it, so I don't want to start a new trend now. $15 is the indifference price for me. Above $15, it's too risky for me. At $15, I could take it or leave it. Below $15, I start to like it. Way below $15 and I start to love it.