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

To: rkral who wrote (62781)	1/27/2003 2:03:19 PM
From: Stock Farmer	Respond to of 77400

Thanks Ron, OK, I see how FCF was insufficient to cover the net increase in D&A assets, but to believe the difference was purchased with stock .. is an enormous leap for me. Not so enormous if you go back and read the 10-K forms and do the math and add it all up. Or if you look at the share count in 1996 and the share count in 2002. Those new shares went somewhere, and only half went towards stock options. The other half effectively "purchased" free cash flow. Don't believe this? Go add up the amount of "in process R&D" written down by the company over the past few years... that's a good start. Or extrapolate based on known information. There are only two ways one can purchase capital assets: with cash, or with non cash. If purchased with cash, this shows up in the cash flow statement. When one goes and figures out how much has been purchased, and subtracts the amount purchased "cash", one is left over with the amount purchased by non-cash. Now, we are left to figure out where the non-cash came from. First datapoint. Count the number of shares in '96 (split adjusted). Count the number now. Subtract. Count the number of stock options issued. Subtract. Remainder: non-cash used to purchase stuff. Second datapoint. Very vocal use of non-cash to purchase companies and grow the business. Shouldn't be too hard to put two and two together. In particular, two things bother me. First, as a business grows, it requires more working capital .. just like it needs more Property and Equipment. Over Cisco's last 7 fiscal years, the years you showcased, working capital increased $8.3 billion, from $0.66B (1.0-0.34) to $9.0B (17.4-8.4). To be consistent, shouldn't the model be allowing, even requiring, FCF funds to provide the working capital? FCF is what's left over after purchase of the assets necessary to grow the business. Which includes working capital. Working capital is merely current assets minus current liabilities. Secondly, and while not the case for Cisco, Property and Equipment are often purchased with long-term debt. Why didn't this potential provider of cash deserve get an honorable mention, at least? Not all things possible are also relevant. Regards, John