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

To: Bindusagar Reddy who wrote (24309)	4/11/1999 12:32:00 PM
From: Uncle Frank	Respond to of 77397

BR, based on my experience with Chuzz, prepare to get a very useful lecture in basic economics. I think you should quit looking at margins and focus on cash flow and roic. I'll let his felineship take it from there. Frank

To: Bindusagar Reddy who wrote (24309)	4/11/1999 12:57:00 PM
From: Chuzzlewit	Read Replies (3) \| Respond to of 77397

Bindusager, valuation is a complex issue, but for starters let me simply point out that valuation is generally based on the present value of the stream of future cash flows discounted at an appropriate risk-adjusted rate. Your glib assertion that Dell is worth 36 BB today is simply that -- an assertion with no fact and based on an ill-defined model. Operating margins by themselves are unimportant. What is important is cash flow. Why are operating margins unimportant? Because they fail to take into account turnover. The combination of turnover and operating margin is vitally important, as that is the basis for gross profit. Efficient deployment and management of assets is likewise extremely important, for it is capital requirements along with inventory and A/R controls that limit or allow for rapid business expansion. No other business (or at least a business that I know of has) this combination of plusses. Dell stands alone in these important metrics. It has a very high ROIC -- around 180% as I recall (compared to CSCO's very nice 62.3%). It has a very low cash conversion cycle of -8 days (yes, that is a minus!) compared to Cisco's mediocre 70 days. So, I suggest you give a bit more thought before making pronouncements about this company. TTFN, CTC