How well is Cisco management running the business?

By Brad Reese on Fri, 02/06/09 - 5:52pm.

BusinessWeek published an interesting story this week questioning the future of Exxon, currently the most profitable company on earth. Could Cisco perhaps be the "Exxon" of networking vendors? How well is Cisco management running the business? Yours truly decided to "tackle" the latter question by examining the historical operating margins of Cisco and then correlating them in the same time frame with Cisco's historical stock prices.

Wikipedia states:

Operating Income = Operating Revenue – Operating Expenses

According to Motley Fool:

Operating Margin

Operating margin equals operating income divided by sales. This is one way to show how well management is running the business.

View the past 16 years of Cisco operating income divided by net sales (i.e. operating margin percentage) for Cisco January Quarters:

Year 2009	2008	2007	2006	2005	2004	2003	2002	2001	2000	1999	1998	1997	1996	1995	1994
19.5	24.5	25.2	26.1	30.0	28.7	26.8	15.6	15.3	24.3	16.4	32.7	30.7	36.3	17.2	39.7

Source: U.S. Securities and Exchange Commission

View the past 16 years of Cisco common stock prices (closing price adjusted for dividends and splits ONLY for the day the quarter ended) for Cisco January Quarters:

Year 2009	2008	2007	2006	2005	2004	2003	2002	2001	2000	1999	1998	1997	1996	1995	1994
15.89	24.20	26.35	18.78	17.90	27.33	13.86	19.13	38.38	51.94	25.70	9.61	7.62	4.51	1.88	1.96

Source: Yahoo! Finance

View the past 15 years of Cisco operating income divided by net sales (i.e. operating margin percentage) for the following Cisco Quarters:

Month Qtr Ended	Year 2008	2007	2006	2005	2004	2003	2002	2001	2000	1999	1998	1997	1996	1995	1994
Jan.	24.5	25.2	26.1	30.0	28.7	26.8	15.6	15.3	24.3	16.4	32.7	30.7	36.3	17.2	39.7
Apr.	21.9	24.8	22.6	29.4	27.7	27.0	18.1	(-80.4)	15.1	27.0	12.5	32.7	35.8	37.4	39.7
Jul.	24.4	24.4	25.0	30.3	30.4	25.6	19.6	(-03.2)	14.4	24.0	29.1	16.2	32.8	35.8	38.4
Oct.	24.0	24.8	24.3	24.8	30.0	27.2	24.1	07.8	13.8	16.7	28.1	25.5	21.8	36.4*	38.6

Source: U.S. Securities and Exchange Commission
*Oct. 95 - 36.4% operating margin: U.S. SEC

View the past 15 years of Cisco common stock prices (closing price adjusted for dividends and splits ONLY for the day the quarter ended) for the following Cisco Quarters:

Month Qtr Ended	Year 2008	2007	2006	2005	2004	2003	2002	2001	2000	1999	1998	1997	1996	1995	1994
Jan.	24.20	26.35	18.78	17.90	27.33	13.86	19.13	38.38	51.94	25.70	9.61	7.62	4.51	1.88	1.96
Apr.	25.60	27.03	20.95	17.27	20.91	14.34	13.91	15.60	69.33	28.51	11.99	5.15	5.82	2.22	1.68
Jul.	22.43	28.97	18.08	19.15	20.92	19.08	11.82	19.06	62.81	31.07	16.29	8.85	5.71	3.11	1.17
Oct.	16.31	31.90	23.72	17.14	19.21	19.80	11.78	17.29	50.69	37.00	14.67	8.92	6.58	4.24	1.67