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No. of Recommendations: 6
Warning, long post ahead!

In my continuing quest to keep up to date with my due diligence, here are the latest Rule Maker Ranker
figures for enterprise storage giant EMC Corporation. If you are interested in viewing some of my previous
analyses of EMC, just click on the following links:

http://boards.fool.com/Message.asp?id=1030043001701000
http://boards.fool.com/Message.asp?id=1030043001701002
http://boards.fool.com/Message.asp?id=1030043002026000

EMC is not a stranger to these boards, as it has been on the fringes of Rule Makerdom for a while now,
consistently scoring in the mid-high 40's but never quite making the grade as a Top Tier Rule Maker. Well
my friends, that is all about to change. Just take a look at the latest figures:

Financial Analysis Company Being Evaluated Competitor #1 Competitor #2 Competitor #3 Competitor #4

EMC Corporation IBM Sun MicrosysteNetwork Appliance
EMC IBM SUNW NTAP
Current PeriodYear-ago PerioYear-over-Year Current Period Current PeriodCurrent PeriodCurrent Period
2000 Q1 1999 Q1 Growth 2000 Q1 2000 Q3 2000Q3
Income Statement . . .
Sales 1,823 1,483 22.9% 19,348 4,005 151
Cost of Goods Sold 791 766 3.3% 12,337 1,913 61
Net Income 332 222 49.5% 1,514 508 20
Shares Outstanding 1,118,091 1,107,427 1.0%

Balance Sheet . . .
Cash & Equivalents 2,097 1,511 38.8% 3,606 3,133 290
Current Assets 4,620 3,145 46.9% 39,139 7,344 447
Short-term Debt 10 24 -58.3% 13,844 2 0
Current Liabilitie 1,497 708 111.4% 35,611 3,843 78
Long-term Debt 227 505 -55.0% 14,542 2,134 0

Cash Flow Stmt . . .
Cash from Ops 537 312 72.1% 995 838 10
Cap. Expenditures 183 107 71.0% 857 218 9

Margins & Ratios . . . 1 1 1 0Competitors' Avera
Gross Margins 56.6% 48.3% 8.3 36.2% 52.2% 59.6% 49.4%
Net Margins 18.2% 15.0% 3.2 7.8% 12.7% 13.2% 11.3%
Cash-to-Debt 8.85 2.86 209.8% 0.13 1.47 No Debt! 0.23
Net Cash 1860.0 982.0 89.4% -24780.0 997.0 290.0 -7831.0
Fool Flow Ratio 1.70 2.39 -29.0% 1.63 1.10 2.01 1.58
Cash King Margin 19.4% 13.8% 40.5% 0.7% 15.5% 0.7% 5.6%


Continue Here

Ranking Rule Makers

1) Brand Points (0-1) 3) Financial Dire Points (0-3)
Familiarity 1 Sales Growth 3
Openness 1 Gross Margins 3
Optimism 1 Net Margins 3
Legitimacy 1 Shares Outstandin 2
Inevitability 1 Cash-to-Debt 2
Solitariness 1 Fool Flow Ratio 3
Humor 1 Expansion Potenti 3
Subtotal 7 Subtotal 19

2) Financial Locatio Points (0-2) 4) Monopoly Statu Points (0-4)
Mass Market Habit 1 Gross Margins 4
Gross Margins 1 Net Margins 4
Net Margins 2 Net Cash 4
Cash-to-Debt 2 Fool Flow Ratio 0
Fool Flow Ratio 0 Convenience 4
Your Interest 1 Subtotal 16
Subtotal 7
5) Your Enjoymen 1

Total Score 50 TopTier!

Comments:

1) EMC falls short of our Rule Maker criteria in a couple of predictable areas: enterprise data storage
is not really a "repeat purchase" type of industry, and its flow ratio is still well above our 1.25
desired threshold. However, I think it is worth nothing that the Flow Ratio has been decreasing over
time, including a 5% drop from 99Q4 to 00Q1 (1.79 to 1.70). This drop in Flow Ratio earned them the
maximum score in the Financial Direction section, thus allowing them to acheive Top Tier status for the first
time.

2) Gross Margins are still on the increase, up another 1.5% from 99Q4, and a whopping 8.3% from
99Q1. This was primarily due to a continued increase in enterprise storage software, which has much higher
profit margins.

3) Net Margins were up 3.2% from 99Q1, but down slightly from the 20.1% figure from 99Q4. This
decrease over the 99Q4 numbers is primarily due to an $8 million increase in R&D spending and a $24 million
increase in SG&A expenditures.

4) The Cash/Debt ratio was much improved over both 99Q1 and 99Q4, as EMC paid down a significant portion
of their outstanding long-term debt.

5) The Cash King Margin has also improved significantly from my FY 1999 analysis (11.3%). Their
score in this category now significantly outperforms each of the competitors that were used in the
analysis, which encompasses several strong companies. This is a significant acheivement in my book.

6) Year over Year sales growth continued to come in over 20%, thus staying in line with the company's CEO,
Mike Ruettgers, public claims that the storage industry would see 25-30% growth over the next several
years.

7) For those of you that get excited about such things, EMC will be splitting their stock 2-for-1
effective at the market open on Monday.


As long as EMC continues to grow their revenues, increase their free cash flow generating abilities,
and bring their flow ratio into line, I think they deserve consideration as a potential addition to the
Rule Maker portfolio.

Fool On!

the LanceMan

Disclaimer: I currently have a long position in EMC
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