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What factors do think contributed to the trend

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The following excerpts from Cisco System's balance sheets are taken from the end of the fiscal years 1998 through 2002 and as of the end of the third quarter ending April 27, 2002. The April 27, 2002 numbers come from the Quarterly report (10-Q) that Cisco filed with the Securities and Exchange Commission. (in millions)

                                                         July 31, 1999             July 31, 2000               July 28, 2001                 April 27, 2002

Accounts receivable                        $ 1.269,00                  $ 2.342,00               $ 1.754,00                 $ 1.336,00

Allowance for doubtful accounts          $ 27,00                        $ 43,00                   $ 288,00                   $ 346,00

Net accounts receivable                      $ 1.242,00                      $ 2.299,00             $ 1.466,00                 $ 990,00

Required:

Question a. Comment on the trend in Cisco's gross accounts receivable from 1999 to 2002. What factors do you think contributed to this trend?

Question b. Compute the allowance for doubtful accounts as a percentage of gross accounts receivable. Comment on your findings.

Question c. What are some of the possible explanations for your findings in part (b)? Cite any findings that might by alarming to the financial community related to an investment in Cisco Systems.

Question d. Assume that Cisco was being overly conservative in estimating its bad debt allowance in 2002. If actual bad debts in 2003 are not as much as expected, what effect will this have on Cisco's reported earnings in fiscal 2003?

Reference no: EM132567624

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