Debt Now Makes up 1/3 of Apple Inc. (AAPL)’s Impressive Cash Pile


Apple Inc. reported amazing cash reserves at the end of its 2016 fiscal year. But what is ignored is its debt load too has increased, and is now one-third of the cash reserves. Apple raised more debt in the fiscal Q4 than the cash it added to the reserves, noted at $75.4bn and $237.6bn respectively, notes a report from MarketWatch.

Seeing cash along with debt gives a true picture

In the quarter, Apple’s cash pile went up by about $6.1bn while total debt increased by $6.5bn. The reason for the fast increase in Apple’s cash pile is that it has funneled the bulk of it into long-term securities, and for financing its massive shareholder return program it has raised debt at relatively low-interest rates.

Apple Inc. (NASDAQ:AAPL) Store

Apple Inc. prefers that practice because it has most of its cash overseas. This makes it subject to repatriation taxes if it chooses to bring it back to the US. At the end of 2016 fiscal year, it had 91% of its cash overseas, says MarketWatch. CEO Tim Cook has already said that he won’t pay those taxes.

The approach that Apple has adopted is the most profitable one to deal with the current U.S. tax structure. However, this approach does have some byproducts – the continued rise in its cash reserves and the “unabashed gawking” that total elicits, notes MarketWatch.

Net cash or cash minus debt is a better way to look at Apple’s cash reserves. Apple’s net cash position at the end of its 2016 fiscal year would be $162.1bn, which is higher from $121.2bn at the end of the 2012 fiscal year. “That total, and the $41 billion gain over four years, is nothing to sneeze at, but it looks tiny compared with the $116.4 billion gain that a quick look at its cash reserves would indicate,” says MarketWatch.

Apple earnings – investors worry, analysts bullish

Separately, Apple Inc. just released its fiscal Q4 earnings report. This was the third straight quarter in which the revenue declined on a year-over-year basis. Though the headwinds that the tech giant is facing might spur investor worries, but not all of them are necessarily bad believes Citi analyst Jim Suva.

Speaking in an interview on the CNBC show, ‘Squawk on the Street’, Suva said that Apple had struggled a lot to keep global prices steady in light of a strong U.S. dollar. But problems such as demand exceeding supply and lag in releasing new computer products might not prove to be major hurdles.

Suva said, “We think that demand is outpacing supply simply because Apple is innovating, and we think that’s an appealing characteristic. Whether supply catches up with demand, time will tell, but anytime you launch a new product and people want it, that’s a good problem for Apple to have.”

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    Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.


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