The Money Problem Apple Doesn’t Want You To Know About

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The Money Problem Apple Doesn’t Want You To Know About

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Apple’s Balance Sheet As of its latest quarterly report, it held $203 billion in cash and cash equivalents. Activist Carl Icahn has been demanding that the company return more cash to investors. But there’s a catch. It’s often cited is one of the stocks’s key strengths

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Show me the money Apple is avoiding American corporate taxes, which could cost as much as 35% to repatriate its overseas hoard. Instead it’s borrowing money to return capital to shareholders. But its debt load has ballooned. Almost 90% of its cash is kept overseas

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That’s a lot of coin Since Apple first issued $17 billion in debt in 2013, it has been adding about $15 billion in borrowings a year.

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That’s a lot of coin But it has also been making equivalent amounts of long-term investments.

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It’s not a problem today It’s made $51 billion in the last four quarters. Interest expense is approaching $1 billion. But interest income more than cancels it out. The company is more profitable than any other in the U.S.

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It’s not a problem today Over the last four quarters it’s returned $50 billion to shareholders in dividends and buybacks. That’s equal to its total amount of free cash flow minus investments. If profits keeps growing that’s not a problem. But it may not be able to return capital at this pace

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But fortunes change The tech industry changes quickly - just ask its old rival Blackberry. Its heavily dependent on one product - the iPhone. The company has swooned before - profits fell 11% in 2013. Apple has a number of risks

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Other companies have made the same mistake IBM shares have faltered as the company has borrowed money to buy back shares.

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Or a better example Over $3 billion went out the door to shareholders between 2000-2011 as the company took out debt to help fund the repurchases. Radio Shack declared bankruptcy earlier this year. When Radio Shack was flying high around 2000, the company spent liberally on buybacks

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Apple isn’t about to turn into Radio Shack As long as it keeps making long-term investments to balance out the debt, the stock should be safe. But if its performance deteriorates that debt burden could become a significant liability. But this rate of debt accumulation is not sustainable.

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