MENU

Why does Apple have so much Cash?

Credit: Apple

Apple is the largest company in the world by market capitalisation and is currently valued at nearly $900 billion. Apple has constantly been in the media for the sheer amount of money which it has – investments of around US$200 billion. No other company in the world has as much money as Apple does.

Why does the firm hold so much cash compared to every other firm in the stock market?

1)      Excess Cash: Apple, as a business, is a cash generating machine. The firm has generated around US$40-US$50 billion dollars in profit every single year. Apple’s meant that the firm has earned huge sums of money and generated massive sums of free cash flow.

2)     Taxation reasons: Much of the money which Apple earns is generated overseas. Should funds be ‘repatriated’ to the United States, they would be subject to a significant amount of taxation. Instead of paying this tax, Apple long preferred to hold its cash overseas rather than bring it back into the United States. As Apple’s overseas sales have grown, so has its cash pile.

Trump’s repatriation policy has however helped to ease some of these restrictions.

3)     Low Cost of Capital: Due to Apple’s reputation and excellent credit rating, it is able to obtain money at an extremely low cost. The firm has e regularly chosen to borrow funds at rates of 1-2% rather than using its own cash.

4)     Research & Development Intensive Industry: Given that Apple operates in an industry in which innovation is crucial, it is essential that the firm has a strong cash position to fund its research and development projects. Apple’s large cash reserves have allowed them to constantly explore new opportunities and be the first to market.

5)     Lack of intelligent investment opportunities: With so much money, Apple is unable to find sufficient ‘short-term’ investment opportunities.

What the future holds for Apple’s cash hoard.

Apple’s management has suggested that it aims to reduce the cash pile. The company realises that this is not exactly an efficient way of operating, particularly if its investors could better invest the money themselves. Apple’s inefficient capital structure is one of the reasons the company was so cheaply priced by the market for so many years and potentially one of the reasons why Warren Buffett chose to invest in the company

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

mpinto has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool Australia has recommended Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.