How much cash does Apple have?
That is a very interesting question,
and different answers are circulating in the press
and on the internet.
In this video, we will investigate how much cash
Apple has by doing a balance sheet analysis
of Apple's latest annual report.
If you are watching this video, I would like you to
actively participate in this analysis
by picking one of the following numbers.
How much cash does Apple have?
Is it A. $8.6 billion?
B. $20.5 billion?
C. $150.6 billion?
D. $237.6 billion?
Take your best guess, and let's investigate
how each of these numbers fits into the picture!
To dive into Apple's numbers, the best place to start
is by reviewing its latest annual report.
Apple's fiscal year is not equal to the calendar year.
From the perspective of Apple's financial reporting,
2016 ended on September 24.
The filing document with the SEC for an annual report
is called the 10-K.
To investigate how much cash Apple has,
we need to turn to the balance sheet.
This will show you that Apple is not just
a maker of gadgets, but in my opinion also
a massive hedge fund.
The balance sheet is an overview of what
a company owns and what a company owes
at a point in time. In this case Apple's
assets and liabilities at September 24th 2016,
which each add up
to the very sizeable number of 322 billion dollar.
If we go into the detail of what is in those
assets and liabilities, you get an overwhelming
number of line items.
Let me walk you through the big picture
to make you more comfortable.
On the asset side (on the left), this balance sheet starts
at the top with the current assets
(things that are already cash or are likely to turn
into cash within one year), and then
lists lower down the page the non-current assets
(things that are not likely to turn
into cash within one year).
On the liabilities side (on the right),
the balance sheet starts with current liabilities
(things that need to be settled in cash within one year)
and then lists non-current liabilities
(mostly long term debt) and shareholder capital.
On the top left, one number jumps out:
the $20.5 billion in cash and cash equivalents.
That's option B from the quiz.
However, $20.5 billion is not the only possible answer.
$8.6 billion dollar is the true "cash" part
of the cash and cash equivalents.
The remaining $11.9 billion consists of
cash equivalents: highly liquid investments with
maturities of three months or less
at the date of purchase.
So these are the first two options
that I showed you in the quiz at the start.
Option A $8.6 billion if you approach the question
with a very narrow definition of cash,
and option B $20.5 billion for the slightly broader
definition which includes cash equivalents.
In the press and on internet blogs,
a much broader definition is often used.
Let's call this the cash "big picture".
The broad definition of cash is called cash,
cash equivalents and marketable securities.
It is the sum of three line items:
cash and cash equivalents of 20.5,
short-term marketable securities of 46.7
and long-term marketable securities of 170.4.
20.5 + 46.7 + 170.4 equals 237.6.
This is option D of our quiz: $237.6 billion dollar,
an enormous number that in 2016 is
double the size of what it was in 2012.
What are marketable securities?
Marketable securities are
unrestricted financial instruments which can be
readily sold on a stock exchange or bond exchange.
They can be marketable equity securities
or marketable debt securities.
The sum of cash, cash equivalents and
marketable securities makes up 74% of the total assets
on Apple's balance sheet!
The weighted-average interest rate made or earned
on cash, cash equivalents and marketable securities
was 1.7% in 2016.
Apple provides more detail on the asset categories
it has invested its $237.6 billion in.
The top three is:
Corporate securities of $132.4 billion, 56% of the total.
US Treasury securities of $42 billion, 18% of the total.
Mortgage- and asset-backed securities of $19.3 billion,
8% of the total.
Apple states that it primarily invests in
highly-rated securities, and that the amount
of credit exposure to any single issuer of debt or equity
should be limited.
91% of the portfolio is held by foreign subsidiaries.
If this money would be brought back to the US,
under current tax legislation a substantial amount
of taxes would need to be paid upon repatriation,
and Apple would rather not pay
those taxes but keep the money outside the US.
The big unknown that investors, journalists
and bloggers would like to have clarified
is what specifically the investment portfolio consists of.
There are rumours that Apple and other tech giants
snap up as much as half of some of
the bond issues in the market.
Apple is not obligated to disclose an itemized list
of its investments, but in the name of transparency
I personally would welcome it
when Apple volunteers to make this information public.
Back to the balance sheet,
as we have not seen the full picture yet.
We discussed the asset side of the picture extensively,
it is now time to turn to the liabilities side.
Why would a company that has such a huge amount
of cash, cash equivalents and marketable securities,
have significant borrowings at the same time?
As most of the cash, cash equivalents and
marketable securities are held outside the US
and Apple does not want to repatriate this money,
Apple borrows money in the US to help
pay dividends, buy back shares and to fund operations!
So while the cash, cash equivalents and
marketable securities have grown significantly
over the years, borrowings have also
grown exponentially to record levels.
Taking Apple's borrowings into account
gets us to the fourth perspective on the question
of how much cash Apple has.
If you take the $237.6 billion in cash, cash equivalents
and marketable securities,
and deduct $8.1 billion in commercial paper
and deduct $3.5 billion in short-term debt and
deduct $75.4 billion in long-term debt,
you get to a "net" position of $150.6 billion.
Personally, I think this is the most useful reference point
for a discussion on Apple's treasure chest.
So who manages this enormous pile of money?
Apple's annual report lists its significant subsidiaries.
Braeburn Capital, incorporated in
the US state of Nevada,
is the entity managing the portfolio.
Nice wordplay in naming this entity,
as Braeburn is an Apple variety.
Remember that name!
Braeburn Capital, sometimes nicknamed
"The World's Biggest Hedge Fund
You Have Never Heard Of".
It might be in the news in the near future!
In summary: there are four ways to answer the question
of how much cash Apple has.
The narrowest definition is to take only
the cash on hand of $8.6 billion.
Cash and cash equivalents get you to $20.5 billion.
The net amount of cash, cash equivalents,
marketable securities minus commercial paper
and minus debt get you to $150.6 billion.
The broadest definition gets you to $237.6 billion.
Now that we know how much cash Apple has,
the next question is what should Apple use its cash for?
Should it pay more taxes, should it repatriate the cash
and pay off its debt, should it embark on acquisitions,
or are there other uses of its cash?
I would love to hear in the comments below
what your opinion is on that question.
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