“We have been told over and over by Wall Street, ‘cash is a drag on a company’s balance sheet.’ We are told cash needs to be spent to increase shareholder value via acquisition, buyback or dividend. Yet we never question it. We don’t even blink an eye and blindly agree,” Travis Lewis writes for Seeking Alpha. “If an acquisition works and increases shareholder value, that’s great. Trouble is, history shows us more than not, that acquisitions come at the expense of the shareholder.”
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“For a buyback example let’s look at Cisco. Since 2002, Cisco has spent $70.3B on a share repurchase program. The company has ~$26.4B in net cash and its market cap is $86B,” Lewis writes. “If Cisco had held on to its cash, it would equal at least $96.7B today. That’s much greater than its current market cap. Would Cisco be valued under its cash price today? Did Wall Street or Cisco really do what’s best for shareholder value? Would Cisco be one of the most valuable tech stocks if it had held on to its cash?”
Lewis writes, “Apple’s weakest fiscal quarter is Q2. The company added $6.1B in cash in FY11Q2. Let’s use this figure to see what its cash will be at the end of 2018. This way we have a worst case scenario. This assumes 0% growth rate from here on out… At the end of 2018, Apple will have $255B in cash/equivalents under our assumptions. Apple currently holds 21% of its market cap in cash/equivalents. If held constant, in 2018 Apple will have a market cap of $1.21 trillion.”
Lewis writes, “We need to re-think this theory that cash is a burden. It is actually one of the best ways to increase shareholder value. Either used as $1 for $1 gain or for strategic operations. The cash strategy Apple is using has never been tried before. Is it possible Apple has learned from others, and in order to fulfill its fiduciary responsibility, the company must keep building cash?”
Read more in the full article here.
f#ck yeah!!!
No burden, since most of Apple’s “cash” is not money, and not even short term, but long term investments with quite good percentages.
Cash is King, BABY! There is a no more nimble company on the planet than Apple today. Their cash gives them the ability to pull the trigger on almost anything that improves their position, like with the Nortel patents.
you said it best. CASH IS KING in all markets. Anyone who tells you other wise is a fool. Just make sure its not hiding under your mattress then it’s not doing anything other being a piece of paper.
All those words, and Mr. Lewis never once references Horace Dediu’s podcast or Philip Elmer-DeWitt’s coverage of this same question? FAIL
If you read the comments, someone already mentioned that.
Trouble is someone linked to Mr. Lewis’ comments on the same subject from 6/27/11
Mr. Dediu podcast is from 7/3/11. Mr. Lewis shows a screenshot from those companies investor departments dated 6/27/11.
Now who came first? Who cares. It’s a good topic spelled out well by both.
great point! i never understand the pettiness remarks.
but the idea of cash management in an atypical way for typical wall street mentality probably confuses a lot of theorists who live by other rules, and challenges their traditional way of evaluating worth.
It wasn’t a question of “who said it first”, but rather why he didn’t seem aware of Dediu’s or Elmer-DeWitt’s notable contributions to the ongoing discussion on this topic.
Why do we constantly listen to MBA fu**tards who were the real cause of the economic crash we have suffered through in the last few years? Apple does things differently and they should continue to do so. And by the way, stockholders are people who hold stock and truly invest in a company. There are very few stock holders today. What we have now are equity holders who manipulate and play games with stocks. Big difference.
“Why do we constantly listen to MBA fu**tards”
I’m with you @Jimg! I’ve watched first hand what lamebrain MBA grads can do to a company. It’s sick and twisted.
I’m not anti-business education. I’m anti-worthless crap Bizzaro World self-destructive garbage biznizz education.
MBAs are now a dime-a-dozen from a hundred dime-a-dozen schools with dime-a-dozen reputations who teach self-destructive business strategies that directly contributed to our ongoing economic depression. DUH Factor deluxe.
Once again this proves, Steve Jobs is a freaking genius!
Cash is a burden? Tell that to my wife or anyone who has to pay a higher interest rate on their loan because they couldn’t put more down.
Cash is a burden TO WALL STREET! That’s because holding onto cash rather than spending it on acquisitions or dividends makes it harder for Wall Street traders to know when to move stocks to make money. If Apple isn’t financing it’s acquisitions because it pays cash, there are no little birdies at the banks to tip off Wall Street that Apple applied for a loan to buy XYZ company.
Cash is a burden when you burn it out.
“Is it possible Apple has learned from others”
No, others are learning from Apple.
Others have learned nothing. The good ship Apple set sail in ’07 with the iPhone. RIM, Nokia & all the other wannabes were left standing on the dock…. RIM & Nokia are tanking, all their so called leadership has already ducked out the back door like rats leaving a sinking ship, with remainder of staff getting laid off without even a severance package.
The last people on the face of the planet I would take ‘financial advice’ from is people on Walstreet! You gotta be f*cking kidding me!
The same group of dumb@sses that almost destroyed the entire economy of the United States while playing with everyone’s lives like it was a game of monopoly!
Wallstreet is not about sensible investment, building strong companies or a strong nation. Its a f*cking casino and the game is rigged man. Just like a casino you are a retard if you take your advice on how to win from “the house”.
My only problem with Apple and other companies holding on to such massive piles of cash is that we’re in a recession. The economy is not going to improve until we get money circulating again. I’m not saying that Apple should feel obligated to spend their cash — that would be stupid — I just wish they had a reason to do so. I just hate to see it all just sitting there, accomplishing nothing.
——RM
OK, name one thing they could do with it that will have a LONG LASTING and beneficial effect to Apple and Apples shareholders that is better than holding it and using it to control sources of inventory, buying strategic patents, and generally using it as a nuclear weapon against almost anything you can think of.
Learn the lesson of CISCO. They would be worth more now than if they had not bought one share back.
How about building a massive, beautiful, sprawling new corporate headquarters? That would employ thousands upon thousands of workers for several years… That’s the kind of thing that really boosts local economies!
Wait… They’re working on that one. Never mind.
But they are already doing this. So again…..name one thing they could do with it that will have a LONG LASTING and beneficial effect to Apple and Apples shareholders.
Also, prey tell…..are they doing this because they have money in the bank or because they spent it all (as they would have done if they had listened to pricks like you in the past).
Also, are you saying they should build another 2 or 3 or 4 more campuses even they do not need to….. but just because they have the money?????? HuH??? Get real.
Okay, I’ll name on thing.
Apple could pay a dividend. Even a small dividend would not deplete that massive cash pile, and I as an Apple shareholder could then reinvest that dividend in order to buy more Apple shares.
The one thing I hope they don’t do is build a Microsoftian bureaucracy that just eats piles and piles of cash with nothing to show.
I am sure that Apple has invested this cash. It’s not like there are Benjamins in a warehouse somewhere. By investing their money Apple has put people to work, whether the money is loaned out by banks or used to buy bonds, the money is working and putting people to work. You don’t have to “spend” money to improve the economy.
It’s really mostly cash or securities that carry a very low risk and can be cashed-out quickly.
That’s how I understood it. Their treasury is not very “creative” – but they also did not lose 30% during the last crash, like some ivy-league universities did…
The nominal ROI they get is under 1%, AFAIK.
But again: what is a 1% ROI in contrast to a 30% loss?
The number of people with common sense at AAPL management is surprising. Or maybe it’s just average and the contrast to the rest of corporate America is so huge….
Thank you. Beat me to it.
The cash is not sitting under a mattress. Apple’s billions are already providing extra liquidity in the capital markets, which can do a number of good things such as providing more $$$ for business loans.
Now if they could just get congress to abolish taxes on overseas profits Apple could bring home its profits from overseas (some $13 billion last I read), which would help out even more.
So let’s assume Apple use up all their cash – do you honestly think that will fix the economy?
What needs to happen is Wall Street needs to cease to exist, along with all the other Casinos across the world.
The only reason cash is a drag is that I have to read all the stupid ideas for how it should be spent by analysts who couldn’t predict Apple’s EPS if their lives depended on it.
That’s a drag.
Apple sending $2 Billion to Canada was a good first step. Thanks.
Ask the millions who have thought that “cash is a burden”, who had gone on a spending binge through credit cards and huge loans from the banks. They are regretting now that they have lost their homes, their jobs and their future and they don’t have the nest egg to tide them over in a recession.
Apple has learnt from its past. During the initial years, Apple needed capital to expand fast but did not have the cash. Steve Jobs was rejected by management to own 60% of Adobe. Whatever stake they had in Adobe was sold off. So when Steve came back to Apple he made sure that he will never be short of cash and he did not want to depend on Wall Street bankers. And oh God, how right was he! Apple does not keep cash for the sake of cash alone but it is a strategy.
Get it: “Cash is a Burden” is a myth that is propagated by Wall Street so that companies will always depend on their advice and money. That’s how Wall Street manipulated the stocks of companies and earned obscene fat fees on the labor of others. “Cash is a Burden” is the cash cow of Wall Street.
I would just like to repeat some of the above…..with my most favourite at the top….
1. f#ck yeah!!!
2. f#ck yeah!!!
3. Once again this proves, Steve Jobs is a freaking genius!
4.“Is it possible Apple has learned from others” No, others are learning from Apple.
Anyone who thinks cash, especially in this messed up economy, can feel free to share it with me. Cash is never a burden.
Apple is going to need that cash long term as rising energy prices destroy the cost advantage of cheap Far East labor. The unmistakable long term trend in energy is up- especially jet fuel and other oil based fuels. The days of flying FedEx planes laden with iPhones days before Xmas are numbered.
More localized production is going to replace the current model. With Apple’s thick margins they can hang on longer than most- but at a high $.
During the Industrial Revolution, the captains of industry built up huge war chests & used them to finance further growth. Whether to build more plant, expand into new markets, charge less for product in order to expand your customer base, research & development, get needed supplies in bulk & thus cheaper, or simply weather out the inevitable bad economic storms, massive cash accumulation made this all possible. And that in turn made even more rapid growth & progress possible.
And Wall Street & London hated it.
Why? Before the Industrial Revolution (mass production), companies & corporations usually had to go through finance banks to fund their needs. That usually resulted in said banks sitting on boards, investing in/owning parts of many companies throughout the economy, and thus having hands (or, more accurately, tentacles) in many, many pies, thus effectively controlling much of what went on economically. Not to mention the fees that they charged for all their ‘services’.
The Industrial revolution, and the regulatory fallout from the Great Depression (which the financial services sector was largely responsible for creating, just as it was for the Great Recession today) sapped their power – made them adjuncts to the real titans of industry. And this lasted for as long as industry accumulated it’s own cash. Beginning in the 1960s & 70s, and picking up speed in the 80s & 90s, laws that had kept the financial world in check had been relaxed, and the tax code had been continually modified to make doing things on credit (a bankers best friend) more attractive for companies. Guess who had the influence on Congress to make that happen? Right, the finance banks (JPMorgan, etc…). And that eventually led to where we are today – everyone in hock to Wall Street, Wall Street in turn having all the power, and they using that power to create further indebtedness, however they can.
So it’s no wonder why Wall Street convention says a company with a huge cash war chest is a drag on performance, because it is … for them. For the company in question though (in this case Apple), it really is a means to being financially free to do whatever you want, without having to pay the fee & costs associated with being in debt (not to mention continuously accumulating interest from your “cash and cash equivelant” investments).
If the whole of America’s – the world’s? – productive businesses did the same thing, there would be rioting in the streets of downtown NYC/London, as well as the halls of Congress – another Brooks Brothers Riot, if you will – but finance would eventually be put back in it’s proper place as an adjunct to the economy, not the driver of it, and we’d all be better off as a result.
Once again, Apple shows the way.
:coolsmirk:
CASH = A guaranteed future.
If Apple hadn’t had a readily available $4 Billion in fluid assets in 1997, they would have been no more. In 1996 the, ahem, intelligence compromised Apple marketing of that time had warehoused $1 Billion in Mac Performas that no one wanted, directly causing the $1 Billion in losses in 1997. Then the press then ganged up on Apple to unjustly decimate their reputation; Apple bought NeXT to overcome the worthless results of the Copland/Gershwin project; Microsoft stole QuickTime code; Motorola began a rapid delay in PPC processor speed improvements; blahblahblah. Apple survived it all to become the brilliant company they are today thanks to cash on hand.
So please STFU, all those who don’t have a clue about corporate survival strategies.
“Then the press then…” <–Sorry. Still have hiccups.
Yes, being debt free is a wonderful thing. Try it. No credit cards, no car payment, no house payment. Chopped up all the credit cards 21 years ago. A lot of cash in the bank. Oh, almost forgot and a lot of stock in Apple. We pay cash for every thing. As Dave Ramsey says “The paid off home mortgage has replaced the BMW as my status symbol”. I completely understand the “Apple” strategy….
Triple helping of crow please.
fu**tards
lamebrain
Fail
Words that say more about their writer than the points they’re trying to make….
@ Odyssey67
I think you’re onto something. Pure self interest on Wall Street’s part – nice observation.