“Six years ago, the company owed no debt and had never undertaken a share buyback or paid dividends. Pressured by a shareholder revolt in 2013, it is now transformed,” Desai writes. “Apple has $115 billion of debt outstanding, and it has distributed $288 billion to its shareholders in the past six years, most of it through share buybacks. In the most recent nine months alone, Apple bought back $54 billion worth of shares. This transformation is representative of trends in corporate America… American companies are borrowing money to buy their own shares in what is tantamount to a huge, slow-motion leveraged buyout.”
“Second, Apple’s financial model emphasizes cash flow over profits. Apple is not simply immensely profitable; in 2017, it generated $16 billion more in operating cash flow than profits,” Desai writes. “Apple’s operations are extremely effective cash generators. This is no coincidence. It is the result of the canny supply chain that Tim Cook built. In effect, Apple has largely been financed on the backs of its suppliers, who are willing to hold their inventory and wait more than 100 days to get paid, just for the pleasure of doing business with Apple.”
“The accomplishments of Apple’s model are substantial. But the financial strategy that has worked so well for Apple is a risky one for less capable companies with weaker strategic positions,” Desai writes. “For them, aping Apple can just as easily result in too much debt on their balance sheets, precarious supply chains and deferred opportunities for investments.”
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