Apple’s growing cash dilemma

“With approximately $200 billion of cash on the balance sheet, Apple’s financial strength has never been stronger,” Neil Cybart writes for Above Avalon. “However, Apple has a growing dilemma on its hands concerning its cash and capital return program.”

“Apple is unable to keep the pace of share buybacks and dividends in-line with its foreign cash generation. As a result, excess cash that is not needed to run Apple’s business continues to build on the balance sheet,” Cybart writes. “While labeling a company with $200 billion of cash as having a cash dilemma seems like hyperbole, Apple’s valuation metrics will likely be negatively impacted in the coming years if Apple is unable to return this excess cash to shareholders. ”

Cybart writes, “Management does not have many available options at its disposable for solving its cash dilemma.”

 Lobby for U.S. Tax Law Changes/Holiday
• Continue Issuing Debt to Fund Capital Return
• Do Nothing

Much more in the full article – recommended – here.

MacDailyNews Take: A problem everyone would love to have: Too much cash!

Obviously, U.S. corporate taxes are too high.

Under the current U.S. corporate tax system, it would be very expensive to repatriate that cash. Unfortunately, the tax code has not kept up with the digital age. The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free flow of capital… Apple has always believed in the simple, not the complex. You can see it in our products and the way we conduct ourselves. It is in this spirit that we recommend a dramatic simplification of the corporate tax code. This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the U.S. We make this recommendation with our eyes wide open, realizing this would likely increase Apple’s U.S. taxes. But we strongly believe such comprehensive reform would be fair to all taxpayers, would keep America globally competitive and would promote U.S. economic growth.Apple CEO Tim Cook, May 21, 2013

22 Comments

    1. if you are being sarcastic, i agree. it is not the people’s money. giving it to the people generally is a waste because it is consumed not invested. we have a consumption biased demographic these days. liberating that cash without a viable investment strategy is a waste. it is better kept overseas. if anything, it is the people’s money where the cash was generated. if anything, those countries would like it to be liberated there.

      you are right that it would just go against our national debt, which is also a waste if you don’t have a viable plan to manage the debt. managing does not mean figuring out how to roll your next bond due into a new loan like greece wants.

      i think the apple management is doing just about the only thing they can do given the situation.

      1. This “take on US debt against foreign-held reserves” is nonetheless part of the story and will influence how the company operates over time… …as it’s a continuing distortion of how they’d be operating in a more rational tax world.

    1. Red herring.
      Apple can not legally use Apple’s own money to do a leveraged buyout. That money already belongs to the stockholders – not management. Apple would have to line up about $1,000,000,000,000 (one trillion) of EXTERNAL (i.e., other peoples money) to take itself private. Leveraged buyouts always have to offer a premium over current stock valuation hence the 1 Trillion dollars. Not sure what the guy at Fortune was smoking…. but I have an idea….

  1. Ok. Use some of it. Buy a few of Samsung’s vendors to cut them off. Maybe set up some new chip, glass, solar power facilities, … Maybe set up some cancer, transplant or medical R&D centers in Steve Jobs name set up with Apple technology to show the world how it is done. IBM is into robotics and Apple could be too.

    As all this is done off shore in other countries. Make sure the politicians are told it could have been in the USA but for taxes. If China can build man made islands, maybe it is time for Apple to do so too or just buy a small island country and start to “Think Different”.

    Yes, “Think Different” and do not let old ways limit the path that Apple will take. Think bigger!

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