“With the U.S. Senate passing its tax bill earlier this month, the probability of a U.S. corporate tax overhaul has never been higher,” Neil Cybart writes for Above Avalon. “While differences between the House and Senate tax bills still have to be reconciled in conference, the end to Apple’s cash dilemma is in sight.”
“Both bills move the U.S. to a territorial-based tax system,” Cybart writes. “In addition, both bills include deemed repatriation at a 14% rate. (The Senate bill calls for a 14.49% tax rate.) The repatriation tax change alone benefits Apple to the tune of tens of billions of dollars. More importantly, the tax changes will allow Apple to develop a sustainable long-term strategy for managing its cash and balance sheet.”
“Apple is a cash-generating machine. In FY2017, Apple reported $64B of operating cash flow, nearly as much as that of Alphabet, Facebook, and Amazon combined,” Cybart writes. “On a free cash flow basis, which is a measure of how much cash is generated after taking into account capital expenditures and other costs associated with running the business, Apple’s $50B of free cash flow was $2B more than free cash produced by Alphabet, Facebook, and Amazon combined.”
“A territorial-based tax system will allow Apple to manage future cash generation much more efficiently. The days of Apple being stuck with too much cash in international subsidiaries are numbered,” Cybart writes. In addition, concerns surrounding Apple issuing too much debt will subside as the company will no longer need to rely on debt issuance to fund share buyback and quarterly cash dividend. These changes amount to a sustainable strategy for Apple to use when managing its massive balance sheet. There is finally light at the end of Apple’s cash dilemma tunnel.”
Read more in the full article here.
MacDailyNews Take: You thought you saw AAPL buybacks before? You haven’t seen anything, yet!
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