Apple Has Less Cash Than People Believe

When Apple reported its June quarter results it crossed over $200 billion in cash and investments on its balance sheet ($202.8 billion to be exact), which became touted by the press such as CNBC, CNN Money andBloomberg. While CNN Money and Bloomberg mentioned that the company had about $50 billion in debt it was more of a passing remark than understanding its implication. (Note that I own Apple shares).

It’s net cash that an investor needs to consider

Apple still has a huge amount of net cash of $150.9 billion (subtract $54.4 billion of total debt from the $202.8 billion and ignore the rounding of $0.1 billion) so I’m not trying to degrade what it has but it needs to be kept in context. Think of the extreme example where Apple had borrowed $200 billion to fund dividends and buybacks (we’ll ignore the rating agencies and other reasons this almost assuredly wouldn’t happen). It would then only have $2.8 billion in net cash, which would be a paltry amount. That is one reason investors look at Enterprise Value for a company which is its market cap minus cash and investments plus debt as the true “value” of a company.

Source: Apple

Apple has a negative $32.7 billion net US cash

Over the past two years Apple has taken on $54.4 billion  in debt, which I’ll assume has been used to pay dividends and help fund the stock buyback program. Only US cash in the long-run can be used for these purposes. At some point in time the debt will have to be paid back in US generated cash (assuming no tax holiday) or pay additional taxes on the internationally generated profits. Since the company has about $21.7 billion in US cash as of June it has a negative US cash position of about $32.7 billion.

Apple’s incremental tax rate on international profits is 17%

I’ve gone through the past three years of Apple’s 10-K filings and determined that the incremental tax rate on the company’s overseas profits is 17%. This rate has ranged from 16.5% to 17.0% over the three years.

If you were assume that Apple needed about $20 billion in US cash to run the company and have a war chest to do a large acquisition this would mean it would have to use almost all international cash to pay off all the debt since Apple has about $21.7 billion in US cash. To pay