Financial Policy at Apple – Case Analysis
Apple had nearly $137 billion of cash at the end of Dec 2012. Over the past few years, the Company had been highly successful with the launch of the iPhone 3G in 2008, and which was followed by the launch of iPad in 2010. The Company enjoyed high profitability, and was able to keep its costs at a minimum. The gross margin on the iPhone was between 49% and 58% from October 2010 to March 2012, and the gross margin on the iPad was between 23% and 32% in the same time period. Apple’s capital structure included no debt; hence, there was no outflow of cash for making interest payments.
However, in spite of the successes of Apple, the Company’s stock price had been dipping since reaching its high point in September 2012. There was increased competition in the phone and tablet industries due to entry of Android powered devices. Shareholders were also worried that Apple was hoarding large amounts of cash, and was not returning it to the shareholders. The general consensus among investors was that Apple had no new groundbreaking projects to be launched. I think that the shareholders’ perception of the lack of meaningful investment opportunities and that the Company was hoarding large amounts of cash (which the investors cannot trust what it could be used for) led to the discount in the share price, which was also reflected in its low PE multiple. Tim Cook, CEO of Apple, however, claimed that cash was not being hoarded because shareholders would see the return of cash as a bad sign. Rather, as Steve Jobs had stressed earlier cash was being held for the more strategic opportunities (such as R&D, M&A etc.) that may appear down the road. Another issue with the large amount of cash holdings was that Apple had offshore operations in a large number of countries. The majority of Apple’s cash - approximately 69% or $94 billion - was held up in Ireland and other offshore locations that had a low tax rate. Repatriating any of that...
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