Apple Inc (NASDAQ:AAPL), a large-cap worth US$906.50b, comes to mind for investors seeking a strong and reliable stock investment. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. However, the key to their continued success lies in its financial health. I will provide an overview of Apple’s financial liquidity and leverage to give you an idea of Apple’s position to take advantage of potential acquisitions or comfortably endure future downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into AAPL here. View out our latest analysis for Apple
How does AAPL’s operating cash flow stack up against its debt?
AAPL's debt levels surged from US$98.88b to US$121.84b over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$87.94b for investing into the business. Moreover, AAPL has generated US$67.22b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 55.17%, indicating that AAPL’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AAPL’s case, it is able to generate 0.55x cash from its debt capital.
Does AAPL’s liquid assets cover its short-term commitments?
Looking at AAPL’s most recent US$89.32b liabilities, the company has been able to meet these obligations given the level of current assets of US$130.05b, with a current ratio of 1.46x. For Tech companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is AAPL’s debt level acceptable?
With debt reaching 96.03% of equity, AAPL may be thought of as relatively highly levered. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies.
Although AAPL’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around AAPL's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for AAPL's financial health. Other important fundamentals need to be considered alongside. You should continue to research Apple to get a more holistic view of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AAPL’s future growth? Take a look at our free research report of analyst consensus for AAPL’s outlook.
- Valuation: What is AAPL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AAPL is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
If you decide to trade Apple, use the lowest-cost* platform that is rated #1 Overall by Barron's, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account.
Simply Wall St has no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020