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Investors pursuing a solid, dependable stock investment can often be led to Apple Inc. (NASDAQ:AAPL), a large-cap worth US$804b. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, the health of the financials determines whether the company continues to succeed. 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 our latest analysis for Apple
How does AAPL’s operating cash flow stack up against its debt?
AAPL’s debt levels have fallen from US$122b to US$115b over the last 12 months , which also accounts for long term debt. With this reduction in debt, AAPL’s cash and short-term investments stands at US$86b for investing into the business. On top of this, AAPL has generated cash from operations of US$76b over the same time period, resulting in an operating cash to total debt ratio of 66%, 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 0.66x cash from its debt capital.
Can AAPL pay its short-term liabilities?
Looking at AAPL’s US$108b in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$141b, leading to a 1.3x current account ratio. For Tech companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does AAPL face the risk of succumbing to its debt-load?
With debt reaching 97% of equity, AAPL may be thought of as relatively highly levered. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies.
Next Steps:
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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure AAPL has company-specific issues impacting its capital structure decisions. I recommend you 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.