According to Above Avalon’s analysis, Apple is currently holding on to $194 billion of cash, cash equivalents, and marketable securities. This a record number of cash held by a single company and it represents approximately 10% of all cash held on corporate balance sheets. That figure has grown remarkably over the years too:
The below excerpt and chart explain why it’s a problem to hold so much cash. The cause? China. Apple is doing so well in China that its revenue ran through the roof last quarter.
Apple’s cash dilemma is straight-forward: Apple is generating cash internationally at a much faster rate than it is able to spend on stock repurchases and cash dividends in the U.S. As China continues to make up a larger portion of Apple’s product sales, boosting total free cash flow, management is facing some limits as to the amount of available funds used for stock buyback and dividends.
The following exhibit shows how the amount of free cash flow (red line) is expected to outpace the amount of cash spent on buyback and dividends (blue line) in the coming years. China is increasingly causing the red line to slope upward as time goes on while the blue line is being pinned as the U.S. is becoming a smaller piece of the overall cash generation pie. In an ideal world, there would no gap between the red and blue lines as most of Apple’s free cash flow would be spent on buyback and dividends.
Nice one, Apple… What a good problem to have!
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