Investors pursuing a solid, dependable stock investment can often be led to Apple Inc (NASDAQ:AAPL), a large-cap worth US$937.32B. 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. Let’s take a look at Apple’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. 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 much cash does AAPL generate through its operations?
AAPL has built up its total debt levels in the last twelve months, from US$87.03B to US$115.68B – this includes both the current and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$74.40B for investing into the business. Additionally, AAPL has generated US$63.60B in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 54.98%, meaning that AAPL’s operating cash is sufficient to cover its 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?
With current liabilities at US$100.81B, the company has been able to meet these obligations given the level of current assets of US$128.65B, with a current ratio of 1.28x. Generally, for Tech companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is AAPL’s debt level acceptable?
With a debt-to-equity ratio of 96.03%, AAPL can be considered as an above-average leveraged company. 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. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital.
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. Keep in mind I haven’t considered other factors such as how AAPL has been performing in the past. 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.
To help readers see pass 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.
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