Does Apple (NASDAQ:AAPL) Have A Healthy Balance Sheet?
Warren Buffett famously said, ‘Volatility is far from synonymous with risk.’ So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Apple Inc. (NASDAQ:AAPL) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can’t easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for Apple
What Is Apple’s Debt?
The image below, which you can click on for greater detail, shows that Apple had debt of US$111.1b at the end of December 2022, a reduction from US$122.8b over a year. However, it does have US$51.4b in cash offsetting this, leading to net debt of about US$59.8b.
How Strong Is Apple’s Balance Sheet?
The latest balance sheet data shows that Apple had liabilities of US$137.3b due within a year, and liabilities of US$152.7b falling due after that. Offsetting these obligations, it had cash of US$51.4b as well as receivables valued at US$54.2b due within 12 months. So it has liabilities totalling US$184.5b more than its cash and near-term receivables, combined.
Of course, Apple has a titanic market capitalization of US$2.61t, so these liabilities are probably manageable. Having said that, it’s clear that we should continue to monitor its balance sheet, lest it change for the worse.
We measure a company’s debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily…