How to Read Apple's Balance Sheet

For investors in Apple, Inc. (AAPL), the investment has certainly been fruitful. For those who are late to the party and are considering investing in the Cupertino-based consumer products giant, a good place to start gauging the company is its balance sheet.

A company’s balance sheet presents a picture of its financial situation at a certain point in time. For an investor who wants to understand a company and its potential, the balance sheet is a good guide.

Apple’s balance sheet is available in the "Investors" section of the company’s corporate website on its 10-K filing with the Securities and Exchange Commission (SEC). Investors can also access Apple’s unaudited balance sheet, which it releases with its quarterly earnings.

Key Takeaways

  • Apple's balance sheet can be viewed on its 10-K filing with the SEC, which is available on the company's website under the "Investors" section.
  • A balance sheet, including Apple's, is broken down into three sections: assets, liabilities, and shareholders' equity. Apple combines the latter two under one heading.
  • As of Sept. 25, 2021 (company year-end), Apple has total assets of $351 billion, total liabilities of $287.91 billion, and total shareholders’ equity of $63.09 billion.
  • Apple has a strong current ratio, which evaluates its current assets in relation to its current liabilities, of 1.07.
  • Apple's debt-to-equity ratio has been increasing over the past five years as it takes on more debt to finance share buybacks, increase dividends, and grow.

Balance Sheet Components

The balance sheet of a company breaks down into its assets (or what it owns), liabilities (or what it owes), and its shareholders’ equity (or the money that belongs to shareholders after paying off all liabilities).

The total of its assets is equal to the sum of its shareholders’ equity plus its liabilities. In the case of Apple, as of Sept. 25, 2021 (company year-end), this consisted of $351 billion on the assets side, total liabilities of $287.91 billion, and total shareholders’ equity of $63.09 billion.

Cash Is King

For Apple, its strong cash position is a major strength. The company holds cash and cash equivalents of $34.94 billion and also holds $27.79 billion in marketable securities (on the current assets side) that can easily be converted into cash. It also has non-current marketable securities of $127.88 billion.

Thus, it has an ample cash chest. A lot of this is held overseas and the company would have to pay U.S. taxes on the money to bring it into the country. That is why the company prefers to borrow money to engage in its share buyback program.

Accounts receivable make up $26.28 billion. This represents the amounts owed by the companies it does business with, such as cellular network carriers, retailers, wholesalers, and government and education customers. Extending credit in business transactions is a risk, and Apple has credit insurance to limit its risk to this exposure.

The company also reports $39.44 billion in the property, plant, and equipment category. This represents the value of what it owns in property and equipment after accounting for the wear and tear associated with use.

Liabilities Side

Apple’s current liabilities are $125.48 billion, which includes its $54.76 billion accounts payable, or the amount it owes companies it does business with, as well as $6 billion in commercial paper issued. The company issued commercial paper debt to finance activities such as share buybacks it has committed to, as well as to pay out dividends.

$2.94 Trillion

Apple's market capitalization as of Dec. 30, 2021.

The company has total long-term debt of $109 billion, which includes both fixed-rate debt, on which the interest rate is fixed, and floating-rate debt, on which the interest rate could move up.

To manage the risk that interest rates could move against the company, Apple has also entered into interest rate swaps. The company’s other non-current liabilities, or those that are not due for a while, amount to $53.33 billion.

Analyzing the Balance Sheet

Another way to understand Apple’s financial position is to look at certain ratios that give an idea of how the company manages its business. One major ratio for this purpose is the current ratio, which provides a measure of how easily the company can pay off its creditors if it had to.

This is obtained by taking stock of Apple’s current assets versus its current liabilities. In Apple’s case, this is at 1.07 ($134.84 billion / $125.48 billion), indicating the company has enough current assets on hand to cover its current liabilities.

Looking at how much Apple is leveraged, or how much debt it has in relation to its equity position, also provides investors with an idea about how prudently its debt is managed. Too much debt relative to equity indicates that a company is over-leveraged. This could be a red flag since it will have less breathing room if it runs into trouble.

In the past few years, Apple's capital structure has dramatically changed, with its debt-to-equity ratio jumping from about 1.43 in 2015 to 4.56 in 2021. This indicates Apple has been raising more cash, which it uses for share buybacks, potential dividend increases, and growing the business.

What Should I Look for in Apple’s Balance Sheet?

When assessing any balance sheet, including Apple's, it's important to take a look at the company's capital structure; how much equity it has versus debt. Looking at cash, cash equivalents, short-term debt, and long-term debt, will provide that information. Using financial ratios to understand the capital structure is also helpful. Such ratios include the current ratio, quick ratio, and debt-to-equity ratio. It is also important to look at a company's accounts receivables and its accounts payables.

How Do I Find How Much Cash Apple Has on Its Balance Sheet

To find how much cash Apple has on its balance sheet, you would need to access its most recent SEC filing. This could be an annual report or a quarterly filing. Make your way to the balance sheet section and under "Assets" and then "Current Assets," "cash" will be the first line item.

What Are the Best Financial Ratios To Use To Analyze Apple’s Balance Sheet?

The best financial ratios to use to analyze Apple's balance sheet are the current ratio, quick ratio, debt-to-equity ratio, and working capital.

The Bottom Line

A reading of Apple’s balance sheet certainly suggests that it is a well-managed company. It presents its information in a reader-friendly format and does not have any significant exposure to off-the-balance-sheet items that might obfuscate its true situation.

Investors should note that a company’s balance sheet could deteriorate as its earnings situation and industry position change. Thus, it is important to look at its most recent balance sheet before investing.

Article Sources
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