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> Given Apple’s current balance sheet strategy and assuming no change to the U.S. corporate tax code, the company is on track to soon have $300 billion of cash,

> Given Apple’s current balance sheet strategy and assuming no change to the U.S. corporate tax code, the company is on track to soon have $300 billion of cash, almost all of which is located abroad, and $150 billion of debt. I don't understand business. If I owed $15,000 and had $30,000 in the bank, I'd pay off my debt. Why is this different?

erentz 9y ago
I believe there’s some tax advantage for them. Possibly they can claim a tax deduction of some kind on the debt interest. And of course this way not only do they get that but they avoid paying any taxes on the profits they’ve funneled overseas. (I am not an accountant so fully prepared to be told I am well wrong.)
- ash_gti 9y ago
  I also think most companies usually invest their additional cash into things that they think will grow faster than their debt interest. Long term it makes more sense to grow a part of their company that will have a larger return investment than being debt free.
_ph_ 9y ago
Because to pay off the debt, Apple first would have to move the cash back to the US, at which time by the current tax law, it would be taxed by 35%. So, to pay back $150B, they would have to bring back about $230B, paying $80B in taxes.
unk 9y ago
It may be better to invest that money if the rate of return is higher than the interest on their debt.
- ryandrake 9y ago
  Good luck finding a guaranteed rate of return higher than the interest rate on any of your debt. Most credit cards are >10%. Even on the low end, if, say, my mortgage was 4% and I had the cash to pay it off, it would certainly make sense to do it. It would only make sense not to if I could find an investment that paid over 4% guaranteed. Such an investment does not exist, period. (If it does, please let me know and I will put all my money into it).
  - kondro 9y ago
    LOL… Apple does NOT pay 4% on its debt. It's effective combined interest is 2.38%. In my naive back-of-the-envelope calculations, it would have to hold this debt in a non-tax-effective way for more than a decade to be worse off with this debt versus repatriation. An in the meantime it can use the interest it pays in the USA to offset it's US tax bill for income earned in the USA making this effectively a lot longer. The long-term average for the S&P500 is 12.11%… not to mention the fact that Apple can probably make better use of its money by investing in itself, rather than passively on the stock market. All round, no matter your actual moral and ethical opinions on the matter, this is the smartest financial decision Apple can make (and they probably spend tens of millions a year on advice, legals and research to prove this). And as much as Apple goes on about them being a California company… they're mostly a multi-national with much of their money being earned and spent outside of the USA.
    - ryandrake 9y ago
      Right--I was just responding to the parent's post to the grandparent's comparison to personal debt.
  - akvadrako 9y ago
    https://www.twino.eu/en/ https://www.twino.eu/en/ guarantees over 10% But it also doesn't need to be guaranteed - companies are fine accepting some risk. So you could just buy Apple stock.
    - ryandrake 9y ago
      At least with personal finance, if you're comparing investing with paying off a loan, the potential gain must be risk-free in order to compare apples to apples. Paying off a 4% loan is a risk-free 4% return.
  - TheCoelacanth 9y ago
    Credit cards are unsecured debt. Hence they have very high interest rates because there is a fairly high risk that the debt won't be repaid. Mortgages are secured debt. If the debtor fails to pay back the debt, the house can be seized and sold to cover the debt. That makes it pretty low risk, but there is still some risk because house prices sometimes drop precipitously, so it might not always cover the whole loan. Apple's debts are secured by cash sitting in a bank account. There is literally next to no risk of default. They will get an even better interest rate than someone very creditworthy will get on a mortgage.
deleted 9y ago
[deleted]
redler 9y ago
But imagine your interest rate on the 15K loan is 2%. And if you withdrew the 30K you’d first lose 10K to taxes, yielding only 20K. And you actually make money on the 15K you were loaned by using it elsewhere.
megy 9y ago
What if your $30k was actually in your car?
- nathan_long 9y ago
  I wouldn't call that cash.
kelnos 9y ago
If I was $15k in debt and had an interest rate like Apple's, no way would I prioritize paying off that debt. I'd invest the money I have and turn it into more.

erentz 9y ago

I believe there’s some tax advantage for them. Possibly they can claim a tax deduction of some kind on the debt interest. And of course this way not only do they get that but they avoid paying any taxes on the profits they’ve funneled overseas. (I am not an accountant so fully prepared to be told I am well wrong.)

ash_gti 9y ago
I also think most companies usually invest their additional cash into things that they think will grow faster than their debt interest. Long term it makes more sense to grow a part of their company that will have a larger return investment than being debt free.

_ph_ 9y ago

Because to pay off the debt, Apple first would have to move the cash back to the US, at which time by the current tax law, it would be taxed by 35%. So, to pay back $150B, they would have to bring back about $230B, paying $80B in taxes.

unk 9y ago

It may be better to invest that money if the rate of return is higher than the interest on their debt.

ryandrake 9y ago
Good luck finding a guaranteed rate of return higher than the interest rate on any of your debt. Most credit cards are >10%. Even on the low end, if, say, my mortgage was 4% and I had the cash to pay it off, it would certainly make sense to do it. It would only make sense not to if I could find an investment that paid over 4% guaranteed. Such an investment does not exist, period. (If it does, please let me know and I will put all my money into it).
- kondro 9y ago
  LOL… Apple does NOT pay 4% on its debt. It's effective combined interest is 2.38%. In my naive back-of-the-envelope calculations, it would have to hold this debt in a non-tax-effective way for more than a decade to be worse off with this debt versus repatriation. An in the meantime it can use the interest it pays in the USA to offset it's US tax bill for income earned in the USA making this effectively a lot longer. The long-term average for the S&P500 is 12.11%… not to mention the fact that Apple can probably make better use of its money by investing in itself, rather than passively on the stock market. All round, no matter your actual moral and ethical opinions on the matter, this is the smartest financial decision Apple can make (and they probably spend tens of millions a year on advice, legals and research to prove this). And as much as Apple goes on about them being a California company… they're mostly a multi-national with much of their money being earned and spent outside of the USA.
  - ryandrake 9y ago
    Right--I was just responding to the parent's post to the grandparent's comparison to personal debt.
- akvadrako 9y ago
  https://www.twino.eu/en/ https://www.twino.eu/en/ guarantees over 10% But it also doesn't need to be guaranteed - companies are fine accepting some risk. So you could just buy Apple stock.
  - ryandrake 9y ago
    At least with personal finance, if you're comparing investing with paying off a loan, the potential gain must be risk-free in order to compare apples to apples. Paying off a 4% loan is a risk-free 4% return.
- TheCoelacanth 9y ago
  Credit cards are unsecured debt. Hence they have very high interest rates because there is a fairly high risk that the debt won't be repaid. Mortgages are secured debt. If the debtor fails to pay back the debt, the house can be seized and sold to cover the debt. That makes it pretty low risk, but there is still some risk because house prices sometimes drop precipitously, so it might not always cover the whole loan. Apple's debts are secured by cash sitting in a bank account. There is literally next to no risk of default. They will get an even better interest rate than someone very creditworthy will get on a mortgage.

deleted 9y ago

[deleted]

redler 9y ago

But imagine your interest rate on the 15K loan is 2%. And if you withdrew the 30K you’d first lose 10K to taxes, yielding only 20K. And you actually make money on the 15K you were loaned by using it elsewhere.

megy 9y ago

What if your $30k was actually in your car?

nathan_long 9y ago
I wouldn't call that cash.

kelnos 9y ago

If I was $15k in debt and had an interest rate like Apple's, no way would I prioritize paying off that debt. I'd invest the money I have and turn it into more.