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Apple Inc. (AAPL)’s Cash: A Full Breakdown

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$145 billion.

That’s how much cash Apple Inc. (NASDAQ:AAPL) reported was sitting on its balance sheet last quarter. Given that this figure represents almost 40% of the company’s market capitalization, investors should be watching how Apple invests its cash closely.

Let’s take a look at how Apple Inc. (NASDAQ:AAPL) invests its cash holdings based on the company’s latest 10-Q filing.

Breakdown

Corporate treasuries are important but boring affairs. Typically, company’s hold enough cash to fund operations and invest a small surplus in short-term, safe money market investments.

What’s striking about the above chart is how little it resembles a normal corporate treasury.

First, Apple Inc. (NASDAQ:AAPL) holds a diverse mix of investments including $55 billion in corporate securities, $46.8 billion in U.S government and agency securities, $14.7 billion in asset and mortgage backed securities, $6.4 billion in municipal bonds, and $5.1 billion in foreign government loans.

Second, some investors may be surprised regarding how little ‘cash’ Apple has. The company keeps only $5.8 billion cash on hand to fund its day-to-day operations. Excess reserves are held in money market funds, commercial paper, U.S. Treasury bills, CDs, and time deposits.

Returns

So what kind of return does Apple Inc. (NASDAQ:AAPL) earn on its investments? Not much.

During the first quarter of 2013, Apple earned a weighted-average return of 1.07%. This is down significantly from 2007 due to the Federal Reserve’s low interest rate policy.

But notice the slight uptick in Apple Inc. (NASDAQ:AAPL)’s returns since 2010. That’s odd. Short-term interest rates have been flat over this period. Where is the extra return coming from?

Chasing yield

Apple is getting bold.

Just like yield-starved savers, Apple is venturing into riskier securities to improve returns. In 2007, the company was invested entirely in short-term securities. Today, the company has $105 billion in long-term assets.

This phenomena isn’t entirely unique to Apple Inc. (NASDAQ:AAPL). Corporate treasurers everywhere are being forced by the Feds low-rate policy to invest in increasingly riskier credit products like junk bonds, leveraged loans, and long-term bonds.

Five years ago, Google Inc (NASDAQ:GOOG) invested its cash holdings almost entirely in safe, short-term debt. Today, the company’s $50 billion cash holdings are being invested much more aggressively. Google Inc (NASDAQ:GOOG) has increased its stakes in long-term bonds, mortgage-backed securities, and foreign government bonds. Last quarter Google Inc (NASDAQ:GOOG) also reported that it owns over $7 billion in corporate securities.

Microsoft Corporation (NASDAQ:MSFT) to is having trouble investing its cash. Last quarter the company reported it held $85 billion in cash and marketable securities of which $15 billion is invested in corporate notes, bonds, preferred stock, and equity.
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