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

$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.


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.


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.

The problem with these maneuvers is that investors are exposed to new risks that they may not have considered.

Interest Rate Risk: With interest rates so low, a small increase in yields could send bond prices plunging. Today, the yield on a 10- year U.S. Treasury note is 1.65%. If rates rise only 1%, bond prices would fall nearly 10%. If rates rise 2%, bond prices would fall nearly 20%.

Credit Risk: With corporate treasuries venturing into junk bonds and leveraged-loans, they’re exposed to defaults if borrowers fail to repay their debts.

Foolish bottom line

The most troubling aspect of this for investors isn’t the low returns but transparency. We really don’t know how these corporations are investing their cash holdings and what kinds of risks they’re exposing investors to. With cash balances growing, in some cases exceeding 20% of corporate market caps, it’s time investors took note.

The article What Is Apple Doing With its Cash? originally appeared on is written by Robert Baillieul.

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