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A Look Inside Apple Cash Management

Ben Verschuere & Sam Strasser

Here at Treasure, we provide corporate-grade cash management software for small and medium businesses (SMBs); meaning we spend a lot of time analyzing what Fortune 500 companies do with their idle cash in the current environment. Today the spotlight is on Apple.

Apple is an impressive company, not only because of its ability to innovate but also because of its sheer size and economic impact. While the company is well known for its product quality, it has also developed best practices in treasury management that are  widely adopted by many corporations today.

Let’s take a deep dive into Apple’s finances to get a sense of how a successful company is optimizing its cash management.

How does Apple manage its idle cash?

The first interesting aspect of Apple’s idle cash management is its structure. Braeburn Capital, named after a varietal of apple from New Zealand, is the investment arm responsible for managing Apple’s idle cash. Braeburn is essentially Apple's in-house personal investment advisor firm. The benefit of this approach for Apple is to use a team of professionals focused exclusively on optimizing its cash management.

As stated in Apple earnings, Braeburn’s approach invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. Apple’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. As we can see below such a prudent and disciplined approach is bearing fruit for Apple.

Where does Apple stash its cash?

Combining its cost of goods and operating expenses, Apple has around $60B of outflow per quarter. In order to cover those day-to-day expenses Apple keeps around $40B in cash (held in checking accounts; this covers around two month of expenses), $40B is invested in short term securities (less than one year maturity) and $140B in longer term assets (between 1 year to 5 years). This tilt toward longer dated maturities improves the yield Apple generates on its idle cash portfolio, as longer term bonds have a higher yield than shorter dated ones.

Data: Apple Q1 2021 Earnings Report (*)

Digging deeper we can see from the chart above (right) that Apple asset allocation is heavily focused on corporate bonds. Again, this approach is deployed for yield maximization, as corporate bonds generate a higher yield than US government bonds and agencies (like Fannie and Freddie) securities.

The cash management impact

Now that we have a good handle on Apple’s allocation let’s look at the returns the company has achieved with its cash management solution. Since 2013 Apple has earned, on average, 2pct per year; principally generated from the interest payment on its portfolio. We can clearly see from the chart below (right) the main feature of an income generating strategy where the majority of the returns come from interest payments while capital gains tend to revert over time (following month-to-month markets fluctuations).

Data: Bloomberg

Most importantly we can look at the impact Apple’s idle cash management solution has on its bottom line. As the next chart shows, Apple’s treasury operations add, on average, between 5% to 10% to its profit. This translates into a profit margin improvement of close to 10%. This clearly shows that cash management has a significantly positive influence on Apple’s finances.

As measured by Apple net interest income combined with capital gains/losses divided by net profit, rolling 4-quarter average.  Data: Bloomberg

Conclusion

Cash is seen by many companies as an unproductive asset on their balance sheet and few know what to do with it. Clever corporations like Apple understand that cash is an opportunity. They are able to use this resource to create more revenue turning their finance department from a cost center into a profit generator.

Much like Treasure, Apple is generating a yield on its idle cash using corporate bonds with short and medium term maturity, and such a strategy is yielding significant results for Apple by increasing its profit margin by close to 10%. Now, it’s time to make your cash perform!

(*) Apple Quarterly Earnings Report (April 29th 2021): link

Ben Verschuere (Chief Investment Officer) &  Sam Strasser (Chief Executive Officer)

Treasure Investment Management, LLC

Disclaimer: The views and opinions in this piece are just the authors' own, offered to the public at large and not to any one particular investor.

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