Apple, the world’s most valuable business by market capitalization, has recently become a bond issuer, taking advantage of record low borrowing prices. In February, the iPhone maker sold $14 billion in bonds.
Apple bonds are they safe?
Apple bonds aren’t very attractive, but the issues due through 2025 are arguably as safe as any government bond. Although Apple bonds have a little yield edge, AAPL stock is the stronger long-term total return option.
Who is authorised to issue bonds?
A bond is a guarantee from a borrower to repay a lender with the principal and, in most cases, interest on a loan. Governments, municipalities, and corporations all issue bonds. In order to achieve the aims of the bond issuer (borrower) and the bond buyer, the interest rate (coupon rate), principal amount, and maturities will change from one bond to the next (lender). Most corporate bonds come with alternatives that might boost or decrease their value, making comparisons difficult for non-experts. Bonds can be purchased or sold before they mature, and many are publicly traded and tradeable through a broker.
How do bonds function?
A bond is just a debt that a firm takes out. Rather than going to a bank, the company obtains funds from investors who purchase its bonds. The corporation pays an interest coupon in exchange for the capital, which is the annual interest rate paid on a bond stated as a percentage of the face value. The interest is paid at preset periods (typically annually or semiannually) and the principal is returned on the maturity date, bringing the loan to a close.
Why do businesses issue bonds?
Bonds are one way for businesses to raise funds. The investor agrees to contribute the firm a specified amount of money for a specific period of time in exchange for a given amount of money. In exchange, the investor receives interest payments on a regular basis. The corporation repays the investor when the bond reaches its maturity date.
Is Apple accumulating too much debt?
Given that Apple’s publicly listed shares are worth a whopping total of US$2.44 trillion, it’s doubtful that this level of debt would pose a serious danger. However, we believe it is important to monitor its balance sheet strength because it may alter over time.
We utilize two major ratios to figure out how much debt we have in relation to our profits. The first is net debt divided by earnings before interest, taxes, depreciation, and amortization (EBITDA), while the second is how many times EBIT covers interest expense (or its interest cover, for short). As a result, we look at debt in relation to earnings both with and without depreciation and amortization.
Apple’s net debt is only 0.50 times EBITDA, indicating that it could easily increase leverage.
Moreover, despite having net debt, it received more in interest than it had to pay in the previous twelve months.
As a result, there’s little doubt that this business can take on debt while remaining as cool as a cucumber.
Furthermore, Apple’s EBIT increased by 36% in the last year, making it simpler to manage its debt.
The balance sheet is the obvious place to start when looking at debt levels.
But, more than anything else, Apple’s capacity to maintain a healthy balance sheet in the future will be determined by future earnings.
So, if you’re curious about what the experts say, this free study on analyst profit estimates might be of interest.
Finally, while the IRS may be enamored of accounting profits, lenders only accept cash. As a result, we must determine whether that EBIT generates corresponding free cash flow. Apple generated free cash flow of 99 percent of its EBIT over the last three years, which is higher than we expected. This puts it in a good position to pay off debt.
Our View
The good news is that Apple’s ability to cover interest costs with EBIT delights us as a fluffy puppy delights a toddler. And the good news doesn’t stop there: its EBIT to free cash flow conversion confirms that notion! Apple appears to be able to stand on its own two feet and has no reason to be afraid of its lenders. It has a joyful, healthy balance sheet in our heads. When it comes to debt analysis, the balance sheet is definitely the place to start. However, every organization can, in the end, manage risks that lie outside of the balance sheet. Apple, for example, has one warning flag that we believe you should be aware of.
After all of that, if you’re looking for a fast-growing company with a strong balance sheet, go no further than our list of net cash growth stocks.
What makes Apple so leveraged?
Leverage. Apple began issuing its first bonds and notes in 2013, underwriting a total of $64.46 billion in debt due to the zero interest rate policy (ZIRP). Apple took this step not because it needed money, but because it was practically getting money for free.
Is Apple a solid investment in 2021?
It’s also benefited from Apple’s entry into future technology trends, which appears to have improved investor confidence in the company’s long-term prospects.
However, an entry-level iPhone that could hit the market in 2022 and take the smartphone market by storm is one of the most compelling reasons for investors to consider buying Apple stock right now. Let’s take a look at what this next iPhone could be all about, and how it could help Apple expand even faster.
Why are tech stocks in such bad shape?
For the same reasons as before, tech stocks are being hammered. Worries about greater inflation, expectations of tighter monetary policy from the Federal Reserve, and—most recently—a significant increase in bond yields can all be blamed by investors.
The Nasdaq Composite index, which is heavily weighted in technology, fell 1.8 percent on Tuesday. Apple (ticker: AAPL), Microsoft (MSFT), and Tesla (TSLA) were all down, with 1 percent, 0.6 percent, and 0.1 percent losses, respectively.