Essay Financial Policy at Apple Case writeup
Apple had nearly $137 billion of cash at the end of Dec 2012. Over the past few years, the Company had been highly successful with the launch of the iPhone 3G in 2008, and which was followed by the launch of iPad in 2010. The Company enjoyed high profitability, and was able to keep its costs at a minimum. The gross margin on the iPhone was between 49% and 58% from October 2010 to March 2012, and the gross margin on the iPad was between 23% and 32% in the same time period. Apple’s capital structure included no debt; hence, there was no outflow of cash for making interest payments.
However, in spite of the successes of Apple, the Company’s stock price had been dipping since reaching its high …show more content…
In conclusion, Apple should not agree with the proposal presented by Mr. Einhorn. It should either commit to increase dividends and thus the market might slowly do away with the discount that it is placing on its cash. I would suggest that should hoard cash worth one-year of operating expenses and capex at the parent level. The remaining cash can be spent for dividend payments. I would not like Apple to go for a one-time special dividend as it does little to create long-term perception of value creation (it might lead to a one-time pop in the share price). Alternatively, Apple might also go ahead with an accelerated share repurchase plan.