Question
In: Finance
Respond in detail to the position: “Apple has more than a hundred billion in cash and...
Respond in detail to the position:
“Apple has more than a hundred billion in cash and continues to generate staggering amounts of cash each year. There is really no need for Apple to have a debt policy.”
Please make sure that you refer to debt policy concepts and show a deep understanding of this topic.
Solutions
Expert Solution
I do not agree with the statement and I strongly think that Apple should have a debt policy despite being cash rich.
This is because each and every company should have a debt policy so as to be able to properly articulate its goals with regards to debt and so as to be able to enhance and increase its ability to make decisions with regards to issuance of debt obligations.
Apple is presently a cash rich company. However its situation may change in future as business dynamics of Apple is subjected to changes due to economic conditions of its various markets. Apple’s market in countries like USA and other developed nations have saturated and the company is largely dependent on markets like China, India and Brazil for growth. However with the slowing demand in these markets the cash generation ability of Apple has slowed down and the company will need to make use of debt for making future capex (capital expenditures).
A cash rich company like Apple will need a debt policy so as to be able to define and explain the scope and purpose of debt (as and when the need arise), uses of debt, types of debt permitted, debt limitations, and debt issuance practices. All this will serve as a framework when the company has the need to raise debt in future.
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