Largest overseas cash reserves
Previously, we discussed how Trump’s recently proposed tax plan could benefit the U.S. economy (QQQ). In this part, we’ll look at Apple (AAPL). As of fiscal 3Q17, which ended July 1, 2017, Apple had $150.5 billion in cash and marketable securities. A major portion of it was attributed to foreign subsidiaries. Most of Apple’s manufacturing happens in China (FXI), and this outsourcing contributes significantly towards Apple’s profits.
As the above chart by Statista shows, Apple tops the list of S&P 500 (VOO) companies with the largest amount of overseas cash reserves. Microsoft (MSFT), Oracle (ORCL), and Alphabet (GOOG) were the other technology players that made it to the top five.
Apple’s possible repatriated cash uses
Let’s look at how the proposed tax plan could affect Apple’s post-tax earnings. In fiscal 2016, 2015, and 2014, Apple’s effective tax rate was 25.6%, 26.4%, and 26.1%, respectively. Consequently, a revised tax rate of 15%, which is much lower than previous rates, could have a significant positive effect on Apple’s post-tax earnings.
In the past, we’ve highlighted that a cash repatriation frees up billions of dollars in cash for tech companies and boosts growth in the rapidly growing and ultra-competitive technology space, meaning that tech players could put their cash corpus towards strategic acquisitions. Cash repatriation could also help companies pay off debt.
As of July 1, 2017, Apple had debt of approximately $109.9 billion. Apple could put its repatriated cash towards reducing debt and strategic acquisitions.