The following article will familiarize you with some reasons why management at Apple Inc., the largest company in the world based on market capitalization, chose to hold cash. Like all companies, Apple Inc. needs to hold cash to meet its short-term obligations and avoid the threat of bankruptcy. While there is definitely a risk of not having enough cash on hand, is there a risk of having too much cash?

Instructions:

1. Read the article "To satisfy its investors, cash-rich Apple borrows money."

Discussion terms:

a) As of September 24, 2016, Apple Inc. reported in its financial statements having cash on hand of US$67.15 billion. Do you think this is a good situation for the company? Briefly support your posting. What would you suggest Apple consider doing with all that cash?

b) Despite having so much cash on hand, around the same time Apple Inc. raised US$17 billion by issuing bonds on the primary market, one of the largest debt issues on record. For what purpose did Apple issue the bonds? Why wouldn't Apple use some of its $67.15 billion cash on hand instead of issuing new debt?

c) Apple is not alone in hoarding cash, Alphabet Inc. (Google parent company) reported a cash position of $US 86.390B at the end of 2016 and Berkshire Hathaway (led by legendary CEO Warrant Buffet) reported cash holdings of 75.386 billion at the end of 2016.

Is it possible for a firm to have too much cash?

Why would shareholders care if a firm accumulates large amounts of cash?

Answer rating: 100% (QA)

a Having a large amount of cash on hand can be both good and bad for a company On the one hand it can provide liquidity flexibility and security in case of unexpected events or opportunities On the ot... View the full answer