Wednesday, August 8, 2018

Is Apple The Future Of Capitalism?

This article provides an excellent description of Apple's financial strategy.  It also explains why Apple is in a position to effectively deploy a financial strategy that is the envy of many corporations.  The implication is that Apple is not the future of capitalism.  Most corporations are not in a position to deploy its financial strategy.  On the other hand,  Apple may have deployed an ideal financial strategy that sets the gold standard for corporations.

One of the key ingredients of Apple's financial strategy is its focus on cash flow which is greater than its high profits.  It does not borrow money to finance its operations like most businesses.  It passes this burden onto its suppliers.  They carry the inventory for Apple's hardware products and Apple pays them after 100 days of the receipt of an invoice.  That helps to create a highly positive cash flow that other firms might envy.  Apple also receives cash quickly from sales through its retail stores and from its many subscription services. Apple does borrow money, but it is used to finance the return of capital to its shareholders.  Most of that that comes from share buybacks. 

A large number of corporations have borrowed money to buyback their stock and to pay dividends to their shareholders.  That may be good for executives who are compensated with stock options.  On the other hand, they may under invest in assets and R&D that may have a negative impact on their growth rate.

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