In 2013, Apple Inc. sold $17 billion of bonds in the biggestcorporate offering on record as the iPhone maker seeks to helpfinance a $100 billion capital reward for shareholders. Thisfinancial policy changed Apple’s capital structure significantly.The leverage ratio of Apple increased after the buyback of commonstocks and the issuance of long-term bonds. Repurchase is a way togive it back to shareholders. It is especially the case for Appleas the company has been piling up cash and now shows signs of aslowdown in innovation and growth.
There are several ways a firm could give back to loyalshareholders. Companies could reward shareholders by payingdividends, using existing cash to buy back shares, grantingpreferred stocks to existing shareholders, or issuing bonds to buyback shares.
Discuss:
- What is the potential impact of the policy on Apple’s capitalstructure? Discuss Apple’s financial positions, profitability andrisk by analyzing the commitment of cash payment, the taxliabilities, the risk of financial distress, and the growthopportunities.
- Do you think issuing bonds and using the cash to buy backshares is Apple’s best financial strategy? What would yourecommend?
