Saturday, February 13, 2016

A Useful Tool for Apple

       One useful tool to track for Apple is the cash adjusted P/E.  The Google sheet below downloads the necessary material and performs the calculation.  Currently, the tool shows that the cash adjusted P/E is less than six.  The only major American company that comes close to this level is Citi - a bank still trying to recover from the past financial crisis and fear of the next.  As I have noted in this blog, Apple does face some headwinds, but a cash adjusted P/E of less than six is indicative of a hurricane.  This makes the number worth following.
https://docs.google.com/spreadsheets/d/12cI71ApcH9kmiABJbLP_PC_pvkRPLThD5GeE8mLbw6g/edit#gid=0

2 comments:

Everett Gong said...

Hi Professor,

For tech companies in general, there is always a debate on how much of the cash you can give them credit for as they may need to spend it on future investments for growth and/or just to stay relevant. Hence, the cash-adjusted PE of a company like Apple may not be as low you say depending on how much the market gives credit for the cash. Thoughts?

-EG

Adam Taki said...

I find it unlikely that Apple will repatriate a lot of the cash sitting on its balance sheet. Of course, the value of the business should be isolated from cash, but in today's world abound with massive-scale monetary experiments, valuing the cash on Apple's books is much like trying to hit a moving target.

I think it may be helpful to isolate foreign cash from USD then to track changes in currencies (or for the case of "Rest of Asia" a basket of currencies) relative to the USD for each geographic area represented in the most recent 10-K.

Perhaps also, the USD on the balance sheet can be categorized as possible amount needed for additional capital expenditures and the rest as unallocated cash. Thoughts?