In the past 10 years, shares of Apple (AAPL 6.84%) have crushed the Nasdaq Composite index. Strong financial results have propelled this business to a $2.6 trillion market capitalization.
Despite this impressive performance, some investors might worry that this dominant tech enterprise carries $108 billion of long-term debt on its balance sheet. That gargantuan figure alone would qualify as the world's 139th-most-valuable company.
Can Apple afford this massive amount of debt?
Sizing up the debt burden
Investors can look at some key metrics to determine whether a business is able to handle its debt burden. When scrutinizing Apple in this regard, it's clear that the company has absolutely no problem at all with its borrowings.
Apple's debt ratio of 31% (comparing its debt to assets) has actually come down in recent years. And it demonstrates that there are ample assets backing the company.
The business generated an incredible $114 billion in operating income in fiscal 2023. But it only made $3.9 billion in interest payments. This shows that even if a severe recession happened that crushed demand for its popular hardware devices, lowering revenue in the process, Apple could still easily make good on its payments.
Financial prowess
Just because a company has some debt on the books, it doesn't necessarily mean it's a risky stock to own. In fact, in this case, it points to Apple's financial prowess. The tech giant started borrowing aggressively about a decade ago to take advantage of ultra-low interest rates. This has helped to fund its buybacks and dividends.
Moreover, you'd struggle to find a more profitable enterprise than this one. In the past three fiscal years, Apple generated over $300 billion in free cash flow. Based on this result, one could even make a valid argument that Apple would be able to take on even more debt. In any case, the tech titan's balance sheet is doing just fine right now.
