How the Fed May Have Crushed Apple Inc. (AAPL)’s Cash by Billions

Apple’s long-term securities have increased from $92.1 billion in September to $105.6 billion in March, increasing its exposure. Investors don’t get a detailed breakdown, but if Apple Inc. (NASDAQ:AAPL) has concentrated holdings at the 5-year maturity it could approach the $2.1 billion potential loss estimate, particularly since its long-term investment portfolio has swelled by an additional $13.4 billion since September.

Where it counts
The company categorizes for its portfolio as available-for-sale, which means that securities are carried on the balance sheet at market value and unrealized fluctuations bypass the income statement and are instead recorded in other comprehensive income. In contrast, securities classified as held-to-maturity are carried at amortized cost and market fluctuations are ignored. Since Apple uses available-for-sale accounting, the declining value of its bonds could put a dent in its total cash position.

In a few weeks, Apple will report its latest earnings results through the end of June. Investors won’t have to wait long to see how Apple’s cash position has changed.

Of course, Apple Inc. (NASDAQ:AAPL)’s business isn’t investing in bonds — it’s selling stuff. While the company’s cash investments may lose billions of dollars in value because of market fluctuations, its operating cash flow will more than make up for it. For the first half of the fiscal year, Apple has generated $35.9 billion in operating cash flow, of which $31.2 billion is free cash flow. The Fed can’t touch that figure.

The article How the Fed May Have Crushed Apple’s Cash by Billions originally appeared on Fool.com and is written by Evan Niu, CFA.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends and wns shares of Apple.

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