We find ourselves in the fortunate position of continuing to generate large amounts of cash, including $23 billion in cash flow from operations in the last quarter alone.
It does not matter if the firm’s capital is raised by issuing stock or selling debt. It does not matter what the firm’s dividend policy is. Therefore, the Modigliani–Miller theorem is also often called the capital structure irrelevance principle.
—Modigliani and Miller Theorem, Wikipedia
The key word in Apple’s unprecedented press release is “continuing.”
The key word in M and M theory is “irrelevant.”
It is a Nobel Prize-winning foundation that allows one to think about the dynamics of a corporation’s balance sheet from an initial perfect condition.
The Dynamic (with a capital D) for Apple is cash generation.
Most do not understand the scale of Apple’s success. We understand the stores are jammed. We understand the ecosystem of apps, toys, and seamless software that drives any—not all—to products from Cupertino, Calif.
The scale is weighted down with over a 10th-of-a-trillion dollars. This drives shrewd investors such as David Einhorn and Lawrence Haverty to drink. See Mr. Haverty here.
The “Mount Everest of cash” does not begin to describe the back story, the focus of buy-side outrage. In the last accounted-for 90 days, Apple sales generated $23 billion in mostly free-and-clear cash flow. They will do this again, every quarter. (Or at least, that is the bet.)
Fortress Cook is responding to shareholder revolt and should score major points. (Somehow this was not a point of discussion with Daimler (DAI:GR)-Mercedes Benz this morning.)
But that is not the real story here—the story that Those of the Bond Fund and Those of the Go-to-Cash should note.
Focus: There are many more Apples. Discuss.