What does Apple plan to spend $100bn on?

Some interesting finance news here, since Apple don’t plan to spend their famous cash mountain on a conventional purchase. Instead, they plan to raise dividends and buy back their own shares. Why?

If you follow the blog highlighted above, you’ll see how pressure began to mount on Apple to return some of the cash it is holding to its shareholders by paying a dividend. According to the Huffington Post, shareholders have been clamouring for Apple to give them access to its cash hoard, which now stands at a record $145 billion (£95 billion), an amount so vast it had outstripped the cash balance of the US government by 2011. Apple's tight grip on its cash has been blamed for the steep decline in its share price over the winter. Why would such (apparently) sensible behaviour rattle shareholders?

Firstly, recent profits and revenues have been good, but not great. Revenues have grown, but not profits. But the main complaint about the cash pile is that some people think it is very inefficient to hold so much cash. The company has faced continued pressure from Wall Street over the use of its cash, which sits around earning less than 1% in interest. Investors reason that if the company has no good use for the money, it should be handed over to shareholders.

One way to effectively hand the cash to shareholders is for the company to buy its own shares, in an attempt to limit their supply and ramp up the value of those that are left. Apple said it will begin the largest share ‘buyback’ in history. It is also raising its dividend by 15%. Just the news that this would happen pushed up the value of Apple’s shares by 4.6%.

If you read the article there are also some good opportunities to consider and calculate some interesting ratios, like earnings per share and the price/earnings ratio.