Quora Answer: Why Does Apple Not Have Interest Expenses on Its Income Statement?

The following is my answer to a Quora question: “Why does Apple not have any interest expenses on its income statement?  I looked at the company’s balance sheet, and it seems to have some debt liabilities, both current and non-current.  Can anyone explain this situation?”

In summary, you are actually asking if Apple has too much leverage.  Apple under-reports its income.  Hidden in their income statement is their “Other Income” which is positive.  This shows, anecdotally, that their non-operating income is quite substantial.  Apple has less than US$130 billion in issued debt.  Much of that debt is not due yet.  Apple does not actually need that debt since their cash reserves is almost US$350 billion.  The reason they do this is because they want to avoid taxation on the US.

Fortunately, under Trump’s reforms, the corporate tax rate has been lowered from 35% to 21%; corporations are allowed to repatriate overseas profits held as cash at 15.5%, a reduced rate.  For repatriating illiquid assets, the relevant tax rate is now 8%.  Taking on debt allows them to reduce profits further on the balance sheet, since the interest on the debt is lower than the tax rate.