| | | A well managed company (Apple is a good example) knows that it can handle a certain amount of debt. But too much debt creates other problems: If revenues and earnings are under pressure, those fixed interest costs remain and can thereby cause even lower earnings than would otherwise be the case with less leverage. If an opportunity to make a large acquisition occurs, a company might prefer paying cash, rather than issuing more stock, even if the stock is very high priced (which Apple's isn't at this time).
A rule of thumb that many companies with lower growth than Apple follow is to allow debt to run as high as 50% (the debt to equity ratio). But companies, especially in the technology area, where you have to maintain relatively high R&D costs to stay on the cutting edge, are likely to prefer a debt/equity ratio closer to 10%.
Apple has done the right thing here. I don't blame them for not wanting to float more bonds just to be able to buy back more stock. A company that hasn't done this at all is Qualcomm, which chooses to buy back some of its shares with cash generated in the U.S., over and above that available for dividends. In addition, Qualcomm has used a stock buyback strategy of selling put options when the price of the underlying shares appears to be well below what it ought to be. Thus, Qualcomm began selling put options a few years ago, with a striking price of $40. In some cases the stock didn't reach $40, forcing Qualcomm to buy shares at $40, but the net cost, after subtracting the amount received on the sale of the puts, was still below the share price when the options expired.
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