AAPL has not realized any significant losses on its cash or cash equivalents and marketable securities, but, there is always the risk that future fluctuations in their value could result in significant losses. From the company’s 10K we see that AAPL’s credit ratings and pricing of its investments can be negatively affected by: liquidity, credit deterioration, financial results, economic risk, political and sovereign risk. The organization’s vulnerability to counterparty risk on its trade receivables is higher in certain international markets.
The organization also understands that its ability to reduce such exposures are limited. The enterprise is further open to credit risk on its long-term supply agreements pertaining to its trade accounts receivable and non-trade receivables. The organization’s 10K report indicates it has two customers which individually accounted for less than ten percent of the receivables jointly represented more than ten percent of APPL’s total trade receivables. On the vendor non-trade receivables side AAPL had three vendors, which reported forty-two percent, nineteen percent and ten percent.The enterprise has appropriate procedures to monitor and limit the organizations exposure to credit risk on both its trade and vendor non-trade receivables. In certain situations the organization require vendors to provide and upfront collateral to AAPL to limit the credit risk.
We also see that the net cash collateral received by AAPL pertaining to derivative instruments is close to thirty five million as of 2017. The 10K report also shows that the company enters into master netting arrangements with vendors. Now let’s understand what a master netting arrangement is. A master netting arrangement is a master contract between counterparties that have multiple derivative contracts opened with each other.
Now during default or on termination of any one contact, the master agreement become the sole contract providing for net settlement of all contracts which are opened between the two counterparties, as well as cash collateral, through a single payment, in a single currency. The background for entering into a master netting arrangement is to reduce credit risk and allow for settlement of dealings with vendors.
