Given the current political debate about offshort cash of Apple and others, estimated at $1.4 trillion overall, it is interesting to consider what keeping capital from returning to the United States means to job creation.
Let’s make some assumptions, which may be incorrect, but at least give us some visibility that can be tweaked. Let’s assume that a dollar of capital invested results in 50 cents of revenue, i.e. a price to sales ratio of 2, in line with the current price to sales ratio of the S&P 500. Given the higher valuation of publicly traded companies, this may be an understatement of revenue produced, but again, it provides some vision. Let’s also assume that labor as a percentage of revenue is about 60%, in line with current average labor costs. Let’s assume average wages are 52,000 annually, in line with current averages, and that average labor cost per employee are 45% higher, in line with current average benefits costs in the United States, at $75,400.
Now the math:
$75,400 In labor cost per employee of / 60% labor cost as a percentage of revenue = $125,667 in revenue required to support one employee
$125,667 In revenue required to support one employee / 50% revenue per dollar of capital invested = $251,334 capital required to create one job
$240,000,000,000 in cash on hand at Apple / $251,334 capital required to create one job = 954,904 jobs that could be created with this capital
Curious as to what this means for the $1.4 trillion overall estimated to be overseas?
5.6 Million jobs
This is not the entire story, of course. Companies that are taxed overseas get a credit for those taxes versus United States taxes, thus allowing repatriation is allowing earnings without corporate taxation. The alternative, however, may not be that the money will eventually be taxed; it might be worse. Management may instead find themselves as fiduciaries forced to move outside of the USA like others before them, including iconic names like Purina, Budweiser, and others.