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Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

International Business Machines Corp., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net operating profit after taxes (NOPAT)¹	8,615)	(710)	4,163)	4,477)	10,219)
Cost of capital²	9.06%	8.61%	8.09%	7.49%	7.95%
Invested capital³	112,927)	104,131)	110,083)	130,176)	133,824)

Economic profit⁴	(1,617)	(9,679)	(4,742)	(5,269)	(423)

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 8,615 – 9.06% × 112,927 = -1,617

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Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	International Business Machines Corp. economic profit decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

International Business Machines Corp., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net income attributable to IBM	7,502)	1,639)	5,743)	5,590)	9,431)
Deferred income tax expense (benefit)¹	(1,105)	(2,877)	(1,753)	(3,322)	(1,344)
Increase (decrease) in allowance for expected credit losses on notes and accounts receivable²	(21)	80)	(43)	47)	(15)
Increase (decrease) in deferred income³	1,453)	(564)	357)	1,257)	1,267)
Increase (decrease) in product warranty liability⁴	(102)	(75)	(82)	(82)	(61)
Increase (decrease) in equity equivalents⁵	225)	(3,436)	(1,521)	(2,100)	(153)
Interest expense	1,607)	1,216)	1,155)	1,288)	1,344)
Interest expense, operating lease liability⁶	151)	116)	103)	151)	159)
Adjusted interest expense	1,758)	1,332)	1,258)	1,439)	1,503)
Tax benefit of interest expense⁷	(369)	(280)	(264)	(302)	(316)
Adjusted interest expense, after taxes⁸	1,389)	1,052)	994)	1,137)	1,188)
Interest income	(670)	(162)	(52)	(105)	(349)
Investment income, before taxes	(670)	(162)	(52)	(105)	(349)
Tax expense (benefit) of investment income⁹	141)	34)	11)	22)	73)
Investment income, after taxes¹⁰	(529)	(128)	(41)	(83)	(276)
(Income) loss from discontinued operations, net of tax¹¹	12)	143)	(1,031)	(89)	4)
Net income (loss) attributable to noncontrolling interest	16)	20)	19)	22)	25)
Net operating profit after taxes (NOPAT)	8,615)	(710)	4,163)	4,477)	10,219)

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for expected credit losses on notes and accounts receivable.

³ Addition of increase (decrease) in deferred income.

⁴ Addition of increase (decrease) in product warranty liability.

⁵ Addition of increase (decrease) in equity equivalents to net income attributable to IBM.

⁶ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 3,388 × 4.46% = 151

⁷ 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 1,758 × 21.00% = 369

⁸ Addition of after taxes interest expense to net income attributable to IBM.

⁹ 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 670 × 21.00% = 141

¹⁰ Elimination of after taxes investment income.

¹¹ Elimination of discontinued operations.

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Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	International Business Machines Corp. NOPAT decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

International Business Machines Corp., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Continuing operations provision for (benefit from) income taxes	1,176)	(626)	124)	(864)	731)
Less: Deferred income tax expense (benefit)	(1,105)	(2,877)	(1,753)	(3,322)	(1,344)
Add: Tax savings from interest expense	369)	280)	264)	302)	316)
Less: Tax imposed on investment income	141)	34)	11)	22)	73)
Cash operating taxes	2,510)	2,497)	2,130)	2,738)	2,317)

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

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Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	International Business Machines Corp. cash operating taxes increased from 2021 to 2022 and from 2022 to 2023.

International Business Machines Corp., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Short-term debt	6,426)	4,760)	6,787)	7,183)	8,797)
Long-term debt, excluding current maturities	50,121)	46,189)	44,917)	54,355)	54,102)
Operating lease liability¹	3,388)	3,064)	3,436)	4,931)	5,259)
Total reported debt & leases	59,935)	54,013)	55,140)	66,469)	68,158)
Total IBM stockholders’ equity	22,533)	21,944)	18,901)	20,597)	20,841)
Net deferred tax (assets) liabilities²	(5,510)	(3,964)	(3,413)	(3,769)	48)
Allowance for expected credit losses on notes and accounts receivable³	301)	322)	242)	379)	332)
Deferred income⁴	16,984)	15,531)	16,095)	17,134)	15,877)
Product warranty liability⁵	249)	351)	426)	508)	590)
Equity equivalents⁶	12,024)	12,240)	13,350)	14,252)	16,847)
Accumulated other comprehensive (income) loss, net of tax⁷	18,761)	16,740)	23,234)	29,337)	28,595)
Noncontrolling interests	80)	77)	95)	130)	144)
Adjusted total IBM stockholders’ equity	53,398)	51,001)	55,580)	64,316)	66,427)
Marketable securities⁸	(406)	(883)	(637)	(609)	(761)
Invested capital	112,927)	104,131)	110,083)	130,176)	133,824)

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See details »

³ Addition of allowance for doubtful accounts receivable.

⁴ Addition of deferred income.

⁵ Addition of product warranty liability.

⁶ Addition of equity equivalents to total IBM stockholders’ equity.

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of marketable securities.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	International Business Machines Corp. invested capital decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

International Business Machines Corp., cost of capital calculations

Dec 31, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	168,800)	168,800)	÷	226,898)	=	0.74	0.74	×	11.23%	=	8.36%
Debt³	54,710)	54,710)	÷	226,898)	=	0.24	0.24	×	3.42% × (1 – 21.00%)	=	0.65%
Operating lease liability⁴	3,388)	3,388)	÷	226,898)	=	0.01	0.01	×	4.46% × (1 – 21.00%)	=	0.05%
Total:	226,898)					1.00					9.06%

Based on: 10-K (reporting date: 2023-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	117,289)	117,289)	÷	167,627)	=	0.70	0.70	×	11.23%	=	7.86%
Debt³	47,274)	47,274)	÷	167,627)	=	0.28	0.28	×	3.14% × (1 – 21.00%)	=	0.70%
Operating lease liability⁴	3,064)	3,064)	÷	167,627)	=	0.02	0.02	×	3.77% × (1 – 21.00%)	=	0.05%
Total:	167,627)					1.00					8.61%

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	111,442)	111,442)	÷	171,130)	=	0.65	0.65	×	11.23%	=	7.31%
Debt³	56,252)	56,252)	÷	171,130)	=	0.33	0.33	×	2.80% × (1 – 21.00%)	=	0.73%
Operating lease liability⁴	3,436)	3,436)	÷	171,130)	=	0.02	0.02	×	3.01% × (1 – 21.00%)	=	0.05%
Total:	171,130)					1.00					8.09%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	107,866)	107,866)	÷	181,578)	=	0.59	0.59	×	11.23%	=	6.67%
Debt³	68,781)	68,781)	÷	181,578)	=	0.38	0.38	×	2.50% × (1 – 21.00%)	=	0.75%
Operating lease liability⁴	4,931)	4,931)	÷	181,578)	=	0.03	0.03	×	3.06% × (1 – 21.00%)	=	0.07%
Total:	181,578)					1.00					7.49%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	125,896)	125,896)	÷	198,383)	=	0.63	0.63	×	11.23%	=	7.13%
Debt³	67,228)	67,228)	÷	198,383)	=	0.34	0.34	×	2.84% × (1 – 21.00%)	=	0.76%
Operating lease liability⁴	5,259)	5,259)	÷	198,383)	=	0.03	0.03	×	3.03% × (1 – 21.00%)	=	0.06%
Total:	198,383)					1.00					7.95%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

International Business Machines Corp., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit¹	(1,617)	(9,679)	(4,742)	(5,269)	(423)
Invested capital²	112,927)	104,131)	110,083)	130,176)	133,824)
Performance Ratio
Economic spread ratio³	-1.43%	-9.30%	-4.31%	-4.05%	-0.32%
Benchmarks
Economic Spread Ratio, Competitors⁴
Accenture PLC	6.07%	8.92%	10.76%	11.33%	10.05%
Adobe Inc.	5.66%	11.09%	13.50%	5.77%	3.87%
Intuit Inc.	-5.99%	-4.93%	2.82%	6.15%	19.82%
Microsoft Corp.	16.09%	24.04%	33.05%	31.07%	26.19%
Oracle Corp.	-1.10%	-0.82%	7.24%	1.54%	4.26%
Palo Alto Networks Inc.	14.98%	6.83%	-1.86%	-2.90%	0.35%
Salesforce Inc.	-11.91%	-9.48%	-7.16%	-10.20%	-6.20%
ServiceNow Inc.	9.04%	4.50%	5.71%	7.33%	6.74%
Synopsys Inc.	-3.51%	3.07%	-2.95%	-2.78%	-5.77%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -1,617 ÷ 112,927 = -1.43%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	International Business Machines Corp. economic spread ratio deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.

International Business Machines Corp., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit¹	(1,617)	(9,679)	(4,742)	(5,269)	(423)

Revenue	61,860)	60,530)	57,350)	73,620)	77,147)
Add: Increase (decrease) in deferred income	1,453)	(564)	357)	1,257)	1,267)
Adjusted revenue	63,313)	59,966)	57,707)	74,877)	78,414)
Performance Ratio
Economic profit margin²	-2.55%	-16.14%	-8.22%	-7.04%	-0.54%
Benchmarks
Economic Profit Margin, Competitors³
Accenture PLC	3.12%	4.30%	5.52%	5.76%	4.65%
Adobe Inc.	7.08%	12.91%	16.82%	8.28%	5.82%
Intuit Inc.	-9.81%	-9.49%	3.58%	6.93%	13.21%
Microsoft Corp.	18.33%	23.04%	27.44%	23.07%	19.37%
Oracle Corp.	-2.13%	-1.50%	14.32%	3.52%	7.76%
Palo Alto Networks Inc.	14.88%	7.95%	-2.50%	-4.70%	0.38%
Salesforce Inc.	-30.33%	-26.33%	-16.43%	-25.12%	-12.20%
ServiceNow Inc.	7.27%	3.62%	4.94%	5.98%	4.94%
Synopsys Inc.	-4.95%	4.33%	-4.69%	-4.77%	-9.97%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ Economic profit. See details »

² 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × -1,617 ÷ 63,313 = -2.55%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	International Business Machines Corp. economic profit margin deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.

International Business Machines Corp. (NYSE:IBM)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin