International Business Machines Corp. (NYSE:IBM)

Short-term debt

The short-term debt shows a fluctuating trend over the five-year period. It decreased from 7,183 million US dollars at the end of 2020 to 6,787 million at the end of 2021, followed by a more significant reduction to 4,760 million at the end of 2022. However, the figure rose again to 6,426 million in 2023, before declining to 5,089 million in 2024. Overall, the short-term debt experienced a net decrease from 2020 to 2024, but with noticeable volatility during this timeframe.

Long-term debt, excluding current maturities

The long-term debt, excluding current maturities, exhibited a downward trend initially, falling significantly from 54,355 million US dollars in 2020 to 44,917 million in 2021. Subsequently, it increased moderately to 46,189 million in 2022 and continued to rise to 50,121 million in 2023, before showing a slight decrease to 49,884 million in 2024. Despite the initial drop, the long-term debt rebounded somewhat, ending slightly below the 2020 level in 2024.

Total debt (carrying amount)

The total carrying amount of debt mirrored the combined behaviors observed in short-term and long-term debt. It decreased markedly from 61,538 million US dollars in 2020 to 51,704 million in 2021 and further to 50,949 million in 2022. Thereafter, it increased substantially to 56,547 million in 2023 before a minor decrease to 54,973 million in 2024. This suggests an overall reduction in total debt from 2020 to 2022, followed by a resurgence in debt levels during 2023, with a slight decline again in 2024.

Overall insights

The debt profile indicates strategic debt management, with initial reductions in both short-term and long-term debt from 2020 through 2022. However, the increase in debt observed in 2023 could reflect renewed borrowing or refinancing activities. The slight decline in the latest year suggests ongoing efforts to manage and possibly reduce debt levels. The fluctuations across short-term and long-term categories imply dynamic financial strategies responsive to varying operational and market conditions over the analyzed period.

Cost of Financing

The cost of financing exhibits a consistent downward trend from 2020 to 2023, decreasing from 451 million US dollars in 2020 to 334 million US dollars in 2023. In 2024, this trend stabilizes with a slight increase to 336 million US dollars, suggesting relative cost control or efficiency improvements in financing expenses over the observed period.

Interest Expense

Interest expense shows a fluctuating pattern with an initial decline from 1288 million US dollars in 2020 to 1155 million in 2021, followed by a moderate increase to 1216 million in 2022. From 2022 onwards, there is a notable upward trend reaching 1606 million in 2023 and further increasing to 1712 million in 2024. This rise may indicate increased borrowing or higher rates applied to existing debt.

Interest Capitalized

Interest capitalized remains relatively low and stable throughout the period, fluctuating slightly between 3 and 12 million US dollars. Despite minor variations, the amount remains minimal compared to the other interest-related costs, indicating limited use of interest capitalization in the company's accounting practices.

Interest Paid and Accrued

Interest paid and accrued shows a decreasing trend from 1745 million US dollars in 2020 to a low of 1550 million in 2021, thereafter maintaining a general increase to 1949 million in 2023 and peaking at 2060 million in 2024. The growth in this combined figure aligns with increased interest expense and suggests higher cash outflows or accrued liabilities related to interest over recent years.

The financial data reveals fluctuations in the interest coverage ratios over the analyzed five-year period. Both the standard interest coverage ratio and the adjusted interest coverage ratio exhibit varying trends, reflecting changes in the company's ability to meet its interest obligations from operational earnings.

Interest Coverage Ratio (without capitalized interest)

This ratio demonstrates an initial increase from 4.62 in 2020 to 5.2 in 2021, indicating an improved capability to cover interest expenses through earnings. However, a sharp decline occurs in 2022, dropping to 1.97, which signals a notable reduction in earnings relative to interest expense, possibly raising concerns about solvency risks during that year. Subsequently, there is a significant recovery in 2023, with the ratio rising to 6.42, the highest point in the observed period, before decreasing again to 4.4 in 2024. Despite this decrease, the ratio remains above the 2020 level, suggesting a recovery and relative stabilization in the company's earnings strength concerning interest payments.

Adjusted Interest Coverage Ratio (with capitalized interest)

The adjusted ratio, which accounts for capitalized interest, follows a somewhat similar trend but consistently remains lower than the standard ratio throughout all periods. Starting at 3.41 in 2020, it increases to 3.88 in 2021, reflecting improved earnings after adjusting for capitalized interest. The ratio then declines sharply to 1.53 in 2022, mirroring the drop seen in the unadjusted ratio but to a somewhat lesser extent. A recovery to 5.29 in 2023 is noted, followed by a decrease to 3.65 in 2024. Although this ratio experiences more pronounced lows and slightly lower highs than its unadjusted counterpart, the pattern suggests that capitalized interest has a tangible impact on the company’s effective interest coverage capacity.

Overall, the patterns indicate that 2022 was a challenging year in terms of interest expense coverage, but the subsequent years show a recovery trend. The gap between the adjusted and unadjusted ratios underscores the importance of considering capitalized interest to gain a fuller understanding of the company's interest coverage. The fluctuations suggest sensitivity to earnings volatility or changes in interest expenses, which warrant further detailed investigation to pinpoint underlying operational or financial causes.