International Business Machines Corp. (NYSE:IBM)

The carrying amount of total debt exhibited a fluctuating pattern over the five-year period. An initial decrease was followed by increases, culminating in a notable rise by the final reporting date.

Overall Trend

Total debt began at US$51.704 billion on December 31, 2021, decreased to US$50.949 billion on December 31, 2022, then increased to US$56.547 billion on December 31, 2023. A slight decrease to US$54.973 billion was observed on December 31, 2024, before rising significantly to US$61.260 billion on December 31, 2025. This indicates a net increase in total debt over the period.

Short-Term Debt

Short-term debt decreased from US$6.787 billion in 2021 to US$4.760 billion in 2022. It then increased to US$6.426 billion in 2023, followed by a decrease to US$5.089 billion in 2024, and a further increase to US$6.424 billion in 2025. The fluctuations suggest active management of short-term financing needs.

Long-Term Debt

Long-term debt, excluding current maturities, showed a consistent upward trend from US$44.917 billion in 2021 to US$54.836 billion in 2025. The increase was most pronounced between 2022 and 2023 (US$1.272 billion) and between 2024 and 2025 (US$4.952 billion). This suggests a reliance on long-term financing or potentially the issuance of new long-term debt.

Composition of Total Debt

Long-term debt consistently represented the majority of the total debt throughout the period. The proportion of short-term debt to total debt remained relatively stable, fluctuating between approximately 13% and 15% over the five years. The increasing total debt appears to be primarily driven by increases in long-term obligations.

The substantial increase in total debt between 2024 and 2025 warrants further investigation to understand the underlying reasons, such as potential acquisitions, capital expenditures, or refinancing activities.

The cost of financing exhibited a generally stable pattern over the five-year period, initially decreasing from 392 in 2021 to 334 in 2023, before modestly increasing to 366 in 2025. However, interest expense demonstrated a consistent upward trend throughout the period. Interest capitalization also generally increased, though with some fluctuation, while interest paid and accrued mirrored the increase observed in interest expense.

Interest Expense

Interest expense increased steadily from 1,155 in 2021 to 1,935 in 2025, representing a substantial rise over the five-year timeframe. The increase was relatively consistent year-over-year, suggesting a growing debt burden or rising interest rates, or a combination of both. The largest absolute increase occurred between 2022 and 2023, with an increase of 390.

Cost of Financing vs. Interest Expense

While the cost of financing remained relatively contained, interest expense consistently exceeded it by a significant margin. This difference suggests that a substantial portion of financing costs are attributable to interest payments rather than other financing-related expenses. The gap between interest expense and cost of financing widened over the period, further emphasizing this trend.

Interest Capitalization

Interest capitalization showed an increasing trend from 3 in 2021 to 12 in 2024, before decreasing to 4 in 2025. This indicates that a growing amount of interest was being added to the cost of qualifying assets, potentially related to ongoing projects or investments. The decrease in 2025 may indicate a completion of projects or a change in capitalization policy.

Interest Paid and Accrued

Interest paid and accrued followed a similar trajectory to interest expense, increasing from 1,550 in 2021 to 2,305 in 2025. This correlation is expected, as accrued interest contributes to the total amount paid. The consistent increase suggests a growing cash outflow related to interest obligations.

Overall, the financial information indicates a growing interest burden. While the cost of financing remained relatively stable, the significant increase in interest expense and related payments warrants further investigation into the company’s debt structure and interest rate exposure.

The interest coverage ratios exhibited fluctuations over the five-year period. Both the standard interest coverage ratio and the adjusted interest coverage ratio experienced volatility, though generally demonstrated improvement from 2022 to 2025.

Interest Coverage Ratio (without capitalized interest)

The interest coverage ratio, excluding capitalized interest, began at 5.20 in 2021. A substantial decrease was observed in 2022, falling to 1.97. This was followed by a recovery to 6.42 in 2023, before declining slightly to 4.40 in 2024. The ratio concluded the period with a value of 6.35 in 2025, indicating a return to levels comparable to the beginning of the period.

Adjusted Interest Coverage Ratio (with capitalized interest)

The adjusted interest coverage ratio, incorporating capitalized interest, followed a similar pattern of decline and recovery. Starting at 3.88 in 2021, it decreased significantly to 1.53 in 2022. A notable increase occurred in 2023, reaching 5.29. The ratio then decreased to 3.65 in 2024, before increasing again to 5.33 in 2025. The adjusted ratio consistently remained lower than the standard interest coverage ratio throughout the observed period.

Comparative Analysis

The difference between the two ratios highlights the impact of capitalized interest on the company’s ability to cover its interest expense. The inclusion of capitalized interest consistently resulted in a lower coverage ratio. The most significant divergence occurred in 2022, where the adjusted ratio was considerably lower than the standard ratio. Both ratios show a general trend of improvement from the low point in 2022, suggesting strengthening capacity to meet interest obligations.

Overall, the fluctuations suggest potential changes in earnings or interest expense. The recovery observed in 2023 and 2025 indicates a positive trend, but continued monitoring is warranted to assess the sustainability of this improvement.