International Business Machines Corp. (NYSE:IBM)

The composition of intangible assets and goodwill exhibits notable shifts over the five-year period. Overall, intangible assets, including goodwill, demonstrate an increasing trend, though not consistently year-over-year. A closer examination of the individual components reveals varying patterns.

Capitalized Software

Capitalized software experienced a decline from 2021 to 2024, decreasing from US$1,696 million to US$1,282 million. A modest recovery is observed in 2025, reaching US$1,388 million. This suggests potential write-downs or a slower pace of investment in software capitalization during the 2022-2024 timeframe.

Client Relationships

Client relationships show a consistent upward trajectory, increasing from US$9,021 million in 2021 to US$11,262 million in 2025. This represents a significant growth of approximately 24.8% over the period, indicating a strengthening of customer-based intangible value.

Completed Technology

Completed technology displays volatility. After a decrease from US$6,074 million in 2021 to US$5,220 million in 2022, it recovers to US$7,399 million in 2025. This fluctuation could be attributed to acquisitions, internal development projects reaching completion, or impairment charges.

Patents/Trademarks

Patents and trademarks exhibit a relatively stable pattern, with a slight decrease from US$2,196 million in 2021 to US$1,821 million in 2023, followed by a modest increase to US$2,030 million in 2025. The overall change is minimal, suggesting consistent maintenance of this asset category.

Other Intangible Assets

The ‘Other’ category remains small in comparison to the other intangible asset classes, but shows a substantial increase from US$44 million in 2021 to US$139 million in 2025. This warrants further investigation to understand the nature of these assets.

Intangible Assets – Net Carrying Amount

The net carrying amount of intangible assets decreased from US$12,511 million in 2021 to US$10,660 million in 2024, before increasing to US$11,391 million in 2025. This trend is largely influenced by the accumulated amortization, which consistently increases throughout the period, offsetting growth in gross carrying amount in earlier years.

Goodwill

Goodwill demonstrates a consistent upward trend, increasing from US$55,643 million in 2021 to US$67,717 million in 2025. This increase suggests continued acquisitions or a lack of impairment charges. The growth from 2023 to 2025 is particularly pronounced, with an increase of approximately 12.6%.

The combined effect of these trends results in an overall increase in intangible assets including goodwill, from US$68,154 million in 2021 to US$79,108 million in 2025. The significant growth in goodwill, coupled with the increasing amortization of intangible assets, should be monitored closely for potential future impairment considerations.

The financial information reveals a significant divergence between reported and adjusted total assets and stockholders’ equity over the five-year period. The adjustments appear to be heavily influenced by the removal of goodwill and intangible assets, resulting in substantially lower adjusted figures.

Total Assets

Reported total assets demonstrate a fluctuating pattern, decreasing from US$132,001 million in 2021 to US$127,243 million in 2022, then increasing to US$135,241 million in 2023, US$137,175 million in 2024, and reaching US$151,880 million in 2025. Conversely, adjusted total assets exhibit a consistently lower magnitude and a similar fluctuating trend, beginning at US$76,358 million in 2021, declining to US$71,294 million in 2022, rising to US$75,063 million in 2023, US$76,469 million in 2024, and concluding at US$84,163 million in 2025. The difference between reported and adjusted total assets remains substantial throughout the period, indicating a considerable amount of goodwill and intangibles on the balance sheet.

Stockholders’ Equity

Reported total stockholders’ equity shows a consistent increase over the period, moving from US$18,901 million in 2021 to US$21,944 million in 2022, US$22,533 million in 2023, US$27,307 million in 2024, and US$32,648 million in 2025. However, adjusted total stockholders’ equity is consistently negative throughout the period, starting at -US$36,742 million in 2021, fluctuating to -US$34,005 million in 2022, -US$37,645 million in 2023, -US$33,399 million in 2024, and -US$35,069 million in 2025. This negative adjusted equity strongly suggests that the removal of goodwill and intangible assets exceeds the reported equity value, resulting in a net negative position.

The magnitude of the adjustments to both total assets and stockholders’ equity suggests that goodwill and intangible assets represent a significant portion of the company’s reported financial position. The consistent negative adjusted equity raises concerns about the underlying economic substance of the reported assets and the sustainability of the reported equity position if these adjustments were to be considered. The increasing trend in reported assets and equity is not reflected in the adjusted figures, highlighting the impact of these non-cash assets on the overall financial picture.

The financial metrics demonstrate a notable impact from the adjustment for goodwill and intangible assets. Reported asset turnover remains relatively stable, fluctuating between 0.43 and 0.48 over the observed period, while the adjusted asset turnover exhibits a consistent increase from 0.75 in 2021 to 0.80 in 2025. This suggests that the presence of goodwill significantly depresses the reported efficiency with which assets are utilized. Reported financial leverage generally decreased from 6.98 in 2021 to 4.65 in 2025, however, adjusted financial leverage figures are unavailable for comparison.

Asset Turnover

Reported total asset turnover shows modest variation, peaking at 0.48 in 2022 and declining to 0.44 by 2025. In contrast, the adjusted total asset turnover consistently increases, indicating improved asset efficiency when goodwill is excluded from the asset base. The difference between the reported and adjusted figures highlights the substantial proportion of assets represented by goodwill.

Return on Equity (ROE)

Reported ROE experiences significant volatility, moving from 30.38% in 2021 to 7.47% in 2022, then recovering to 32.45% in 2025. Adjusted ROE values are not available, preventing a direct comparison of the impact of goodwill removal on equity returns.

Return on Assets (ROA)

Reported ROA mirrors the trend in ROE, with a decline from 4.35% in 2021 to 1.29% in 2022, followed by a recovery to 6.97% in 2025. The adjusted ROA demonstrates a clear upward trend, increasing from 7.52% in 2021 to 12.59% in 2025. This substantial difference between reported and adjusted ROA underscores the considerable influence of goodwill on the reported profitability of assets. The adjusted ROA consistently exceeds the reported ROA by a significant margin throughout the period.

The consistent divergence between reported and adjusted ratios, particularly for asset turnover and ROA, suggests that goodwill represents a substantial portion of the company’s reported assets. Removing goodwill from the asset base results in significantly improved efficiency and profitability metrics. The absence of adjusted financial leverage and ROE figures limits a complete assessment of the impact of goodwill removal on the overall financial profile.

An examination of the financial information reveals distinct trends in both reported and adjusted total assets, alongside their corresponding turnover ratios, over a five-year period. Reported total assets experienced a decrease from 2021 to 2022, followed by increases in subsequent years, culminating in a notable rise between 2024 and 2025. Conversely, adjusted total assets mirrored this pattern, exhibiting a similar initial decline, followed by increases, and a more substantial increase in the final period. The adjusted total asset turnover ratio consistently exceeds the reported total asset turnover ratio throughout the observed timeframe.

Reported Total Assets

Reported total assets decreased from US$132,001 million in 2021 to US$127,243 million in 2022, representing a decline of approximately 3.6%. Subsequent years saw increases, reaching US$135,241 million in 2023 and US$137,175 million in 2024. The most significant increase occurred between 2024 and 2025, with reported total assets reaching US$151,880 million, a growth of approximately 10.8%.

Adjusted Total Assets

Adjusted total assets followed a similar trajectory, decreasing from US$76,358 million in 2021 to US$71,294 million in 2022, a decrease of approximately 6.7%. Increases were then observed in 2023 and 2024, reaching US$75,063 million and US$76,469 million respectively. A substantial increase occurred between 2024 and 2025, with adjusted total assets rising to US$84,163 million, representing a growth of approximately 10.1%.

Reported Total Asset Turnover

The reported total asset turnover ratio fluctuated modestly over the period. It began at 0.43 in 2021, increased to 0.48 in 2022, then decreased to 0.46 in both 2023 and 2024, before settling at 0.44 in 2025. This indicates a relatively stable, but slightly declining, efficiency in generating revenue from reported assets.

Adjusted Total Asset Turnover

The adjusted total asset turnover ratio demonstrated a more pronounced trend. It increased from 0.75 in 2021 to 0.85 in 2022, then decreased slightly to 0.82 in both 2023 and 2024. The ratio concluded the period at 0.80 in 2025. This suggests a consistently higher level of efficiency in generating revenue when considering adjusted total assets, and a slight decrease in efficiency towards the end of the period.

The divergence between reported and adjusted total asset turnover ratios suggests that the inclusion of goodwill and intangible assets in the reported total assets calculation significantly impacts the overall turnover metric. The consistently higher adjusted ratio indicates that the core operating assets are being utilized more efficiently than indicated by the reported figures. The increases in both reported and adjusted total assets in the later years, coupled with relatively stable turnover ratios, suggest continued revenue generation alongside asset expansion.

An examination of the financial information reveals notable trends in total assets and stockholders’ equity between 2021 and 2025. Reported total assets experienced a decrease from 2021 to 2022, followed by increases in subsequent years, culminating in a value of US$151,880 million in 2025. Conversely, adjusted total assets followed a similar pattern, decreasing from 2021 to 2022 and then increasing, reaching US$84,163 million in 2025. Reported stockholders’ equity consistently increased throughout the period, rising from US$18,901 million to US$32,648 million. However, adjusted stockholders’ equity remained negative throughout the analyzed timeframe, fluctuating between approximately -US$33,399 million and -US$37,645 million.

Reported Financial Leverage

Reported financial leverage decreased steadily from 6.98 in 2021 to 4.65 in 2025. This indicates a diminishing proportion of assets financed by equity, suggesting a reduction in the company’s reliance on equity financing or an increase in debt financing relative to equity. The decline suggests a decreasing risk profile from a leverage perspective, based on reported figures.

The significant difference between reported and adjusted figures for both total assets and stockholders’ equity warrants further investigation. The negative adjusted stockholders’ equity consistently observed suggests a substantial deduction from reported equity, potentially related to the treatment of goodwill and intangible assets. The absence of calculated adjusted financial leverage values prevents a direct comparison to the reported leverage ratio, but the underlying trends in adjusted assets and equity suggest a potentially different risk profile than indicated by the reported figures alone. The increasing trend in reported total assets and stockholders’ equity contrasts with the relatively stable negative adjusted stockholders’ equity, highlighting the impact of these adjustments.

Asset Trends

While reported total assets increased over the period, the adjusted total assets remained considerably lower, indicating a substantial portion of the reported asset base is being adjusted out. This could be due to the exclusion of items like goodwill or other intangible assets in the adjusted calculation. The growth in adjusted total assets from 2022 to 2025, though slower than the growth in reported assets, suggests some underlying asset growth even after adjustments.

Equity Trends

The consistent negativity of adjusted stockholders’ equity is a key observation. This suggests that the accumulated adjustments to equity, likely related to intangible assets, exceed the reported equity value. The increasing reported equity does not offset this negative adjustment, indicating a widening gap between the two measures over time.

Reported stockholders’ equity demonstrated a consistent upward trend over the five-year period, increasing from US$18,901 million in 2021 to US$32,648 million in 2025. However, adjusted stockholders’ equity consistently reported negative values throughout the period, fluctuating between -US$37,645 million and -US$33,399 million. Reported return on equity (ROE) exhibited volatility, beginning at 30.38% in 2021, declining to 7.47% in 2022, then increasing to 33.29% in 2023, 22.06% in 2024, and finally reaching 32.45% in 2025. Adjusted ROE values are not presented.

Stockholders’ Equity Trends

The divergence between reported and adjusted stockholders’ equity is substantial. While reported equity increased steadily, the adjusted figure remained negative, suggesting a significant impact from adjustments made to the reported equity value. The magnitude of the negative adjustment appears relatively stable over the period, with fluctuations within a limited range.

Return on Equity Analysis

Reported ROE experienced considerable fluctuation. The decline from 30.38% in 2021 to 7.47% in 2022 is notable, followed by a recovery to 33.29% in 2023. Subsequent declines and increases suggest sensitivity to underlying earnings or equity changes. The absence of adjusted ROE values prevents a comparative analysis of the impact of the equity adjustments on profitability metrics.

The consistent negative adjusted equity raises questions regarding the nature and magnitude of the adjustments being made. Further investigation into the components of these adjustments is warranted to understand their impact on the overall financial health and performance of the entity. The lack of adjusted ROE figures limits the ability to assess the true profitability of the business after accounting for these adjustments.

The period under review demonstrates notable fluctuations in both reported and adjusted total assets, alongside corresponding shifts in return on assets. A significant divergence exists between the reported and adjusted figures for total assets, impacting the calculated ROA values. The adjusted ROA consistently exceeds the reported ROA across all observed years.

Total Assets

Reported total assets experienced a decrease between 2021 and 2022, followed by increases in 2023, 2024, and a more substantial increase in 2025. This indicates a period of asset restructuring followed by growth. Adjusted total assets mirrored this pattern, with a similar decrease in 2022 and subsequent increases, though the magnitude of change differed. The gap between reported and adjusted total assets widened considerably in 2025.

Reported Return on Assets (ROA)

Reported ROA declined from 4.35% in 2021 to 1.29% in 2022, before recovering to 5.55% in 2023 and 4.39% in 2024. A further increase was observed in 2025, reaching 6.97%. This suggests volatility in profitability relative to reported assets, with a positive trend in the later years of the period.

Adjusted Return on Assets (ROA)

Adjusted ROA exhibited a similar pattern to the reported ROA, decreasing from 7.52% in 2021 to 2.30% in 2022, then increasing to 9.99% in 2023 and 7.88% in 2024. The most significant increase occurred in 2025, with adjusted ROA reaching 12.59%. The consistently higher values of adjusted ROA, compared to reported ROA, suggest that the adjustments made to total assets have a substantial positive impact on the profitability metric. The substantial increase in 2025 warrants further investigation into the nature of the asset adjustments and their impact on profitability.

The increasing difference between reported and adjusted ROA suggests that the adjustments to total assets are becoming increasingly material. Further analysis should focus on understanding the composition of these adjustments and their underlying rationale, as they significantly influence the perceived financial performance of the entity.