Stock Analysis on Net
Stock Analysis on Net
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International Business Machines Corp. (NYSE:IBM)

Analysis of Income Taxes

Advanced level


Income Tax Expense (Benefit)

International Business Machines Corp., income tax expense (benefit), continuing operations

US$ in millions

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12 months ended: Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
U.S. federal 331  (342) 2,388  186  (321)
U.S. state and local (85) 127  55  244  128 
Non-U.S. 1,829  2,135  3,891  988  2,101 
Current 2,075  1,920  6,334  1,418  1,908 
U.S. federal (839) 1,377  77  (746) 553 
U.S. state and local (82) (292) 28  (44) 116 
Non-U.S. (423) (386) (797) (179)
Deferred (1,344) 699  (692) (969) 673 
Provision for income taxes 731  2,619  5,642  449  2,581 

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

Item Description The company
Current Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. International Business Machines Corp.’s current decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. International Business Machines Corp.’s deferred increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.
Provision for income taxes Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. International Business Machines Corp.’s provision for income taxes decreased from 2017 to 2018 and from 2018 to 2019.

Effective Income Tax Rate (EITR)

International Business Machines Corp., effective income tax rate (EITR) reconciliation

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Statutory tax rate 21.00% 21.00% 35.00% 35.00% 35.00%
Tax differential on foreign income -11.00% -9.00% -26.00% -21.00% -17.00%
Intra-entity transfers 0.00% 0.00% -5.00% 0.00% 0.00%
Domestic incentives -2.00% -3.00% -2.00% -1.00% -2.00%
State and local -1.00% -1.00% 1.00% 1.00% 1.00%
Japan resolution 0.00% 0.00% 0.00% -10.00% 0.00%
Other -1.00% -3.00% -2.00% 0.00% -1.00%
Effective tax rate, before enactment of U.S. tax reform 6.00% 5.00% 1.00% 4.00% 16.00%
Enactment of U.S. tax reform 1.00% 18.00% 48.00% 0.00% 0.00%
Effective tax rate 7.00% 23.00% 49.00% 4.00% 16.00%

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

Item Description The company
Effective tax rate, before enactment of U.S. tax reform Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. International Business Machines Corp.’s effective tax rate, before enactment of U.S. tax reform increased from 2017 to 2018 and from 2018 to 2019.

Components of Deferred Tax Assets and Liabilities

International Business Machines Corp., components of deferred tax assets and liabilities

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Retirement benefits 3,766  3,620  3,477  4,671  4,621 
Leases 1,729  103  —  —  — 
Share-based and other compensation 637  636  646  1,132  963 
Domestic tax loss/credit carryforwards 1,259  964  718  1,676  1,066 
Deferred income 600  674  605  741  762 
Foreign tax loss/credit carryforwards 836  903  1,024  816  825 
Bad debt, inventory and warranty reserves 298  348  395  473  528 
Depreciation 253  231  293  270  329 
Accruals 368  336  387  624  904 
Intangible assets 592  620  585  —  — 
Capitalized research and development 722  —  —  —  — 
Other 1,438  1,398  1,396  1,503  931 
Gross deferred tax assets 12,498  9,833  9,526  11,906  10,929 
Valuation allowance (608) (915) (1,004) (916) (740)
Net deferred tax assets 11,890  8,918  8,522  10,990  10,189 
Goodwill and intangible assets (3,111) (1,200) (1,226) (1,800) (1,407)
GILTI deferred taxes (1,908) (1,927) —  —  — 
Leases and right-of-use assets (2,216) (580) (584) (651) (916)
Depreciation (728) (719) (641) (856) (919)
Retirement benefits (1,002) (455) (483) (406) (252)
Software development costs (1,075) (292) (360) (672) (554)
Deferred transition costs (233) (233) (254) (351) (395)
Undistributed foreign earnings (725) (981) —  —  — 
Other (940) (1,011) (658) (1,455) (1,177)
Gross deferred tax liabilities (11,938) (7,398) (4,206) (6,191) (5,620)
Net deferred tax assets (liabilities) (48) 1,520  4,316  4,799  4,569 

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

Item Description The company
Gross deferred tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. International Business Machines Corp.’s gross deferred tax assets increased from 2017 to 2018 and from 2018 to 2019.
Net deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. International Business Machines Corp.’s net deferred tax assets increased from 2017 to 2018 and from 2018 to 2019.
Net deferred tax assets (liabilities) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. International Business Machines Corp.’s net deferred tax assets (liabilities) decreased from 2017 to 2018 and from 2018 to 2019.

Deferred Tax Assets and Liabilities, Classification

International Business Machines Corp., deferred tax assets and liabilities, classification

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Deferred tax assets 5,182  5,216  4,862  5,224  4,822 
Deferred tax liabilities 5,230  3,696  545  424  253 

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

Item Description The company
Deferred tax assets Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent. International Business Machines Corp.’s deferred tax assets increased from 2017 to 2018 but then slightly decreased from 2018 to 2019.
Deferred tax liabilities Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. International Business Machines Corp.’s deferred tax liabilities increased from 2017 to 2018 and from 2018 to 2019.

Adjustments to Financial Statements: Removal of Deferred Taxes

International Business Machines Corp., adjustments to financial statements

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Adjustment to Total Assets
Total assets (as reported) 152,186  123,382  125,356  117,470  110,495 
Less: Noncurrent deferred tax assets, net 5,182  5,216  4,862  5,224  4,822 
Total assets (adjusted) 147,004  118,166  120,494  112,246  105,673 
Adjustment to Total Liabilities
Total liabilities (as reported) 131,202  106,452  107,631  99,078  96,071 
Less: Noncurrent deferred tax liabilities, net 5,230  3,696  545  424  253 
Total liabilities (adjusted) 125,972  102,756  107,086  98,654  95,818 
Adjustment to Total IBM Stockholders’ Equity
Total IBM stockholders’ equity (as reported) 20,841  16,796  17,594  18,246  14,262 
Less: Net deferred tax assets (liabilities) (48) 1,520  4,316  4,799  4,569 
Total IBM stockholders’ equity (adjusted) 20,889  15,276  13,278  13,447  9,693 
Adjustment to Net Income Attributable To IBM
Net income attributable to IBM (as reported) 9,431  8,728  5,753  11,872  13,190 
Add: Deferred income tax expense (benefit) (1,344) 699  (692) (969) 673 
Net income attributable to IBM (adjusted) 8,087  9,427  5,061  10,903  13,863 

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).


International Business Machines Corp., Financial Data: Reported vs. Adjusted


Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

International Business Machines Corp., adjusted financial ratios

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Net Profit Margin
Reported net profit margin 12.22% 10.97% 7.27% 14.86% 16.14%
Adjusted net profit margin 10.48% 11.84% 6.40% 13.64% 16.96%
Total Asset Turnover
Reported total asset turnover 0.51 0.65 0.63 0.68 0.74
Adjusted total asset turnover 0.52 0.67 0.66 0.71 0.77
Financial Leverage
Reported financial leverage 7.30 7.35 7.12 6.44 7.75
Adjusted financial leverage 7.04 7.74 9.07 8.35 10.90
Return on Equity (ROE)
Reported ROE 45.25% 51.96% 32.70% 65.07% 92.48%
Adjusted ROE 38.71% 61.71% 38.12% 81.08% 143.02%
Return on Assets (ROA)
Reported ROA 6.20% 7.07% 4.59% 10.11% 11.94%
Adjusted ROA 5.50% 7.98% 4.20% 9.71% 13.12%

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

Financial ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. International Business Machines Corp.’s adjusted net profit margin ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. International Business Machines Corp.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
International Business Machines Corp.’s adjusted financial leverage ratio decreased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. International Business Machines Corp.’s adjusted ROE improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. International Business Machines Corp.’s adjusted ROA improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.

International Business Machines Corp., Financial Ratios: Reported vs. Adjusted


Adjusted Net Profit Margin

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to IBM 9,431  8,728  5,753  11,872  13,190 
Revenue 77,147  79,591  79,139  79,919  81,741 
Profitability Ratio
Net profit margin1 12.22% 10.97% 7.27% 14.86% 16.14%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to IBM 8,087  9,427  5,061  10,903  13,863 
Revenue 77,147  79,591  79,139  79,919  81,741 
Profitability Ratio
Adjusted net profit margin2 10.48% 11.84% 6.40% 13.64% 16.96%

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

2019 Calculations

1 Net profit margin = 100 × Net income attributable to IBM ÷ Revenue
= 100 × 9,431 ÷ 77,147 = 12.22%

2 Adjusted net profit margin = 100 × Adjusted net income attributable to IBM ÷ Revenue
= 100 × 8,087 ÷ 77,147 = 10.48%

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. International Business Machines Corp.’s adjusted net profit margin ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Adjusted Total Asset Turnover

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Revenue 77,147  79,591  79,139  79,919  81,741 
Total assets 152,186  123,382  125,356  117,470  110,495 
Activity Ratio
Total asset turnover1 0.51 0.65 0.63 0.68 0.74
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Revenue 77,147  79,591  79,139  79,919  81,741 
Adjusted total assets 147,004  118,166  120,494  112,246  105,673 
Activity Ratio
Adjusted total asset turnover2 0.52 0.67 0.66 0.71 0.77

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

2019 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= 77,147 ÷ 152,186 = 0.51

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= 77,147 ÷ 147,004 = 0.52

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. International Business Machines Corp.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Adjusted Financial Leverage

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Total assets 152,186  123,382  125,356  117,470  110,495 
Total IBM stockholders’ equity 20,841  16,796  17,594  18,246  14,262 
Solvency Ratio
Financial leverage1 7.30 7.35 7.12 6.44 7.75
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets 147,004  118,166  120,494  112,246  105,673 
Adjusted total IBM stockholders’ equity 20,889  15,276  13,278  13,447  9,693 
Solvency Ratio
Adjusted financial leverage2 7.04 7.74 9.07 8.35 10.90

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

2019 Calculations

1 Financial leverage = Total assets ÷ Total IBM stockholders’ equity
= 152,186 ÷ 20,841 = 7.30

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total IBM stockholders’ equity
= 147,004 ÷ 20,889 = 7.04

Solvency ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
International Business Machines Corp.’s adjusted financial leverage ratio decreased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to IBM 9,431  8,728  5,753  11,872  13,190 
Total IBM stockholders’ equity 20,841  16,796  17,594  18,246  14,262 
Profitability Ratio
ROE1 45.25% 51.96% 32.70% 65.07% 92.48%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to IBM 8,087  9,427  5,061  10,903  13,863 
Adjusted total IBM stockholders’ equity 20,889  15,276  13,278  13,447  9,693 
Profitability Ratio
Adjusted ROE2 38.71% 61.71% 38.12% 81.08% 143.02%

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

2019 Calculations

1 ROE = 100 × Net income attributable to IBM ÷ Total IBM stockholders’ equity
= 100 × 9,431 ÷ 20,841 = 45.25%

2 Adjusted ROE = 100 × Adjusted net income attributable to IBM ÷ Adjusted total IBM stockholders’ equity
= 100 × 8,087 ÷ 20,889 = 38.71%

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. International Business Machines Corp.’s adjusted ROE improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to IBM 9,431  8,728  5,753  11,872  13,190 
Total assets 152,186  123,382  125,356  117,470  110,495 
Profitability Ratio
ROA1 6.20% 7.07% 4.59% 10.11% 11.94%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to IBM 8,087  9,427  5,061  10,903  13,863 
Adjusted total assets 147,004  118,166  120,494  112,246  105,673 
Profitability Ratio
Adjusted ROA2 5.50% 7.98% 4.20% 9.71% 13.12%

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

2019 Calculations

1 ROA = 100 × Net income attributable to IBM ÷ Total assets
= 100 × 9,431 ÷ 152,186 = 6.20%

2 Adjusted ROA = 100 × Adjusted net income attributable to IBM ÷ Adjusted total assets
= 100 × 8,087 ÷ 147,004 = 5.50%

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. International Business Machines Corp.’s adjusted ROA improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.