Microsoft Excel LibreOffice Calc

International Business Machines Corp. (NYSE:IBM)

Analysis of Operating Leases

Advanced level

An operating lease is treated like a rental contract. Neither the leased asset nor the associated liability is reported on the lessee balance sheet, but the rights may be very similar to the rights of an owner. The lessee only records the lease payments as a rental expense in income statement.

Present Value of Future Operating Lease Payments (before Adoption of FASB Topic 842)

International Business Machines Corp., future operating lease payments (before adoption of FASB Topic 842)

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Total undiscounted future operating lease payments — 5,628  6,568  6,883  6,434 
Discount rate1 — 2.78% 2.51% 2.68% 2.58%
 
Total present value of future operating lease payments — 5,192  6,095  6,314  5,925 

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).

1 Weighted-average interest rate for International Business Machines Corp.’s debt

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 2.78%
2019 1,581  2019 1,581  1,538 
2020 1,233  2020 1,233  1,167 
2021 914  2021 914  842 
2022 640  2022 640  574 
2023 445  2023 445  388 
2024 and thereafter 815  2024 445  377 
2025 370  305 
Total: 5,628  5,628  5,192 

Based on: 10-K (filing date: 2019-02-26).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 2.51%
2018 1,614  2018 1,614  1,574 
2019 1,453  2019 1,453  1,383 
2020 1,143  2020 1,143  1,061 
2021 829  2021 829  751 
2022 633  2022 633  559 
2023 and thereafter 896  2023 633  546 
2024 263  221 
Total: 6,568  6,568  6,095 

Based on: 10-K (filing date: 2018-02-27).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 2.68%
2017 1,414  2017 1,414  1,377 
2018 1,328  2018 1,328  1,260 
2019 1,218  2019 1,218  1,125 
2020 1,016  2020 1,016  914 
2021 796  2021 796  697 
2022 and thereafter 1,111  2022 796  679 
2023 315  262 
Total: 6,883  6,883  6,314 

Based on: 10-K (filing date: 2017-02-28).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 2.58%
2016 1,347  2016 1,347  1,313 
2017 1,231  2017 1,231  1,170 
2018 1,107  2018 1,107  1,026 
2019 985  2019 985  890 
2020 776  2020 776  683 
2021 and thereafter 988  2021 776  666 
2022 212  177 
Total: 6,434  6,434  5,925 

Based on: 10-K (filing date: 2016-02-23).

Adjustments to Financial Statements for Operating Leases

International Business Machines Corp., adjustments to financial statements

US$ in millions

Microsoft Excel LibreOffice Calc
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 
Add: Operating lease right-of-use asset (before adoption of FASB Topic 842)1 —  5,192  6,095  6,314  5,925 
Total assets (adjusted) 152,186  128,574  131,451  123,784  116,420 
Adjustment to Total Debt
Total debt (as reported) 62,899  45,812  46,824  42,168  39,889 
Add: Operating lease liability (before adoption of FASB Topic 842)2 —  5,192  6,095  6,314  5,925 
Add: Current operating lease liabilities 1,380  —  —  —  — 
Add: Noncurrent operating lease liabilities 3,879  —  —  —  — 
Total debt (adjusted) 68,158  51,004  52,919  48,482  45,814 

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).

1, 2 Equal to total present value of future operating lease payments.

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

Adjusted Financial Ratios for Operating Leases (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
Total Asset Turnover1
Reported total asset turnover 0.51 0.65 0.63 0.68 0.74
Adjusted total asset turnover 0.51 0.62 0.60 0.65 0.70
Debt to Equity2
Reported debt to equity 3.02 2.73 2.66 2.31 2.80
Adjusted debt to equity 3.27 3.04 3.01 2.66 3.21
Return on Assets3 (ROA)
Reported ROA 6.20% 7.07% 4.59% 10.11% 11.94%
Adjusted ROA 6.20% 6.79% 4.38% 9.59% 11.33%

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).

1 See details »

2 See details »

3 See details »

Financial 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 debt to equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. International Business Machines Corp.’s adjusted debt to equity ratio deteriorated from 2017 to 2018 and from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as 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.

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

Adjusted Total Asset Turnover

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)
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 Operating Leases
Selected Financial Data (US$ in millions)
Revenue 77,147  79,591  79,139  79,919  81,741 
Adjusted total assets 152,186  128,574  131,451  123,784  116,420 
Activity Ratio
Adjusted total asset turnover2 0.51 0.62 0.60 0.65 0.70

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 ÷ 152,186 = 0.51

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 Debt to Equity

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)
Total debt 62,899  45,812  46,824  42,168  39,889 
Total IBM stockholders’ equity 20,841  16,796  17,594  18,246  14,262 
Solvency Ratio
Debt to equity1 3.02 2.73 2.66 2.31 2.80
Adjusted for Operating Leases
Selected Financial Data (US$ in millions)
Adjusted total debt 68,158  51,004  52,919  48,482  45,814 
Total IBM stockholders’ equity 20,841  16,796  17,594  18,246  14,262 
Solvency Ratio
Adjusted debt to equity2 3.27 3.04 3.01 2.66 3.21

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 Debt to equity = Total debt ÷ Total IBM stockholders’ equity
= 62,899 ÷ 20,841 = 3.02

2 Adjusted debt to equity = Adjusted total debt ÷ Total IBM stockholders’ equity
= 68,158 ÷ 20,841 = 3.27

Solvency ratio Description The company
Adjusted debt-to-equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. International Business Machines Corp.’s adjusted debt-to-equity ratio deteriorated from 2017 to 2018 and from 2018 to 2019.

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 Operating Leases
Selected Financial Data (US$ in millions)
Net income attributable to IBM 9,431  8,728  5,753  11,872  13,190 
Adjusted total assets 152,186  128,574  131,451  123,784  116,420 
Profitability Ratio
Adjusted ROA2 6.20% 6.79% 4.38% 9.59% 11.33%

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 × Net income attributable to IBM ÷ Adjusted total assets
= 100 × 9,431 ÷ 152,186 = 6.20%

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as 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.