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

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

International Business Machines Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

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Year Value FCFFt or Terminal value (TVt) Calculation Present value at 11.88%
01 FCFF0 13,192
1 FCFF1 12,904 = 13,192 × (1 + -2.19%) 11,533
2 FCFF2 12,913 = 12,904 × (1 + 0.07%) 10,316
3 FCFF3 13,215 = 12,913 × (1 + 2.33%) 9,436
4 FCFF4 13,822 = 13,215 × (1 + 4.60%) 8,822
5 FCFF5 14,770 = 13,822 × (1 + 6.86%) 8,426
5 Terminal value (TV5) 314,234 = 14,770 × (1 + 6.86%) ÷ (11.88% – 6.86%) 179,255
Intrinsic value of International Business Machines Corp. capital 227,787
Less: Debt (fair value) 59,127
Intrinsic value of International Business Machines Corp. common stock 168,660
 
Intrinsic value of International Business Machines Corp. common stock (per share) $179.02
Current share price $235.15

Based on: 10-K (reporting date: 2025-12-31).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

International Business Machines Corp., cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 221,543 0.79 14.23%
Debt (fair value) 59,127 0.21 3.09% = 3.68% × (1 – 16.00%)

Based on: 10-K (reporting date: 2025-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 942,134,390 × $235.15
= $221,542,901,808.50

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (21.00% + 21.00% + 14.00% + 21.00% + 3.00%) ÷ 5
= 16.00%

WACC = 11.88%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

International Business Machines Corp., PRAT model

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Average Dec 31, 2025 Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021
Selected Financial Data (US$ in millions)
Interest expense 1,935 1,712 1,607 1,216 1,155
Income (loss) from discontinued operations, net of tax 22 8 (12) (143) 1,031
Net income attributable to IBM 10,593 6,023 7,502 1,639 5,743
 
Effective income tax rate (EITR)1 21.00% 21.00% 14.00% 21.00% 3.00%
 
Interest expense, after tax2 1,529 1,352 1,382 961 1,120
Add: Cash dividends paid, common stock 6,255 6,147 6,040 5,948 5,869
Interest expense (after tax) and dividends 7,784 7,499 7,422 6,909 6,989
 
EBIT(1 – EITR)3 12,100 7,367 8,896 2,743 5,832
 
Short-term debt 6,424 5,089 6,426 4,760 6,787
Long-term debt, excluding current maturities 54,836 49,884 50,121 46,189 44,917
Total IBM stockholders’ equity 32,648 27,307 22,533 21,944 18,901
Total capital 93,908 82,280 79,080 72,893 70,605
Financial Ratios
Retention rate (RR)4 0.36 -0.02 0.17 -1.52 -0.20
Return on invested capital (ROIC)5 12.88% 8.95% 11.25% 3.76% 8.26%
Averages
RR -0.24
ROIC 9.02%
 
FCFF growth rate (g)6 -2.19%

Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).

1 See details »

2025 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,935 × (1 – 21.00%)
= 1,529

3 EBIT(1 – EITR) = Net income attributable to IBM – Income (loss) from discontinued operations, net of tax + Interest expense, after tax
= 10,593 – 22 + 1,529
= 12,100

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [12,100 – 7,784] ÷ 12,100
= 0.36

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 12,100 ÷ 93,908
= 12.88%

6 g = RR × ROIC
= -0.24 × 9.02%
= -2.19%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (280,670 × 11.88% – 13,192) ÷ (280,670 + 13,192)
= 6.86%

where:

Total capital, fair value0 = current fair value of International Business Machines Corp. debt and equity (US$ in millions)
FCFF0 = the last year International Business Machines Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of International Business Machines Corp. capital

FCFF growth rate (g) forecast

International Business Machines Corp., H-model

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Year Value gt
1 g1 -2.19%
2 g2 0.07%
3 g3 2.33%
4 g4 4.60%
5 and thereafter g5 6.86%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -2.19% + (6.86% – -2.19%) × (2 – 1) ÷ (5 – 1)
= 0.07%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -2.19% + (6.86% – -2.19%) × (3 – 1) ÷ (5 – 1)
= 2.33%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -2.19% + (6.86% – -2.19%) × (4 – 1) ÷ (5 – 1)
= 4.60%