Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
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International Business Machines Corp. pages available for free this week:
- Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Return on Assets (ROA) since 2005
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Economic Profit
International Business Machines Corp., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2025 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
An analysis of the economic profit from 2021 to 2025 reveals a persistent inability to generate returns exceeding the cost of capital, although a significant trend toward recovery is evident by the end of the period. Economic profit remained negative throughout the five-year window, indicating that the company did not create economic value for its shareholders during this timeframe, despite substantial fluctuations in operational performance.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited extreme volatility, falling to a negative US$ 633 million in 2022 before rebounding. A significant upward trajectory was observed toward the end of the period, culminating in a peak of US$ 13,646 million in 2025. This growth suggests a substantial improvement in core operational profitability over the five-year span.
- Cost of Capital and Invested Capital
- The cost of capital followed a general upward trend, increasing from 10.00% in 2021 to a peak of 12.03% in 2024, before a slight correction to 11.65% in 2025. Simultaneously, invested capital grew from US$ 109,734 million in 2021 to US$ 124,995 million in 2025. The combination of an expanding capital base and an increasing cost of capital heightened the financial threshold required to achieve a positive economic profit.
- Economic Profit Performance
- Economic profit reached its lowest point in 2022 at negative US$ 11,712 million, correlating with the period of lowest NOPAT. Although the deficit fluctuated in 2023 and 2024, 2025 marked a notable turning point, with the economic profit narrowing to negative US$ 912 million. This indicates that the surge in operational profit in 2025 nearly offset the total capital charges, bringing the company close to a break-even point in terms of economic value added.
Net Operating Profit after Taxes (NOPAT)
International Business Machines Corp., NOPAT calculation
US$ in millions
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 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for expected credit losses on notes and accounts receivable.
3 Addition of increase (decrease) in deferred income.
4 Addition of increase (decrease) in standard warranty liability.
5 Addition of increase (decrease) in equity equivalents to net income attributable to IBM.
6 2025 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2025 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net income attributable to IBM.
9 2025 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
The financial performance, as indicated by net income attributable to IBM and net operating profit after taxes (NOPAT), demonstrates significant fluctuations over the five-year period. A notable divergence between the two metrics is observed, particularly in 2022.
- Net Income Attributable to IBM
- Net income attributable to IBM exhibits volatility. It begins at US$5,743 million in 2021, declines substantially to US$1,639 million in 2022, then recovers strongly to US$7,502 million in 2023. Further increases are seen in 2024 (US$6,023 million) and 2025, reaching US$10,593 million. This represents a considerable upward trend from the 2022 low point.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT displays an even more pronounced pattern of change. Starting at US$4,239 million in 2021, it experiences a significant downturn in 2022, resulting in a negative value of US$-633 million. A dramatic recovery occurs in 2023, with NOPAT reaching US$8,703 million. While decreasing to US$4,991 million in 2024, NOPAT continues to rise in 2025, achieving US$13,646 million. The 2025 value represents the highest NOPAT recorded within the observed period.
- Relationship between Net Income and NOPAT
- The difference between net income and NOPAT is most striking in 2022. While net income remains positive, NOPAT is negative, suggesting substantial non-operating expenses or financing costs significantly impacted overall profitability. The divergence narrows in subsequent years as both metrics improve, but NOPAT consistently exceeds net income from 2023 onwards, indicating a stronger core operational performance relative to other financial factors. The increasing gap between NOPAT and net income in 2025 suggests a growing efficiency in core operations.
Overall, the period demonstrates a recovery from a challenging 2022, with both net income and NOPAT showing substantial growth towards the end of the observed timeframe. The trend in NOPAT suggests improving operational efficiency and profitability.
Cash Operating Taxes
International Business Machines Corp., cash operating taxes calculation
US$ in millions
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).
The provision for income taxes from continuing operations exhibits significant volatility over the observed period. A positive value of 124 in 2021 was followed by a substantial negative value of -626 in 2022, indicating a significant tax benefit was recognized. This was reversed in 2023 with a large positive provision of 1,176, before returning to negative values in 2024 and 2025, at -218 and -242 respectively. This suggests considerable fluctuations in taxable income or the utilization of tax loss carryforwards or credits.
In contrast, cash operating taxes demonstrate a more stable, though ultimately declining, trend. Initial values are relatively consistent, increasing from 2,130 in 2021 to 2,497 in 2022 and 2,510 in 2023. A slight decrease to 2,356 is observed in 2024, followed by a more pronounced decline to 1,022 in 2025.
- Provision for Income Taxes vs. Cash Taxes
- The divergence between the provision for income taxes and cash operating taxes is notable. While the provision for income taxes fluctuates dramatically, cash taxes remain positive and relatively stable for the first three years. The significant difference suggests substantial non-cash tax items or timing differences impacting the reported provision. The negative provision in 2022 and 2024/2025, coupled with positive cash taxes, indicates deferred tax assets are likely being utilized or created. The substantial drop in cash taxes in 2025, despite a negative provision, warrants further investigation to determine the underlying cause.
The decrease in cash operating taxes in 2025 represents the most significant trend. This could be attributable to several factors, including changes in tax rates, increased tax deductions, or a reduction in taxable income. Further analysis, including a review of the company’s tax returns and related disclosures, is recommended to fully understand the drivers behind this decline.
- Overall Tax Rate Implications
- The volatility in the provision for income taxes impacts the effective tax rate. The negative provisions in 2022, 2024, and 2025 likely resulted in significantly lower effective tax rates in those years. The trend in cash taxes, while more stable, suggests a potential long-term decrease in the company’s tax burden, which could positively influence future profitability.
Invested Capital
International Business Machines Corp., invested capital calculation (financing approach)
US$ in millions
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 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of deferred income.
5 Addition of standard warranty liability.
6 Addition of equity equivalents to total IBM stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of marketable securities.
The reported invested capital exhibited fluctuations over the five-year period. Total reported debt & leases and total stockholders’ equity collectively influence the invested capital figure, and trends within these components contribute to the observed patterns.
- Invested Capital Trend
- Invested capital decreased from US$109,734 million in 2021 to US$103,859 million in 2022, representing a decline of approximately 5.4%. A subsequent increase was noted in 2023, with invested capital reaching US$112,743 million. This upward trend continued modestly in 2024, reaching US$111,877 million, before accelerating significantly in 2025 to US$124,995 million. The 2025 value represents the highest level of invested capital within the observed period.
- Debt & Leases
- Total reported debt & leases decreased from US$55,140 million in 2021 to US$54,013 million in 2022. An increase followed in 2023, reaching US$59,935 million, and a slight decrease occurred in 2024 to US$58,396 million. The most substantial increase occurred between 2024 and 2025, with debt & leases rising to US$64,607 million. This suggests an increasing reliance on debt financing in the latter part of the period.
- Stockholders’ Equity
- Total IBM stockholders’ equity demonstrated a consistent upward trend throughout the period. It increased from US$18,901 million in 2021 to US$21,944 million in 2022, and continued to grow to US$22,533 million in 2023. Further increases were observed in 2024 and 2025, reaching US$27,307 million and US$32,648 million respectively. This indicates strengthening financial health from the equity perspective.
The increase in invested capital in 2025 is driven by both increased debt and a substantial rise in stockholders’ equity. While debt levels are increasing, the growth in equity suggests the company is also retaining earnings or raising capital through equity offerings. The interplay between debt and equity financing warrants further investigation when assessing the company’s overall financial risk and capital structure.
Cost of Capital
International Business Machines Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
International Business Machines Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| AppLovin Corp. | ||||||
| Cadence Design Systems Inc. | ||||||
| Datadog Inc. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| ServiceNow Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
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 Economic profit. See details »
2 Invested capital. See details »
3 2025 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The analysis of economic value added indicates a period of financial volatility characterized by persistent negative economic profit, although a definitive trend toward break-even is observable by the end of the period.
- Economic Profit Trends
- Economic profit remained negative from 2021 through 2025. A significant decline occurred in 2022, where profit dropped to -11,712 million US$. This was followed by a partial recovery in 2023 to -3,974 million US$, a subsequent dip in 2024 to -8,471 million US$, and a substantial improvement in 2025, reaching -912 million US$. The trajectory suggests a gradual reduction in the amount by which the company failed to cover its cost of capital.
- Invested Capital Dynamics
- Invested capital showed moderate fluctuations between 2021 and 2024, moving from 109,734 million US$ to a low of 103,859 million US$ in 2022, and returning to 111,877 million US$ by 2024. A significant increase in the capital base is noted in 2025, with invested capital rising to 124,995 million US$, representing the highest level of investment within the observed period.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the volatility of economic profit, remaining negative throughout the five-year window. The ratio reached its lowest point in 2022 at -11.28%, indicating the widest gap between the return on invested capital and the cost of capital. While the ratio fluctuated in 2023 and 2024, it improved significantly by 2025 to -0.73%. This convergence toward zero suggests that the organization is nearing the threshold of positive economic value creation.
Overall, the data demonstrates a narrowing of the economic deficit. Despite an increase in invested capital in 2025, the simultaneous sharp rise in economic profit and the near-zero economic spread ratio indicate an improving alignment between operational returns and the cost of capital.
Economic Profit Margin
International Business Machines Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Revenue | ||||||
| Add: Increase (decrease) in deferred income | ||||||
| Adjusted revenue | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| AppLovin Corp. | ||||||
| Cadence Design Systems Inc. | ||||||
| Datadog Inc. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| ServiceNow Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
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 Economic profit. See details »
2 2025 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
An analysis of the financial performance from 2021 through 2025 reveals a persistent state of negative economic profit, indicating that the returns generated were insufficient to cover the total cost of capital during this period. Despite this, a significant trend toward recovery is evident, as the company moved closer to achieving economic value added by the end of the observed timeframe.
- Adjusted Revenue Trends
- A consistent growth trajectory is observed in adjusted revenue, which increased from 57,707 million US$ in 2021 to 70,378 million US$ by 2025. While a marginal plateau occurred between 2023 and 2024, the overall expansion indicates a growing scale of operations.
- Economic Profit Volatility
- Economic profit exhibited substantial volatility over the five-year period. A sharp decline occurred in 2022, reaching a low of -11,712 million US$. Although a recovery was noted in 2023, a subsequent dip to -8,471 million US$ occurred in 2024. However, 2025 marked a significant turnaround, with the economic loss narrowing substantially to -912 million US$, the lowest deficit in the analyzed period.
- Economic Profit Margin Analysis
- The economic profit margin mirrors the volatility of the absolute economic profit. The margin deteriorated to its lowest point of -19.53% in 2022. Following this trough, the margin fluctuated before achieving a notable improvement to -1.30% in 2025. This progression suggests an increasing efficiency in capital utilization and a narrowing gap between the return on invested capital and the cost of capital.
The convergence of increasing adjusted revenue and a sharply improving economic profit margin indicates a positive shift in financial trajectory. The movement from a margin of -11.67% in 2021 to -1.30% in 2025 suggests that the organization is approaching a break-even point in terms of economic value creation.