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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Economic Profit
International Business Machines Corp., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 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), 10-K (reporting date: 2020-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial data reveals several key trends in the company's performance over the five-year period ending December 31, 2024, covering net operating profit after taxes (NOPAT), cost of capital, invested capital, and economic profit.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT figures show notable volatility. Beginning at $4,477 million in 2020, NOPAT slightly declined to $4,163 million in 2021, followed by a sharp contraction to a negative $710 million in 2022. This represents a significant operational loss during that year. However, there was a substantial recovery in 2023 with NOPAT rebounding to $8,615 million, the highest in the observed period. This was then followed by a decrease to $4,895 million in 2024, indicating some erosion after the recovery.
- Cost of Capital
- The cost of capital steadily increased throughout the period, starting from 8.31% in 2020 and rising to 10.78% by 2024. This consistent upward trend suggests an increasing expense associated with financing and investment risk, impacting the overall profitability and valuation metrics of the company.
- Invested Capital
- Invested capital declined from $130,176 million in 2020 to $110,083 million in 2021 and continued to fall to $104,131 million in 2022. A modest increase occurred in 2023 to $112,927 million, but it slightly decreased again to $111,965 million in 2024. This overall downward trend followed by minor fluctuations points to either asset divestitures, efficiency improvements, or changes in working capital components affecting the investment base.
- Economic Profit
- Economic profit remained negative across all years, indicating the company did not generate returns above its cost of capital. The losses were substantial, starting at -$6,344 million in 2020, improving slightly to -$5,739 million in 2021 but then worsening sharply to -$10,692 million in 2022, coinciding with the negative NOPAT and increased cost of capital. The situation showed some improvement in 2023 with a reduction of losses to -$2,785 million, but economic profit deteriorated again to -$7,176 million in 2024. This illustrates ongoing challenges in creating economic value despite intermittent profitability in operating income.
Net Operating Profit after Taxes (NOPAT)
International Business Machines Corp., NOPAT calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2020-12-31).
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 product warranty liability.
5 Addition of increase (decrease) in equity equivalents to net income attributable to IBM.
6 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2024 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 2024 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 data shows significant fluctuations in key profitability metrics over the analyzed period. Net income attributable to the company exhibits a generally volatile pattern, with an initial increase from 2020 to 2021, a sharp decline in 2022, followed by a strong recovery in 2023 and a moderate decrease in 2024.
The net operating profit after taxes (NOPAT) demonstrates a similarly volatile trend but with more pronounced negative values in 2022. Specifically, NOPAT decreases from 4477 million US dollars in 2020 to 4163 million in 2021, then turns negative in 2022, suggesting operational challenges or extraordinary expenses impacting profitability during that year. The metric sharply recovers in 2023, reaching 8615 million US dollars, the highest recorded in the period, before retracting to 4895 million US dollars in 2024.
- Net Income Attributable to the Company
- The figure increased by approximately 2.7% from 5590 million in 2020 to 5743 million in 2021, signaling stable performance during that timeframe.
- A significant drop to 1639 million in 2022 marks a pronounced decline of over 70%, indicating a challenging fiscal year.
- Recovery occurs in 2023, with net income rising sharply to 7502 million, exceeding even the 2020 and 2021 levels.
- The following year, 2024, shows a moderate decline to 6023 million, suggesting some stabilization albeit at a lower level than the previous year's peak.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT declined from 4477 million in 2020 to 4163 million in 2021, a drop of about 7%, indicating some weakening in operating performance.
- In 2022, the figure turned negative (-710 million), reflecting a significant operational loss during the period, which could be attributed to unusual charges or decreased operational efficiency.
- The subsequent year marked an exceptional turnaround, with NOPAT surging to 8615 million—almost doubling the previous positive peak—pointing to a strong recovery in operational profitability.
- There was a decrease in 2024 to 4895 million, which, while lower than the prior year, remains above the 2020 and 2021 levels, indicating sustained but moderated operational success.
Overall, the data reveals a period of volatility with a severe downturn in 2022 followed by a powerful rebound in 2023. The decline in both net income and NOPAT in 2022 could suggest the impact of one-time events or market pressures, which were largely mitigated in the following year. The recovery in 2023 indicates effective management responses or favorable market conditions, though the slight pullback in 2024 suggests the need for ongoing vigilance to maintain profitability.
Cash Operating Taxes
International Business Machines Corp., cash operating taxes calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2020-12-31).
- Continuing Operations Provision for (Benefit from) Income Taxes
- The provision for income taxes from continuing operations exhibited significant volatility during the five-year period. Initially, in 2020, it reflected a substantial tax benefit of -864 million US dollars, shifting to a tax expense of 124 million in 2021. This pattern repeated with a benefit of -626 million in 2022, followed by a marked increase to an expense of 1176 million in 2023. The figure then moved back to a tax benefit of -218 million in 2024. Such fluctuations suggest variability in taxable income, tax planning strategies, or adjustments related to deferred taxes or other tax-related accounting considerations.
- Cash Operating Taxes
- Cash operating taxes demonstrated relative stability throughout the period, though with some fluctuations. The amount declined from 2738 million US dollars in 2020 to 2130 million in 2021, indicating a reduction in tax payments or taxable income. In 2022 and 2023, cash operating taxes increased to 2497 million and 2510 million respectively, showing a recovery and stabilization. The figure slightly decreased again to 2356 million in 2024. Overall, this trend indicates some variability in actual cash tax payments, but with a general range between approximately 2100 and 2700 million US dollars annually.
Invested Capital
International Business Machines Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 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), 10-K (reporting date: 2020-12-31).
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 product 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 financial data reveals several key trends in the company's capital structure and financial position over the five-year period.
- Total reported debt & leases
- The total reported debt and leases show a decreasing trend from 66,469 million US dollars at the end of 2020 to 54,013 million by the end of 2022. This reduction indicates efforts to lower leverage during this period. However, in 2023, there is a noticeable increase to 59,935 million, followed by a slight decline to 58,396 million in 2024. The fluctuation in recent years may suggest strategic adjustments in debt management or financing activities.
- Total IBM stockholders’ equity
- The stockholders' equity decreased from 20,597 million in 2020 to 18,901 million in 2021, reflecting a contraction potentially due to losses, dividends, or share repurchases. Subsequently, equity increased steadily, reaching 27,307 million by the end of 2024. This upward trajectory indicates a strengthening of the company’s net asset base and possibly enhanced profitability or capital issuance during this period.
- Invested capital
- Invested capital exhibited a declining trend from 130,176 million in 2020 to 104,131 million in 2022, which aligns with the reduction in debt levels, signaling a possible downsizing or restructuring of invested resources. However, invested capital recovered somewhat to 112,927 million in 2023 before marginally decreasing to 111,965 million in 2024. This fluctuation suggests a stabilization or modest reinvestment phase following the initial contraction.
Overall, the data indicates an initial phase of deleveraging and capital reduction until 2022, followed by partial recovery of equity and invested capital, accompanied by a moderate resurgence in debt levels in the last two reported years. These patterns point toward an adaptive financial strategy balancing debt, equity, and capital investment over time.
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: 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 »
| 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: 2020-12-31).
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, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| 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. | ||||||
| CrowdStrike Holdings 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: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The analysis of the financial items over the five-year period reveals notable fluctuations and trends in economic profit, invested capital, and economic spread ratio. These trends provide insights into the company's financial performance and capital efficiency.
- Economic Profit
- The economic profit demonstrates substantial variability, starting with a negative $6,344 million in 2020 and slightly improving to negative $5,739 million in 2021. However, there is a sharp decline in 2022, where economic profit decreases further to negative $10,692 million. A significant recovery is observed in 2023, improving markedly to negative $2,785 million, followed by a reversal to negative $7,176 million in 2024. This indicates inconsistent performance with pronounced losses throughout the period and a notable but temporary improvement in 2023.
- Invested Capital
- Invested capital shows a decreasing trend from $130,176 million in 2020 to $104,131 million in 2022. This reduction suggests a withdrawal or depreciation of assets or investments. Subsequently, there is a rise in 2023 to $112,927 million, followed by a slight decline to $111,965 million in 2024. Overall, the invested capital decreases by approximately 14% over the five-year span, reflecting cautious capital allocation or asset management strategies.
- Economic Spread Ratio
- The economic spread ratio, which indicates the difference between return on invested capital and the cost of capital, consistently remains negative throughout the period, highlighting that the company is not generating sufficient returns above its cost of capital. The ratio worsens from -4.87% in 2020 to -5.21% in 2021 and further deteriorates significantly in 2022 to -10.27%. There is partial recovery in 2023 to -2.47%, pointing to improved efficiency or profitability, but the ratio declines again to -6.41% in 2024. These fluctuations align with the economic profit trends and emphasize ongoing challenges in creating economic value.
In summary, the data portrays a company experiencing persistent negative economic profit and economic spread ratios, indicating struggles with achieving profitable returns on its invested capital. The variability in these metrics, with brief improvement in 2023, suggests episodic operational or market challenges that affect financial outcomes. Additionally, invested capital was managed downwards initially but saw partial restoration in later years, which may be linked to strategic adjustments in capital deployment.
Economic Profit Margin
International Business Machines Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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. | ||||||
| CrowdStrike Holdings 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: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial data reveals several notable trends over the five-year period.
- Adjusted Revenue
- The adjusted revenue displayed a decline from 74,877 million US dollars in 2020 to 57,707 million in 2021. Subsequently, there was a moderate increase in the following two years, reaching 63,313 million in 2023, before slightly declining again to 63,298 million in 2024. This suggests some recovery and stabilization after the initial drop, but revenue did not return to the 2020 level by the end of 2024.
- Economic Profit
- Economic profit showed negative values throughout the period, indicating consistent economic losses. The losses worsened significantly from -5,739 million in 2021 to -10,692 million in 2022. However, a notable improvement occurred in 2023 when losses decreased sharply to -2,785 million, followed by an increase in losses again to -7,176 million in 2024. This fluctuation suggests volatility in profitability with periods of both improvement and deterioration.
- Economic Profit Margin
- The economic profit margin also remained negative throughout the period, indicating that economic losses constituted a substantial portion of revenues. The margin declined from -8.47% in 2020 to a lower -9.94% in 2021 and deteriorated further to -17.83% in 2022. A significant recovery took place in 2023, with the margin improving to -4.4%, but it worsened again in 2024 to -11.34%. This pattern in margin corresponds closely with the trend observed in economic profit, reinforcing the view of instability in profitability relative to revenue.