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.
Economic Profit
International Business Machines Corp., economic profit 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 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
= 13,646 – 11.69% × 124,995 = -969
The analysis of economic performance from 2021 through 2025 reveals a consistent failure to generate positive economic profit, although a significant recovery trend is observed toward the end of the period. The organization consistently operated with a negative economic value added, indicating that the net operating profit after taxes was insufficient to cover the opportunity cost of the invested capital.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited substantial volatility over the five-year period. After starting at 4,239 million USD in 2021, the figure dropped to a deficit of 633 million USD in 2022. A strong recovery followed in 2023 with a peak of 8,703 million USD, followed by a moderate decline in 2024 to 4,991 million USD, and ending with a period high of 13,646 million USD in 2025.
- Cost of Capital and Invested Capital
- The cost of capital demonstrated a steady upward trajectory, rising from 10.04% in 2021 to a peak of 12.08% in 2024, before slightly receding to 11.69% in 2025. Simultaneously, invested capital remained high and grew over the period, moving from 109,734 million USD in 2021 to 124,995 million USD by 2025. The combination of an expanding capital base and an increasing cost of capital heightened the threshold required to achieve positive economic profit.
- Economic Profit Trajectory
- Economic profit remained negative throughout the entire duration, reaching its lowest point in 2022 at -11,755 million USD. While the deficit fluctuated—improving in 2023 and declining again in 2024—a notable convergence toward the break-even point occurred in 2025, where economic profit improved to -969 million USD. This indicates that while the company is still destroying shareholder value in absolute terms, the gap between operating returns and the cost of capital is narrowing significantly.
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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
= 3,347 × 5.07% = 170
7 2025 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 2,105 × 21.00% = 442
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
= 645 × 21.00% = 135
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$13,646 million. The 2025 value represents the highest NOPAT recorded within the observed period.
- Relationship between Net Income and NOPAT
- The difference between net income and NOPAT is most striking in 2022. While net income remains positive, NOPAT is negative, suggesting substantial non-operating expenses or financing costs significantly impacted overall profitability. The divergence narrows in subsequent years as both metrics improve, but NOPAT consistently exceeds net income from 2023 onwards, indicating a stronger core operational performance relative to other financial factors. The increasing gap between NOPAT and net income in 2025 suggests a growing efficiency in core operations.
Overall, the period demonstrates a recovery from a challenging 2022, with both net income and NOPAT showing substantial growth towards the end of the observed timeframe. The trend in NOPAT suggests improving operational efficiency and profitability.
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Cash Operating Taxes
International Business Machines Corp., cash operating taxes calculation
US$ 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.
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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$32,648 million respectively. This indicates strengthening financial health from the equity perspective.
The increase in invested capital in 2025 is driven by both increased debt and a substantial rise in stockholders’ equity. While debt levels are increasing, the growth in equity suggests the company is also retaining earnings or raising capital through equity offerings. The interplay between debt and equity financing warrants further investigation when assessing the company’s overall financial risk and capital structure.
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Cost of Capital
International Business Machines Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 215,110) | 215,110) | ÷ | 277,584) | = | 0.77 | 0.77 | × | 14.23% | = | 11.03% | ||
| Debt3 | 59,127) | 59,127) | ÷ | 277,584) | = | 0.21 | 0.21 | × | 3.68% × (1 – 21.00%) | = | 0.62% | ||
| Operating lease liability4 | 3,347) | 3,347) | ÷ | 277,584) | = | 0.01 | 0.01 | × | 5.07% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 277,584) | 1.00 | 11.69% | ||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ 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 | 239,002) | 239,002) | ÷ | 294,903) | = | 0.81 | 0.81 | × | 14.23% | = | 11.53% | ||
| Debt3 | 52,478) | 52,478) | ÷ | 294,903) | = | 0.18 | 0.18 | × | 3.60% × (1 – 21.00%) | = | 0.51% | ||
| Operating lease liability4 | 3,423) | 3,423) | ÷ | 294,903) | = | 0.01 | 0.01 | × | 4.91% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 294,903) | 1.00 | 12.08% | ||||||||||
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 | 168,800) | 168,800) | ÷ | 226,898) | = | 0.74 | 0.74 | × | 14.23% | = | 10.58% | ||
| Debt3 | 54,710) | 54,710) | ÷ | 226,898) | = | 0.24 | 0.24 | × | 3.42% × (1 – 21.00%) | = | 0.65% | ||
| Operating lease liability4 | 3,388) | 3,388) | ÷ | 226,898) | = | 0.01 | 0.01 | × | 4.46% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 226,898) | 1.00 | 11.29% | ||||||||||
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 | 117,289) | 117,289) | ÷ | 167,627) | = | 0.70 | 0.70 | × | 14.23% | = | 9.95% | ||
| Debt3 | 47,274) | 47,274) | ÷ | 167,627) | = | 0.28 | 0.28 | × | 3.14% × (1 – 21.00%) | = | 0.70% | ||
| Operating lease liability4 | 3,064) | 3,064) | ÷ | 167,627) | = | 0.02 | 0.02 | × | 3.77% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 167,627) | 1.00 | 10.71% | ||||||||||
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 | 111,442) | 111,442) | ÷ | 171,130) | = | 0.65 | 0.65 | × | 14.23% | = | 9.26% | ||
| Debt3 | 56,252) | 56,252) | ÷ | 171,130) | = | 0.33 | 0.33 | × | 2.80% × (1 – 21.00%) | = | 0.73% | ||
| Operating lease liability4 | 3,436) | 3,436) | ÷ | 171,130) | = | 0.02 | 0.02 | × | 3.01% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 171,130) | 1.00 | 10.04% | ||||||||||
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 | (969) | (8,525) | (4,024) | (11,755) | (6,778) | |
| Invested capital2 | 124,995) | 111,877) | 112,743) | 103,859) | 109,734) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -0.78% | -7.62% | -3.57% | -11.32% | -6.18% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Accenture PLC | 0.54% | 0.17% | 0.95% | 3.83% | 5.64% | |
| Adobe Inc. | 13.02% | 0.73% | 0.90% | 6.40% | 8.78% | |
| AppLovin Corp. | 28.19% | 0.47% | -20.65% | -26.83% | -30.22% | |
| Cadence Design Systems Inc. | -1.35% | -2.94% | 7.11% | 6.52% | 6.73% | |
| CrowdStrike Holdings Inc. | -13.40% | -8.47% | -4.73% | -8.02% | -10.28% | |
| Datadog Inc. | -8.93% | -9.62% | -6.15% | -11.90% | -4.08% | |
| Intuit Inc. | -5.31% | -8.98% | -11.02% | -9.87% | -2.34% | |
| Microsoft Corp. | 5.52% | 7.41% | 10.45% | 18.44% | 27.48% | |
| Oracle Corp. | -8.13% | -7.98% | -8.78% | -7.75% | 0.46% | |
| Palantir Technologies Inc. | 41.51% | -12.41% | -9.13% | -32.87% | -40.33% | |
| Palo Alto Networks Inc. | -4.13% | 5.06% | 11.20% | 3.25% | -5.45% | |
| Salesforce Inc. | -12.57% | -14.38% | -17.82% | -14.70% | -12.56% | |
| ServiceNow Inc. | 2.61% | 5.88% | 5.18% | 0.67% | 1.89% | |
| Synopsys Inc. | -12.48% | -8.24% | -7.54% | -0.94% | -6.97% | |
| Workday Inc. | -11.73% | -13.13% | -19.36% | -14.19% | -19.44% | |
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 × -969 ÷ 124,995 = -0.78%
4 Click competitor name to see calculations.
The analysis of economic value creation over the five-year period ending December 31, 2025, reveals a consistent failure to generate positive economic profit, although a significant recovery trend is evident in the final year. The negative values across all periods indicate that the returns on invested capital remained below the required cost of capital, resulting in a destruction of economic value throughout the duration of the study.
- Economic Profit Trends
- Economic profit exhibited high volatility, starting at -6,778 million USD in 2021 and deteriorating to a period low of -11,755 million USD in 2022. While 2023 showed a temporary improvement to -4,024 million USD, a subsequent decline occurred in 2024. However, a substantial recovery is observed by December 31, 2025, with losses narrowing to -969 million USD, representing the most favorable position within the analyzed timeframe.
- Invested Capital Dynamics
- Invested capital remained relatively stable with a general upward trajectory. After a slight contraction in 2022 to 103,859 million USD, the capital base expanded steadily, reaching a peak of 124,995 million USD by the end of 2025. This expansion of the capital base occurred despite the persistent negative economic profit, suggesting continued investment in the business operations.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the volatility of economic profit, remaining negative throughout the period. The ratio reached its most critical point in 2022 at -11.32%, signaling a wide gap between the return on capital and the cost of capital. A notable improvement is observed in the final year, as the ratio rose from -7.62% in 2024 to -0.78% in 2025. This convergence toward zero indicates that the company is approaching a break-even point where it may begin to create positive economic value.
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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 | (969) | (8,525) | (4,024) | (11,755) | (6,778) | |
| Revenue | 67,535) | 62,753) | 61,860) | 60,530) | 57,350) | |
| Add: Increase (decrease) in deferred income | 2,843) | 545) | 1,453) | (564) | 357) | |
| Adjusted revenue | 70,378) | 63,298) | 63,313) | 59,966) | 57,707) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -1.38% | -13.47% | -6.36% | -19.60% | -11.75% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Accenture PLC | 0.35% | 0.10% | 0.49% | 1.84% | 2.89% | |
| Adobe Inc. | 11.78% | 0.83% | 1.13% | 7.45% | 10.94% | |
| AppLovin Corp. | 28.97% | 0.46% | -28.27% | -50.24% | -60.51% | |
| Cadence Design Systems Inc. | -2.02% | -4.51% | 7.08% | 6.50% | 6.84% | |
| CrowdStrike Holdings Inc. | -22.05% | -13.28% | -6.35% | -12.56% | -21.36% | |
| Datadog Inc. | -5.30% | -8.73% | -3.84% | -8.23% | -3.24% | |
| Intuit Inc. | -6.87% | -13.81% | -18.05% | -18.99% | -2.97% | |
| Microsoft Corp. | 8.23% | 10.35% | 11.90% | 17.67% | 22.81% | |
| Oracle Corp. | -16.29% | -15.18% | -16.99% | -14.23% | 0.91% | |
| Palantir Technologies Inc. | 21.50% | -10.76% | -4.90% | -55.15% | -66.43% | |
| Palo Alto Networks Inc. | -4.90% | 5.38% | 11.12% | 3.78% | -7.33% | |
| Salesforce Inc. | -27.15% | -33.24% | -45.06% | -40.81% | -28.80% | |
| ServiceNow Inc. | 2.88% | 4.84% | 4.17% | 0.54% | 1.63% | |
| Synopsys Inc. | -72.84% | -13.81% | -10.64% | -1.33% | -11.09% | |
| Workday Inc. | -12.46% | -14.62% | -23.74% | -19.23% | -25.36% | |
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 × -969 ÷ 70,378 = -1.38%
3 Click competitor name to see calculations.
An analysis of the period between 2021 and 2025 reveals a consistent failure to achieve positive economic profit, although a clear trend toward break-even is observable by the end of the timeframe. While the company expanded its top-line figures, the cost of capital continued to exceed operating returns, resulting in negative economic value added throughout the five-year span.
- Economic Profit Trends
- Economic profit remained in negative territory for the entire duration, characterized by significant volatility. The deficit widened from -6,778 million USD in 2021 to a peak loss of -11,755 million USD in 2022. A partial recovery occurred in 2023, followed by a secondary decline to -8,525 million USD in 2024. However, a substantial improvement is noted in 2025, where the economic profit reached its highest level at -969 million USD, indicating a near-total recovery of economic value.
- Adjusted Revenue Growth
- Adjusted revenue exhibited a steady upward trajectory, increasing from 57,707 million USD in 2021 to 70,378 million USD in 2025. Growth was consistent through 2023, followed by a period of stagnation in 2024 where revenue remained nearly flat at 63,298 million USD, before accelerating again in the final year.
- Economic Profit Margin Analysis
- The economic profit margin reflected the instability of the economic profit figures relative to revenue growth. The margin deteriorated significantly in 2022, reaching a low of -19.60%. This was followed by a fluctuating pattern, improving to -6.36% in 2023 and declining to -13.47% in 2024. By 2025, the margin improved to -1.38%, the narrowest deficit in the observed period, suggesting a strengthening alignment between revenue generation and the required return on capital.
In summary, the data indicates that while revenue growth has been sustained, the ability to generate economic profit has been inconsistent. The sharp improvement in both absolute economic profit and the economic profit margin in 2025 suggests a successful effort to reduce the gap between operating performance and the cost of capital.
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