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:
- Balance Sheet: Assets
- Common-Size Income Statement
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Dividend Discount Model (DDM)
- Selected Financial Data since 2005
- Debt to Equity since 2005
- Price to Earnings (P/E) since 2005
- Price to Sales (P/S) since 2005
- Aggregate Accruals
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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 distinct trends and patterns over the five-year period analyzed.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT exhibited considerable volatility. Starting at $4,477 million in 2020, it decreased slightly to $4,163 million in 2021 and then experienced a significant decline, turning negative at -$710 million in 2022. However, the figure rebounded strongly in 2023 to $8,615 million, before declining again to $4,895 million in 2024. This fluctuation suggests periods of operational challenges followed by recovery and subsequent moderate decline.
- Cost of Capital
- The cost of capital showed a consistent upward trend across the period. It increased from 8.35% in 2020 to 10.83% in 2024. This steady rise indicates increasing capital costs, potentially reflecting a higher risk perception or changes in market conditions affecting the discount rates applied to investments.
- Invested Capital
- The invested capital decreased from $130,176 million in 2020 to $104,131 million in 2022, suggesting a reduction in capital employed possibly due to divestitures, asset sales, or efficiency improvements. Subsequently, invested capital increased to $112,927 million in 2023, and slightly decreased again to $111,965 million in 2024, indicating a period of reinvestment or capital allocation after the initial reduction phase.
- Economic Profit
- Throughout the entire period, economic profit remained negative, indicating that the company did not generate returns above its cost of capital. Although the magnitude of economic loss reduced from -$6,389 million in 2020 to -$2,834 million in 2023, it sharply worsened to -$7,228 million in 2024. The most significant deterioration occurred in 2022 at -$10,734 million, coinciding with the negative NOPAT during that year. This suggests that despite operational improvements in 2023, the overall value creation remained below the cost of capital across all years.
In summary, the data reflects a company facing cost pressures with rising capital costs and fluctuating operational profitability. The negative economic profit sustained over the period points to challenges in generating shareholder value above capital expenses despite recovery attempts after 2022. The invested capital trends indicate strategic adjustments in asset deployment, which could be responses to the operational and market environment reflected in the other financial measures.
Net Operating Profit after Taxes (NOPAT)
International Business Machines Corp., NOPAT calculation
US$ 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. | ||||||
| Cadence Design Systems Inc. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Datadog Inc. | ||||||
| Fair Isaac Corp. | ||||||
| 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.
- Economic Profit
- The economic profit exhibits significant fluctuations over the analyzed period. It starts at a negative value of -6,389 million US dollars at the end of 2020, decreases slightly in 2021 to -5,780 million, then worsens markedly in 2022 to -10,734 million. In 2023, the economic loss improves notably to -2,834 million, yet deteriorates again in 2024 to -7,228 million. This pattern indicates substantial volatility with generally sustained negative economic profit throughout the timeline, reflecting challenges in generating returns above the cost of capital.
- Invested Capital
- Invested capital declines from 130,176 million US dollars at the end of 2020 to 110,083 million in 2021, followed by a smaller decrease to 104,131 million in 2022. Between 2022 and 2023, invested capital increases to 112,927 million, and then marginally decreases to 111,965 million in 2024. Overall, the invested capital shows a downward trend initially, with partial recovery in later periods, suggesting changes in asset base or capital deployment strategies.
- Economic Spread Ratio
- The economic spread ratio, which measures the return spread over the cost of capital, is consistently negative across all years, indicating returns below capital costs. It decreases from -4.91% in 2020 to -5.25% in 2021, worsens dramatically to -10.31% in 2022, then improves substantially to -2.51% in 2023 before declining again to -6.46% in 2024. This trend mirrors the economic profit patterns, underscoring volatility and overall underperformance relative to the required rate of return.
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. | ||||||
| Cadence Design Systems Inc. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Datadog Inc. | ||||||
| Fair Isaac Corp. | ||||||
| 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.
- Adjusted revenue
- The adjusted revenue exhibited a significant decrease from 74,877 million US dollars in 2020 to 57,707 million US dollars in 2021. Following this decline, there was a modest recovery observed, with revenues increasing to 59,966 million US dollars in 2022 and further to 63,313 million US dollars in 2023. However, in 2024, the adjusted revenue showed a slight decrease to 63,298 million US dollars, indicating a stabilization around this level after the prior fluctuations.
- Economic profit
- The economic profit remained negative throughout the entire period, indicating consistent economic losses. Starting at -6,389 million US dollars in 2020, the loss slightly improved to -5,780 million in 2021. However, a notable deterioration occurred in 2022, with economic profit plunging to -10,734 million US dollars. This was followed by a significant recovery in 2023, reducing the loss to -2,834 million US dollars, but the loss widened again in 2024 to -7,228 million US dollars. The data suggests volatility in economic profitability with no sustained improvement over the period.
- Economic profit margin
- The economic profit margin displayed a similar trend to the economic profit values, remaining negative across all years. Starting from -8.53% in 2020, it declined further to -10.02% in 2021 and reached its lowest point at -17.9% in 2022, reflecting increased inefficiency or cost pressures relative to revenue. An improvement occurred in 2023, with the margin rising to -4.48%, indicating better operational efficiency or cost control relative to revenue. However, this improvement was not sustained, as the margin worsened again to -11.42% in 2024.
- Overall trends and insights
- The financial data reveals a challenging environment characterized by fluctuating revenue and persistent economic losses. Despite attempts at revenue recovery from the low point in 2021, the company has struggled to turn economic profit positive, with margins consistently negative and showing significant volatility. The peak loss in 2022 both in absolute terms and margin percentage suggests a period of heightened challenges, while the temporary improvement in 2023 may indicate some operational adjustments or favorable conditions. Nonetheless, the return to greater losses in 2024 points to ongoing difficulties in achieving sustainable profitability.