Stock Analysis on Net

International Business Machines Corp. (NYSE:IBM)

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Economic Value Added (EVA)

Microsoft Excel

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Economic Profit

International Business Machines Corp., economic profit calculation

US$ in millions

Microsoft Excel
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
= × =


Net Operating Profit After Taxes (NOPAT)
The net operating profit after taxes displayed notable fluctuation over the observed periods. Starting at $4,477 million in 2020, there was a decrease to $4,163 million in 2021, followed by a significant decline to a negative value of $-710 million in 2022. This sharp drop indicates operational challenges or extraordinary charges during that year. In 2023, the NOPAT rebounded strongly to $8,615 million, showing a substantial recovery, but then decreased again to $4,895 million in 2024. This volatility suggests variability in operational efficiency or market conditions affecting profitability.
Cost of Capital
The cost of capital increased consistently across the periods, rising from 8.26% in 2020 to 10.71% in 2024. This upward trend indicates either an increase in perceived risk by investors or higher interest rates, which could affect the company’s financing costs and investment decisions negatively over time.
Invested Capital
The invested capital saw a downward trend from $130,176 million in 2020 to $104,131 million in 2022, suggesting asset divestiture or optimization efforts. However, invested capital rose again to $112,927 million in 2023 before slightly declining to $111,965 million in 2024. This pattern may point to strategic reinvestments after a period of capital reduction.
Economic Profit
Economic profit was negative throughout all five years and showed significant volatility. The figure improved slightly from a loss of $6,279 million in 2020 to $5,679 million in 2021 but worsened substantially to a loss of $10,631 million in 2022. There was an improvement in 2023 to a loss of $2,714 million, followed by a deterioration to a loss of $7,100 million in 2024. This persistent negative economic profit suggests that the company’s returns did not exceed its cost of capital, indicating value destruction over the period despite some recoveries.

Net Operating Profit after Taxes (NOPAT)

International Business Machines Corp., NOPAT calculation

US$ in millions

Microsoft Excel
12 months ended: Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Net income attributable to IBM
Deferred income tax expense (benefit)1
Increase (decrease) in allowance for expected credit losses on notes and accounts receivable2
Increase (decrease) in deferred income3
Increase (decrease) in product warranty liability4
Increase (decrease) in equity equivalents5
Interest expense
Interest expense, operating lease liability6
Adjusted interest expense
Tax benefit of interest expense7
Adjusted interest expense, after taxes8
Interest income
Investment income, before taxes
Tax expense (benefit) of investment income9
Investment income, after taxes10
(Income) loss from discontinued operations, net of tax11
Net income (loss) attributable to noncontrolling interest
Net operating profit after taxes (NOPAT)

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

Microsoft Excel
12 months ended: Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Continuing operations provision for (benefit from) income taxes
Less: Deferred income tax expense (benefit)
Add: Tax savings from interest expense
Less: Tax imposed on investment income
Cash operating taxes

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

Microsoft Excel
Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Short-term debt
Long-term debt, excluding current maturities
Operating lease liability1
Total reported debt & leases
Total IBM stockholders’ equity
Net deferred tax (assets) liabilities2
Allowance for expected credit losses on notes and accounts receivable3
Deferred income4
Product warranty liability5
Equity equivalents6
Accumulated other comprehensive (income) loss, net of tax7
Noncontrolling interests
Adjusted total IBM stockholders’ equity
Marketable securities8
Invested capital

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

Microsoft Excel
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.
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 considerable volatility over the analyzed period. It started at a negative value of -6,279 million USD in 2020, slightly improved to -5,679 million USD in 2021, then deteriorated significantly to -10,631 million USD in 2022. A marked recovery occurred in 2023, with economic profit improving substantially to -2,714 million USD. However, this positive development was not sustained as the figure declined again to -7,100 million USD in 2024. Overall, economic profit remains negative throughout the period, indicating persistent challenges in generating returns above the cost of capital.
Invested Capital
The invested capital shows a downward trend initially, decreasing from 130,176 million USD in 2020 to 104,131 million USD in 2022. This reduction suggests asset divestitures or capital optimization efforts. In 2023, there was a rebound to 112,927 million USD, followed by a slight decrease to 111,965 million USD in 2024. The invested capital appears to stabilize in the latter years after the earlier decline.
Economic Spread Ratio
The economic spread ratio remains negative and mirrors the pattern of economic profit, indicating the company has not been able to generate returns exceeding its cost of capital. The spread deteriorated from -4.82% in 2020 to a more adverse -10.21% in 2022. This was followed by an improvement in 2023 to -2.4%, showing a narrowing of the negative spread, but the ratio worsened again to -6.34% in 2024. The persistent negative spread points to ongoing operational or strategic challenges impeding value creation.
Overall Insights
The financial indicators collectively reveal a period characterized by fluctuating performance with sustained negative economic profit and spread ratios. Despite efforts potentially aimed at optimizing invested capital, the company struggles to generate sufficient returns above its cost of capital, which is critical for long-term value creation. The improvement experienced in 2023 suggests some short-term operational enhancements, yet the regression in 2024 implies that these were insufficient to establish a consistent positive trend. This pattern underlines the need for continued focus on strategic initiatives to enhance profitability and capital efficiency.

Economic Profit Margin

International Business Machines Corp., economic profit margin calculation, comparison to benchmarks

Microsoft Excel
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.
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.


Economic Profit
The economic profit experienced significant fluctuations over the analyzed period. Starting at a loss of 6,279 million US dollars in 2020, it improved slightly in 2021 with a loss of 5,679 million. However, 2022 saw a marked deterioration as losses nearly doubled to 10,631 million. In 2023, the economic profit improved substantially, with the loss decreasing to 2,714 million, before worsening again in 2024 to a loss of 7,100 million. This indicates volatility in the company's value generation efficiency, with no consistent trend towards profitability.
Adjusted Revenue
Adjusted revenue depicted a declining trend from 2020 to 2021, dropping from approximately 74,877 million US dollars to 57,707 million. Subsequently, revenue stabilized and showed slight growth, reaching 63,298 million by 2024. This suggests a period of contraction followed by relative stabilization in revenue levels, although the company has not returned to its 2020 revenue peak within the period analyzed.
Economic Profit Margin
The economic profit margin mirrored the pattern observed in economic profit, remaining negative throughout the five-year period. It started at -8.39% in 2020, deteriorated to -9.84% in 2021, and further worsened significantly to -17.73% in 2022. A recovery occurred in 2023, with the margin improving to -4.29%, but this was followed by another decline to -11.22% in 2024. The consistently negative margins indicate the company has been operating below its cost of capital, despite some intermittent improvements.