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 – 11.74% × 124,995 = -1,026
The financial trajectory from 2021 to 2025 is characterized by persistent negative economic profit, indicating that operating returns have consistently failed to exceed the cost of invested capital. While there is a notable recovery trend toward the end of the period, the entity has remained in a state of value destruction throughout the analyzed timeframe.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibits significant volatility, characterized by a sharp decline into negative territory in 2022 (-633 million US$) followed by a substantial recovery in 2023. Although a secondary dip occurred in 2024, the period concludes with a peak of 13,646 million US$ in 2025, suggesting an improving capacity to generate operating income.
- Cost of Capital and Invested Capital
- The cost of capital followed a steady upward trend, rising from 10.08% in 2021 to a peak of 12.13% in 2024, before slightly receding to 11.74% in 2025. Concurrently, invested capital remained relatively stable but showed a general increase, growing from 109,734 million US$ in 2021 to 124,995 million US$ by 2025. This combination of increasing capital requirements and rising costs of funding has placed upward pressure on the threshold for achieving economic profitability.
- Economic Profit Trends
- Economic profit remained negative for all five years, with the most severe value erosion occurring in 2022 at -11,798 million US$. A pattern of fluctuation is evident; the loss narrowed in 2023, widened again in 2024, and reached its narrowest margin in 2025 at -1,026 million US$. The convergence toward a break-even point in 2025 is primarily driven by the surge in NOPAT, which began to offset the high charge of capital on the expanded investment base.
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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$32,648 million respectively. This indicates strengthening financial health from the equity perspective.
The increase in invested capital in 2025 is driven by both increased debt and a substantial rise in stockholders’ equity. While debt levels are increasing, the growth in equity suggests the company is also retaining earnings or raising capital through equity offerings. The interplay between debt and equity financing warrants further investigation when assessing the company’s overall financial risk and capital structure.
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Cost of Capital
International Business Machines Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 215,110) | 215,110) | ÷ | 277,584) | = | 0.77 | 0.77 | × | 14.29% | = | 11.07% | ||
| Debt3 | 59,127) | 59,127) | ÷ | 277,584) | = | 0.21 | 0.21 | × | 3.68% × (1 – 21.00%) | = | 0.62% | ||
| Operating lease liability4 | 3,347) | 3,347) | ÷ | 277,584) | = | 0.01 | 0.01 | × | 5.07% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 277,584) | 1.00 | 11.74% | ||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ 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 | × | 14.29% | = | 11.58% | ||
| 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 | 12.13% | ||||||||||
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 | × | 14.29% | = | 10.63% | ||
| 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 | 11.33% | ||||||||||
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 | × | 14.29% | = | 10.00% | ||
| 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 | 10.75% | ||||||||||
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 | × | 14.29% | = | 9.30% | ||
| 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 | 10.08% | ||||||||||
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 | (1,026) | (8,578) | (4,073) | (11,798) | (6,820) | |
| Invested capital2 | 124,995) | 111,877) | 112,743) | 103,859) | 109,734) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -0.82% | -7.67% | -3.61% | -11.36% | -6.21% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Accenture PLC | 0.70% | 0.34% | 1.12% | 3.99% | 5.81% | |
| Adobe Inc. | 13.20% | 0.92% | 1.09% | 6.58% | 8.97% | |
| AppLovin Corp. | 28.93% | 1.21% | -20.00% | -26.37% | -29.58% | |
| Cadence Design Systems Inc. | -1.28% | -2.87% | 7.18% | 6.59% | 6.80% | |
| Datadog Inc. | -8.74% | -9.43% | -5.95% | -11.70% | -3.88% | |
| Intuit Inc. | -2.91% | -6.58% | -8.63% | -7.52% | 0.11% | |
| Microsoft Corp. | 5.63% | 7.51% | 10.56% | 18.54% | 27.58% | |
| Oracle Corp. | -7.90% | -7.76% | -8.56% | -7.56% | 0.65% | |
| Palantir Technologies Inc. | 41.88% | -12.04% | -8.76% | -32.50% | -39.96% | |
| Palo Alto Networks Inc. | -3.82% | 5.37% | 11.50% | 3.53% | -5.17% | |
| Salesforce Inc. | -12.37% | -14.18% | -17.63% | -14.50% | -12.36% | |
| ServiceNow Inc. | 2.66% | 5.94% | 5.23% | 0.73% | 1.94% | |
| Synopsys Inc. | -12.39% | -8.14% | -7.44% | -0.84% | -6.86% | |
| Workday Inc. | -11.52% | -12.93% | -19.15% | -13.98% | -19.23% | |
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 × -1,026 ÷ 124,995 = -0.82%
4 Click competitor name to see calculations.
The financial performance from 2021 to 2025 is characterized by a consistent inability to generate positive economic value, although a notable trend toward recovery is evident by the end of the period.
- Economic Profit
- Economic profit remained negative throughout the analyzed period, indicating that the entity did not exceed its cost of capital. A significant decline occurred in 2022, reaching a low of -11,798 million US dollars. While a recovery was noted in 2023, performance regressed in 2024 before improving substantially in 2025 to -1,026 million US dollars, representing the smallest deficit in the five-year sequence.
- Invested Capital
- Invested capital exhibited moderate fluctuations, starting at 109,734 million US dollars in 2021 and ending at a peak of 124,995 million US dollars in 2025. The expansion of the capital base, particularly between 2024 and 2025, occurred concurrently with a reduction in economic losses.
- Economic Spread Ratio
- The economic spread ratio remained negative, confirming that the return on capital was consistently lower than the required cost of capital. The spread reached its most unfavorable level in 2022 at -11.36%. However, a positive trend is observed toward the end of the period, with the ratio narrowing to -0.82% by December 31, 2025, suggesting the company is approaching a break-even point where economic value is created.
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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 | (1,026) | (8,578) | (4,073) | (11,798) | (6,820) | |
| 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 | -1.46% | -13.55% | -6.43% | -19.67% | -11.82% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Accenture PLC | 0.45% | 0.19% | 0.58% | 1.92% | 2.98% | |
| Adobe Inc. | 11.94% | 1.04% | 1.37% | 7.67% | 11.17% | |
| AppLovin Corp. | 29.73% | 1.17% | -27.38% | -49.38% | -59.23% | |
| Cadence Design Systems Inc. | -1.92% | -4.40% | 7.15% | 6.57% | 6.91% | |
| Datadog Inc. | -5.18% | -8.56% | -3.72% | -8.10% | -3.08% | |
| Intuit Inc. | -3.75% | -10.11% | -14.13% | -14.48% | 0.14% | |
| Microsoft Corp. | 8.39% | 10.50% | 12.02% | 17.77% | 22.89% | |
| Oracle Corp. | -15.82% | -14.76% | -16.57% | -13.87% | 1.29% | |
| Palantir Technologies Inc. | 21.69% | -10.44% | -4.70% | -54.53% | -65.82% | |
| Palo Alto Networks Inc. | -4.52% | 5.70% | 11.42% | 4.11% | -6.95% | |
| Salesforce Inc. | -26.71% | -32.78% | -44.58% | -40.27% | -28.34% | |
| ServiceNow Inc. | 2.94% | 4.88% | 4.21% | 0.58% | 1.68% | |
| Synopsys Inc. | -72.30% | -13.64% | -10.49% | -1.18% | -10.92% | |
| Workday Inc. | -12.24% | -14.39% | -23.49% | -18.95% | -25.09% | |
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 × -1,026 ÷ 70,378 = -1.46%
3 Click competitor name to see calculations.
An analysis of the economic performance from 2021 to 2025 reveals a consistent period of negative economic profit, indicating that the company's net operating profit after taxes did not exceed its cost of capital during this timeframe. Despite the persistence of negative economic value added, a general trajectory toward break-even is observable by the end of the period.
- Economic Profit Trends
- Economic profit exhibited significant volatility, reaching a peak deficit of US$ 11,798 million in 2022. This was followed by a partial recovery in 2023 to US$ 4,073 million, a subsequent decline in 2024 to US$ 8,578 million, and a substantial improvement by 2025, where losses were narrowed to US$ 1,026 million. The results suggest a cyclical or unstable relationship between operating returns and the cost of capital, although the final year indicates a strong movement toward positive value creation.
- Adjusted Revenue Growth
- A steady upward trend in adjusted revenue is observed, growing from US$ 57,707 million in 2021 to US$ 70,378 million in 2025. While revenue remained relatively flat between 2023 and 2024, the overall growth indicates an expanding scale of operations, which provided the foundation for the eventual reduction in economic losses.
- Economic Profit Margin Volatility
- The economic profit margin mirrored the volatility of the absolute economic profit, fluctuating between a low of -19.67% in 2022 and a high of -1.46% in 2025. The margin contraction in 2022 and 2024 suggests periods where the cost of capital significantly outweighed the operational gains relative to revenue. However, the improvement to -1.46% in 2025 represents a marked increase in capital efficiency, bringing the organization close to generating an economic surplus.
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