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:
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Selected Financial Data since 2005
- Current Ratio since 2005
- Total Asset Turnover since 2005
- Price to Sales (P/S) since 2005
- Analysis of Revenues
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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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes shows a fluctuating trend over the analyzed periods. From 2020 to 2021, NOPAT decreased marginally from 4477 million to 4163 million US dollars. A significant decline occurred in 2022, resulting in a negative NOPAT of -710 million US dollars. However, in 2023, there was a substantial recovery to 8615 million US dollars, followed by a decrease again in 2024 to 4895 million US dollars. This indicates volatility in operational profitability, with a notable dip into negative territory in 2022 and a recovery thereafter, albeit not maintaining the peak level reached in 2023.
- Cost of Capital
- The cost of capital exhibits a consistent upward trend throughout the years, increasing from 8.32% in 2020 to 10.8% in 2024. This gradual increase signifies rising expenses related to financing or higher required returns, which can impact investment decisions and company valuation.
- Invested Capital
- Invested capital demonstrates a general decline from 130,176 million US dollars in 2020 to 111,965 million US dollars in 2024. The largest drop occurred between 2020 and 2021, from 130,176 million to 110,083 million US dollars. Afterwards, invested capital shows minor fluctuations but remains lower than the initial value over the period. This reduction might reflect divestments, asset disposals, or strategic shifts in capital allocation.
- Economic Profit
- Economic profit is consistently negative across all the years, indicating that the company did not generate returns above its cost of capital during the analyzed period. The economic loss is largest in 2022 at -10,707 million US dollars, which corresponds with the negative NOPAT in the same period. Although economic profit improves in 2023 to -2,802 million US dollars, it worsens again in 2024 to -7,194 million US dollars. This persistent negative economic profit suggests challenges in creating shareholder value relative to the company’s invested capital and cost of capital.
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.
- Economic Profit
- The economic profit demonstrates considerable volatility over the five-year period. Beginning with a significant negative value of -6,360 million US dollars in 2020, it slightly improved to -5,753 million in 2021. However, there was a sharp deterioration in 2022, reaching -10,707 million, the lowest point within the timeframe. An improvement followed in 2023, with economic profit rising to -2,802 million, before declining again to -7,194 million in 2024. These fluctuations signal challenges in consistently generating returns above the cost of capital during this period.
- Invested Capital
- The invested capital exhibits a downward trend overall from 2020 to 2024. Starting at 130,176 million US dollars in 2020, it decreased notably to 110,083 million in 2021 and further to 104,131 million in 2022. A moderate recovery occurred in 2023, with invested capital rising to 112,927 million, followed by a slight decline to 111,965 million in 2024. This trend may indicate strategic divestment, asset optimization, or shifts in capital allocation practices during the period analyzed.
- Economic Spread Ratio
- The economic spread ratio remains consistently negative throughout the five years, highlighting persistent returns below the cost of capital. The ratio began at -4.89% in 2020 and worsened marginally to -5.23% in 2021. A steep decline occurred in 2022, reaching -10.28%, reflecting significant underperformance relative to invested capital costs. Improvement was observed in 2023, with the ratio climbing to -2.48%, suggesting a temporary enhancement in economic value generation. However, the ratio deteriorated again to -6.43% in 2024, indicating continued challenges in achieving positive economic spreads.
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.
- Economic Profit
- The economic profit demonstrates significant volatility over the five-year period. Starting at a negative value of -6360 million USD, it improves slightly in 2021 to -5753 million USD, indicating a reduction in economic losses. However, in 2022 there is a sharp decline to -10707 million USD, representing a substantial increase in economic loss. This is followed by a recovery in 2023, where the economic profit improves markedly to -2802 million USD. In 2024, the economic profit deteriorates again to -7194 million USD, though it remains less negative than the 2022 peak loss.
- Adjusted Revenue
- Adjusted revenue experiences a noticeable decline from 74877 million USD in 2020 to 57707 million USD in 2021, a reduction of approximately 22.9%. After 2021, revenue shows a modest upward trend, increasing to 59966 million USD in 2022 and then to 63313 million USD in 2023. The figure slightly decreases to 63298 million USD in 2024, indicating stabilization of revenue levels after the initial drop.
- Economic Profit Margin
- The economic profit margin reflects the fluctuations in economic profit relative to revenue. It begins at -8.49% in 2020 and worsens to -9.97% in 2021, corresponding with decreased revenue and elevated economic losses. The margin declines steeply to -17.86% in 2022, aligning with the peak economic loss observed that year. A substantial improvement occurs in 2023 as the margin rises to -4.43%, signaling better economic performance. However, the margin declines again to -11.37% in 2024, suggesting renewed challenges in profitability despite relatively stable revenue.
- Overall Analysis
- The data reveal a company experiencing significant economic challenges throughout the period. The initial drop in adjusted revenue between 2020 and 2021 appears to coincide with worsening economic profit and margin. Although revenue partially recovers from 2021 to 2023, economic losses remain substantial, albeit with temporary improvement. The economic profit margin mirrors this pattern, indicating that profitability issues persist despite some recovery in revenue. This suggests ongoing operational or cost-related pressures affecting the company’s ability to generate positive economic value.