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International Business Machines Corp. (IBM)

Enterprise Value to FCFF (EV/FCFF)

Difficulty: Intermediate

International Business Machines Corp., FCFF calculation

USD $ in millions

	12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Net income attributable to IBM
	Net income attributable to noncontrolling interest
	Net noncash charges
	Changes in operating assets and liabilities, net of acquisitions/divestitures
	Net cash provided by operating activities
	Interest paid on debt, net of tax¹
	Interest capitalized, net of tax²
	Payments for property, plant and equipment
	Proceeds from disposition of property, plant and equipment
	Investment in software
	Capital lease obligations
	Free cash flow to the firm (FCFF)

Item	Description	The company
FCFF	Free cash flow to the firm is the cash flow available to the International Business Machines Corp.’s suppliers of capital after all operating expenses have been paid and necessary investments in working and fixed capital have been made.	International Business Machines Corp.’s FCFF increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

International Business Machines Corp., interest paid, net of tax calculation

USD $ in millions

	12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Effective Income Tax Rate (EITR)

	EITR¹
	Interest Paid, Net of Tax
	Interest paid on debt, before tax
	Less: Interest paid on debt, tax²
	Interest paid on debt, net of tax
	Interest Costs Capitalized, Net of Tax
	Interest capitalized, before tax
	Less: Interest capitalized, tax³
	Interest capitalized, net of tax

2017 Calculations

² Interest paid on debt, tax = Interest paid on debt × EITR
= hidden × hidden = hidden

³ Interest capitalized, tax = Interest capitalized × EITR
= hidden × hidden = hidden

International Business Machines Corp., current EV/FCFF calculation, comparison to benchmarks

Selected Financial Data (USD $ in millions)
Enterprise value (EV)
Free cash flow to the firm (FCFF)
Ratio
EV/FCFF
Benchmarks
EV/FCFF, Competitors
Adobe Inc.
Alphabet Inc.
Facebook Inc.
Microsoft Corp.
Oracle Corp.
salesforce.com inc.
EV/FCFF, Sector
Software & Computer Services
EV/FCFF, Industry
Technology

If company EV/FCFF is lower then the EV/FCFF of benchmark then company is relatively undervalued.

Otherwise, if company EV/FCFF is higher then the EV/FCFF of benchmark then company is relatively overvalued.

International Business Machines Corp., historical EV/FCFF calculation, comparison to benchmarks

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Selected Financial Data (USD $ in millions)
	Enterprise value (EV)¹
	Free cash flow to the firm (FCFF)²
	Ratio
	EV/FCFF³
	Benchmarks
	EV/FCFF, Competitors
	Adobe Inc.
	Alphabet Inc.
	Facebook Inc.
	Microsoft Corp.
	Oracle Corp.
	salesforce.com inc.
	EV/FCFF, Sector
	Software & Computer Services
	EV/FCFF, Industry
	Technology

2017 Calculations

³ EV/FCFF = EV ÷ FCFF
= hidden ÷ hidden = hidden

Ratio	Description	The company
EV/FCFF	Enterprise value to free cash flow to the firm is whole company valuation indicator.	International Business Machines Corp.’s EV/FCFF ratio increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.

	International Business Machines Corp.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality