Stock Analysis on Net

International Business Machines Corp. (NYSE:IBM)

Enterprise Value to FCFF (EV/FCFF) 

Microsoft Excel

Free Cash Flow to The Firm (FCFF)

International Business Machines Corp., FCFF 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 6,023 7,502 1,639 5,743 5,590
Net income attributable to noncontrolling interest 17 16 20 19 22
Net noncash charges 6,092 4,229 8,815 5,072 4,336
Changes in operating assets and liabilities, net of acquisitions/divestitures 1,313 2,184 (39) 1,962 8,249
Net cash provided by operating activities 13,445 13,931 10,435 12,796 18,197
Interest paid on debt, net of tax1 1,563 1,434 1,107 1,467 1,446
Interest capitalized, net of tax2 9 8 4 3 5
Payments for property, plant and equipment (1,048) (1,245) (1,346) (2,062) (2,618)
Proceeds from disposition of property, plant and equipment 557 321 111 387 188
Investment in software (637) (565) (626) (706) (612)
Free cash flow to the firm (FCFF) 13,889 13,884 9,685 11,885 16,605

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).


Net Cash Provided by Operating Activities
The net cash provided by operating activities demonstrates a fluctuating trend over the five-year period. It starts at a high point of 18,197 million USD in 2020, subsequently decreasing to 12,796 million USD in 2021 and further declining to 10,435 million USD in 2022. There is a notable recovery in 2023, with cash flow increasing to 13,931 million USD, followed by a slight decline to 13,445 million USD in 2024. Overall, the operating cash flow shows volatility with a significant dip between 2020 and 2022, before partially recovering in the subsequent years.
Free Cash Flow to the Firm (FCFF)
The FCFF closely mirrors the pattern observed in net cash from operating activities, indicating a similar trend in the company’s ability to generate cash after capital expenditures. The FCFF starts at 16,605 million USD in 2020 and then decreases consistently over the next two years to 11,885 million USD in 2021 and 9,685 million USD in 2022. A marked improvement occurs in 2023, with FCFF rising to 13,884 million USD and maintaining stability into 2024 at 13,889 million USD. The data reflects a recovery phase after a period of contraction in free cash flows from 2020 through 2022.

Interest Paid, Net of Tax

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

US$ in millions

Microsoft Excel
12 months ended: Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Effective Income Tax Rate (EITR)
EITR1 21.00% 14.00% 21.00% 3.00% 21.00%
Interest Paid, Net of Tax
Interest paid on debt, before tax 1,978 1,668 1,401 1,512 1,830
Less: Interest paid on debt, tax2 415 234 294 45 384
Interest paid on debt, net of tax 1,563 1,434 1,107 1,467 1,446
Interest Costs Capitalized, Net of Tax
Interest capitalized, before tax 12 9 5 3 6
Less: Interest capitalized, tax3 3 1 1 1
Interest capitalized, net of tax 9 8 4 3 5

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 See details »

2 2024 Calculation
Interest paid on debt, tax = Interest paid on debt × EITR
= 1,978 × 21.00% = 415

3 2024 Calculation
Interest capitalized, tax = Interest capitalized × EITR
= 12 × 21.00% = 3


Effective income tax rate (EITR)
The effective income tax rate exhibits notable fluctuations over the observed five-year period. It starts at 21% in 2020, significantly drops to 3% in 2021, then returns to 21% in 2022. In 2023, it decreases slightly to 14%, before rising again to 21% in 2024. This pattern suggests variability in tax strategies or changes in taxable income components affecting the rate year over year.
Interest paid on debt, net of tax (US$ in millions)
Interest paid on debt, net of tax, shows a fluctuating trend with a general increase towards the end of the period. The value starts at $1,446 million in 2020, marginally increases to $1,467 million in 2021, then declines to $1,107 million in 2022. Subsequently, it rises again to $1,434 million in 2023 and reaches its highest point at $1,563 million in 2024. These changes may reflect varying levels of debt outstanding or interest rate movements impacting interest expenses.
Interest capitalized, net of tax (US$ in millions)
Interest capitalized, net of tax, remains comparatively low in absolute terms but shows a gradual increasing trend. Beginning at $5 million in 2020, it decreases slightly to $3 million in 2021, then rises to $4 million in 2022. The upward trajectory becomes more pronounced with values of $8 million in 2023 and $9 million in 2024. This trend indicates an increasing amount of interest expense being capitalized, potentially reflecting higher capital expenditures or investments requiring capitalization of borrowing costs.

Enterprise Value to FCFF Ratio, Current

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

Microsoft Excel
Selected Financial Data (US$ in millions)
Enterprise value (EV) 311,610
Free cash flow to the firm (FCFF) 13,889
Valuation Ratio
EV/FCFF 22.44
Benchmarks
EV/FCFF, Competitors1
Accenture PLC 21.62
Adobe Inc. 19.86
Cadence Design Systems Inc. 77.27
CrowdStrike Holdings Inc. 114.77
Fair Isaac Corp. 69.39
Intuit Inc. 45.77
Microsoft Corp. 58.14
Oracle Corp. 292.18
Palantir Technologies Inc. 273.34
Palo Alto Networks Inc. 42.82
Salesforce Inc. 20.21
ServiceNow Inc. 62.46
Synopsys Inc. 63.14
Workday Inc. 26.11
EV/FCFF, Sector
Software & Services 48.28
EV/FCFF, Industry
Information Technology 50.80

Based on: 10-K (reporting date: 2024-12-31).

1 Click competitor name to see calculations.

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


Enterprise Value to FCFF Ratio, Historical

International Business Machines Corp., historical EV/FCFF 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)
Enterprise value (EV)1 279,256 211,965 159,474 155,684 155,259
Free cash flow to the firm (FCFF)2 13,889 13,884 9,685 11,885 16,605
Valuation Ratio
EV/FCFF3 20.11 15.27 16.47 13.10 9.35
Benchmarks
EV/FCFF, Competitors4
Accenture PLC 25.76 20.26 16.99 24.76 17.90
Adobe Inc. 21.98 37.75 20.82 33.61 40.43
Cadence Design Systems Inc. 61.26 63.83 44.54 35.05 44.13
CrowdStrike Holdings Inc. 81.46 38.65 96.35 141.44 807.14
Fair Isaac Corp. 77.83 46.25 23.33 26.12 37.52
Intuit Inc. 36.79 31.28 32.85 48.64 37.90
Microsoft Corp. 49.30 41.75 32.31 38.37 33.99
Oracle Corp. 31.24 35.83 31.60 16.36 14.99
Palantir Technologies Inc. 251.61 69.13 82.97 66.45
Palo Alto Networks Inc. 34.69 28.15 29.30 32.74 26.50
Salesforce Inc. 29.95 28.41 35.97 44.91 39.63
ServiceNow Inc. 60.21 56.55 40.86 60.13 83.74
Synopsys Inc. 56.23 55.87 30.82 38.59 42.88
Workday Inc. 32.57 33.40 45.74 57.52 72.44
EV/FCFF, Sector
Software & Services 41.40 35.81 29.81 32.52 28.14
EV/FCFF, Industry
Information Technology 40.41 34.37 26.67 27.51 23.95

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 See details »

2 See details »

3 2024 Calculation
EV/FCFF = EV ÷ FCFF
= 279,256 ÷ 13,889 = 20.11

4 Click competitor name to see calculations.


Enterprise Value (EV)
The enterprise value displayed a consistent upward trajectory over the analyzed period. It started at approximately $155.3 billion at the end of 2020 and remained relatively flat into 2021 before gradually increasing to about $159.5 billion in 2022. A more pronounced growth occurred in the subsequent years, reaching approximately $212.0 billion in 2023 and culminating at $279.3 billion by the end of 2024. This reflects a substantial increase, particularly in the last two years, indicating a growing market valuation or increased debt and equity financing.
Free Cash Flow to the Firm (FCFF)
Free cash flow exhibited a declining trend initially, dropping from $16.6 billion in 2020 to $11.9 billion in 2021 and further to $9.7 billion in 2022. However, there was a rebound in 2023, with FCFF rising to $13.9 billion and then stabilizing around the same level at the end of 2024. This pattern suggests an initial reduction in the firm's cash-generating capability, followed by partial recovery and stabilization in later years.
EV to FCFF Ratio
The EV/FCFF ratio increased steadily over the entire period, starting from a ratio of 9.35 in 2020 and rising to 13.1 in 2021, then sharply increasing to 16.47 in 2022. Although a slight decline to 15.27 occurred in 2023, the ratio surged again to 20.11 in 2024. The upward trend of this ratio indicates that the enterprise value is growing faster than the free cash flow, implying higher valuation multiples and potentially higher market expectations or reduced cash flow generation relative to the firm's value.
Overall Interpretation
The data reveals growing market valuation as reflected in increasing enterprise value, accompanied by a drop and subsequent stabilization in free cash flow. The rising EV/FCFF ratio suggests that the company’s valuation relative to its cash flow has expanded considerably. This might reflect investor optimism, strategic investments increasing perceived value, or pressure on cash flow generation that investors expect will improve in the future. Close attention should be paid to the sustainability of cash flow improvements given the increasing valuation multiples.