Intrinsic value of International Business Machines - IBM

Previous Close

$155.52

  Intrinsic Value

$173.04

stock screener

  Rating & Target

hold

+11%

Previous close

$155.52

 
Intrinsic value

$173.04

 
Up/down potential

+11%

 
Rating

hold

We calculate the intrinsic value of IBM stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -2.23
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  79,919
  81,517
  83,392
  85,535
  87,942
  90,608
  93,533
  96,718
  100,167
  103,881
  107,868
  112,133
  116,684
  121,530
  126,679
  132,144
  137,935
  144,065
  150,547
  157,397
  164,629
  172,260
  180,307
  188,790
  197,728
  207,141
  217,052
  227,484
  238,461
  250,010
  262,157
Variable operating expenses, $m
 
  65,549
  66,973
  68,602
  70,430
  72,455
  74,677
  77,097
  79,717
  82,539
  85,568
  85,188
  88,646
  92,327
  96,239
  100,390
  104,790
  109,447
  114,372
  119,575
  125,069
  130,867
  136,980
  143,425
  150,215
  157,366
  164,895
  172,820
  181,160
  189,934
  199,162
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  67,589
  65,549
  66,973
  68,602
  70,430
  72,455
  74,677
  77,097
  79,717
  82,539
  85,568
  85,188
  88,646
  92,327
  96,239
  100,390
  104,790
  109,447
  114,372
  119,575
  125,069
  130,867
  136,980
  143,425
  150,215
  157,366
  164,895
  172,820
  181,160
  189,934
  199,162
Operating income, $m
  12,330
  15,968
  16,419
  16,934
  17,512
  18,153
  18,856
  19,621
  20,450
  21,342
  22,300
  26,945
  28,039
  29,203
  30,440
  31,753
  33,145
  34,618
  36,176
  37,822
  39,559
  41,393
  43,327
  45,365
  47,513
  49,775
  52,156
  54,663
  57,301
  60,076
  62,995
EBITDA, $m
  16,711
  20,942
  21,424
  21,974
  22,592
  23,277
  24,029
  24,847
  25,733
  26,687
  27,711
  28,807
  29,976
  31,221
  32,544
  33,948
  35,436
  37,011
  38,676
  40,436
  42,293
  44,254
  46,321
  48,500
  50,797
  53,215
  55,761
  58,441
  61,261
  64,228
  67,349
Interest expense (income), $m
  1,158
  1,213
  1,276
  1,351
  1,437
  1,534
  1,641
  1,758
  1,886
  2,025
  2,174
  2,334
  2,505
  2,688
  2,882
  3,089
  3,309
  3,541
  3,787
  4,047
  4,323
  4,613
  4,919
  5,242
  5,583
  5,942
  6,320
  6,718
  7,136
  7,577
  8,041
Earnings before tax, $m
  12,330
  14,755
  15,143
  15,583
  16,075
  16,619
  17,215
  17,863
  18,563
  19,318
  20,126
  24,611
  25,533
  26,515
  27,558
  28,664
  29,836
  31,077
  32,388
  33,774
  35,237
  36,780
  38,408
  40,123
  41,930
  43,833
  45,837
  47,945
  50,164
  52,499
  54,954
Tax expense, $m
  449
  3,984
  4,089
  4,207
  4,340
  4,487
  4,648
  4,823
  5,012
  5,216
  5,434
  6,645
  6,894
  7,159
  7,441
  7,739
  8,056
  8,391
  8,745
  9,119
  9,514
  9,931
  10,370
  10,833
  11,321
  11,835
  12,376
  12,945
  13,544
  14,175
  14,838
Net income, $m
  11,872
  10,771
  11,054
  11,375
  11,735
  12,132
  12,567
  13,040
  13,551
  14,102
  14,692
  17,966
  18,639
  19,356
  20,117
  20,925
  21,781
  22,686
  23,644
  24,655
  25,723
  26,850
  28,038
  29,290
  30,609
  31,998
  33,461
  35,000
  36,620
  38,324
  40,116

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8,538
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  117,470
  111,059
  113,613
  116,533
  119,811
  123,444
  127,429
  131,769
  136,467
  141,528
  146,959
  152,770
  158,970
  165,572
  172,588
  180,033
  187,922
  196,274
  205,105
  214,437
  224,290
  234,686
  245,650
  257,207
  269,384
  282,208
  295,711
  309,923
  324,879
  340,612
  357,162
Adjusted assets (=assets-cash), $m
  108,932
  111,059
  113,613
  116,533
  119,811
  123,444
  127,429
  131,769
  136,467
  141,528
  146,959
  152,770
  158,970
  165,572
  172,588
  180,033
  187,922
  196,274
  205,105
  214,437
  224,290
  234,686
  245,650
  257,207
  269,384
  282,208
  295,711
  309,923
  324,879
  340,612
  357,162
Revenue / Adjusted assets
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
  0.734
Average production assets, $m
  14,866
  15,162
  15,511
  15,910
  16,357
  16,853
  17,397
  17,990
  18,631
  19,322
  20,063
  20,857
  21,703
  22,605
  23,562
  24,579
  25,656
  26,796
  28,002
  29,276
  30,621
  32,040
  33,537
  35,115
  36,777
  38,528
  40,372
  42,312
  44,354
  46,502
  48,761
Working capital, $m
  7,613
  6,684
  6,838
  7,014
  7,211
  7,430
  7,670
  7,931
  8,214
  8,518
  8,845
  9,195
  9,568
  9,965
  10,388
  10,836
  11,311
  11,813
  12,345
  12,907
  13,500
  14,125
  14,785
  15,481
  16,214
  16,986
  17,798
  18,654
  19,554
  20,501
  21,497
Total debt, $m
  42,168
  36,456
  38,607
  41,065
  43,825
  46,884
  50,239
  53,893
  57,849
  62,110
  66,684
  71,576
  76,797
  82,355
  88,263
  94,531
  101,175
  108,206
  115,643
  123,500
  131,796
  140,550
  149,782
  159,512
  169,765
  180,563
  191,932
  203,899
  216,492
  229,740
  243,674
Total liabilities, $m
  99,224
  93,512
  95,663
  98,121
  100,881
  103,940
  107,295
  110,949
  114,905
  119,166
  123,740
  128,632
  133,853
  139,411
  145,319
  151,587
  158,231
  165,262
  172,699
  180,556
  188,852
  197,606
  206,838
  216,568
  226,821
  237,619
  248,988
  260,955
  273,548
  286,796
  300,730
Total equity, $m
  18,246
  17,547
  17,951
  18,412
  18,930
  19,504
  20,134
  20,819
  21,562
  22,361
  23,220
  24,138
  25,117
  26,160
  27,269
  28,445
  29,692
  31,011
  32,407
  33,881
  35,438
  37,080
  38,813
  40,639
  42,563
  44,589
  46,722
  48,968
  51,331
  53,817
  56,432
Total liabilities and equity, $m
  117,470
  111,059
  113,614
  116,533
  119,811
  123,444
  127,429
  131,768
  136,467
  141,527
  146,960
  152,770
  158,970
  165,571
  172,588
  180,032
  187,923
  196,273
  205,106
  214,437
  224,290
  234,686
  245,651
  257,207
  269,384
  282,208
  295,710
  309,923
  324,879
  340,613
  357,162
Debt-to-equity ratio
  2.311
  2.080
  2.150
  2.230
  2.320
  2.400
  2.500
  2.590
  2.680
  2.780
  2.870
  2.970
  3.060
  3.150
  3.240
  3.320
  3.410
  3.490
  3.570
  3.650
  3.720
  3.790
  3.860
  3.930
  3.990
  4.050
  4.110
  4.160
  4.220
  4.270
  4.320
Adjusted equity ratio
  0.101
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11,872
  10,771
  11,054
  11,375
  11,735
  12,132
  12,567
  13,040
  13,551
  14,102
  14,692
  17,966
  18,639
  19,356
  20,117
  20,925
  21,781
  22,686
  23,644
  24,655
  25,723
  26,850
  28,038
  29,290
  30,609
  31,998
  33,461
  35,000
  36,620
  38,324
  40,116
Depreciation, amort., depletion, $m
  4,381
  4,974
  5,005
  5,040
  5,080
  5,125
  5,173
  5,226
  5,283
  5,345
  5,411
  1,862
  1,938
  2,018
  2,104
  2,195
  2,291
  2,393
  2,500
  2,614
  2,734
  2,861
  2,994
  3,135
  3,284
  3,440
  3,605
  3,778
  3,960
  4,152
  4,354
Funds from operations, $m
  18,189
  15,745
  16,059
  16,416
  16,815
  17,256
  17,740
  18,266
  18,835
  19,447
  20,104
  19,828
  20,577
  21,374
  22,221
  23,119
  24,071
  25,079
  26,144
  27,269
  28,457
  29,710
  31,032
  32,425
  33,893
  35,438
  37,065
  38,778
  40,580
  42,476
  44,470
Change in working capital, $m
  1,231
  131
  154
  176
  197
  219
  240
  261
  283
  305
  327
  350
  373
  397
  422
  448
  475
  503
  532
  562
  593
  626
  660
  696
  733
  772
  813
  855
  900
  947
  996
Cash from operations, $m
  16,958
  15,614
  15,905
  16,240
  16,618
  17,038
  17,500
  18,005
  18,552
  19,142
  19,777
  19,479
  20,204
  20,977
  21,799
  22,671
  23,596
  24,576
  25,612
  26,707
  27,864
  29,085
  30,372
  31,729
  33,160
  34,666
  36,253
  37,923
  39,680
  41,529
  43,474
Maintenance CAPEX, $m
  0
  -1,327
  -1,354
  -1,385
  -1,420
  -1,460
  -1,505
  -1,553
  -1,606
  -1,663
  -1,725
  -1,791
  -1,862
  -1,938
  -2,018
  -2,104
  -2,195
  -2,291
  -2,393
  -2,500
  -2,614
  -2,734
  -2,861
  -2,994
  -3,135
  -3,284
  -3,440
  -3,605
  -3,778
  -3,960
  -4,152
New CAPEX, $m
  -4,150
  -297
  -349
  -399
  -448
  -496
  -544
  -592
  -641
  -691
  -742
  -793
  -846
  -901
  -958
  -1,016
  -1,077
  -1,140
  -1,206
  -1,274
  -1,345
  -1,419
  -1,497
  -1,578
  -1,662
  -1,751
  -1,843
  -1,940
  -2,042
  -2,148
  -2,259
Cash from investing activities, $m
  -10,976
  -1,624
  -1,703
  -1,784
  -1,868
  -1,956
  -2,049
  -2,145
  -2,247
  -2,354
  -2,467
  -2,584
  -2,708
  -2,839
  -2,976
  -3,120
  -3,272
  -3,431
  -3,599
  -3,774
  -3,959
  -4,153
  -4,358
  -4,572
  -4,797
  -5,035
  -5,283
  -5,545
  -5,820
  -6,108
  -6,411
Free cash flow, $m
  5,982
  13,990
  14,203
  14,456
  14,750
  15,081
  15,451
  15,859
  16,304
  16,788
  17,310
  16,894
  17,495
  18,138
  18,823
  19,551
  20,325
  21,145
  22,014
  22,933
  23,905
  24,931
  26,014
  27,157
  28,362
  29,632
  30,969
  32,378
  33,860
  35,421
  37,063
Issuance/(repayment) of debt, $m
  2,763
  1,801
  2,151
  2,459
  2,760
  3,058
  3,356
  3,654
  3,955
  4,261
  4,573
  4,893
  5,221
  5,559
  5,907
  6,269
  6,643
  7,032
  7,436
  7,857
  8,296
  8,754
  9,232
  9,731
  10,253
  10,798
  11,369
  11,967
  12,593
  13,248
  13,935
Issuance/(repurchase) of shares, $m
  -3,298
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -535
  1,801
  2,151
  2,459
  2,760
  3,058
  3,356
  3,654
  3,955
  4,261
  4,573
  4,893
  5,221
  5,559
  5,907
  6,269
  6,643
  7,032
  7,436
  7,857
  8,296
  8,754
  9,232
  9,731
  10,253
  10,798
  11,369
  11,967
  12,593
  13,248
  13,935
Total cash flow (excl. dividends), $m
  5,396
  15,791
  16,354
  16,915
  17,510
  18,140
  18,807
  19,513
  20,260
  21,049
  21,883
  21,786
  22,716
  23,696
  24,730
  25,820
  26,968
  28,177
  29,450
  30,790
  32,201
  33,685
  35,246
  36,888
  38,615
  40,430
  42,338
  44,344
  46,453
  48,669
  50,997
Retained Cash Flow (-), $m
  -3,984
  -326
  -404
  -461
  -518
  -574
  -630
  -686
  -742
  -800
  -858
  -918
  -980
  -1,043
  -1,109
  -1,176
  -1,247
  -1,320
  -1,395
  -1,474
  -1,557
  -1,643
  -1,732
  -1,826
  -1,924
  -2,026
  -2,133
  -2,246
  -2,363
  -2,486
  -2,615
Prev. year cash balance distribution, $m
 
  1,025
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  16,489
  15,950
  16,454
  16,992
  17,566
  18,177
  18,827
  19,518
  20,250
  21,025
  20,868
  21,736
  22,653
  23,622
  24,643
  25,721
  26,857
  28,055
  29,316
  30,644
  32,042
  33,514
  35,062
  36,691
  38,404
  40,205
  42,099
  44,090
  46,183
  48,382
Discount rate, %
 
  6.40
  6.72
  7.06
  7.41
  7.78
  8.17
  8.58
  9.01
  9.46
  9.93
  10.42
  10.95
  11.49
  12.07
  12.67
  13.31
  13.97
  14.67
  15.40
  16.17
  16.98
  17.83
  18.72
  19.66
  20.64
  21.67
  22.76
  23.89
  25.09
  26.34
PV of cash for distribution, $m
 
  15,498
  14,005
  13,410
  12,767
  12,078
  11,348
  10,584
  9,791
  8,980
  8,159
  7,011
  6,249
  5,507
  4,792
  4,116
  3,486
  2,908
  2,388
  1,928
  1,529
  1,189
  907
  677
  494
  352
  245
  166
  109
  70
  43
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

International Business Machines Corporation (IBM) is a technology company. The Company operates through five segments: Cognitive Solutions, Global Business Services (GBS), Technology Services & Cloud Platforms, Systems and Global Financing. The Cognitive Solutions segment delivers a spectrum of capabilities, from descriptive, predictive and prescriptive analytics to cognitive systems. Cognitive Solutions includes Watson, a cognitive computing platform that has the ability to interact in natural language, process big data, and learn from interactions with people and computers. The GBS segment provides clients with consulting, application management services and global process services. The Technology Services & Cloud Platforms segment provides information technology infrastructure services. The Systems segment provides clients with infrastructure technologies. The Global Financing segment includes client financing, commercial financing, and remanufacturing and remarketing.

FINANCIAL RATIOS  of  International Business Machines (IBM)

Valuation Ratios
P/E Ratio 12.4
Price to Sales 1.8
Price to Book 8.1
Price to Tangible Book
Price to Cash Flow 8.7
Price to Free Cash Flow 11.5
Growth Rates
Sales Growth Rate -2.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 189.9%
Total Debt to Equity 231.1%
Interest Coverage 12
Management Effectiveness
Return On Assets 11.4%
Ret/ On Assets - 3 Yr. Avg. 11.4%
Return On Total Capital 20.7%
Ret/ On T. Cap. - 3 Yr. Avg. 22.1%
Return On Equity 73%
Return On Equity - 3 Yr. Avg. 81.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 47.9%
Gross Margin - 3 Yr. Avg. 49.2%
EBITDA Margin 22.4%
EBITDA Margin - 3 Yr. Avg. 25.1%
Operating Margin 15.4%
Oper. Margin - 3 Yr. Avg. 18.8%
Pre-Tax Margin 15.4%
Pre-Tax Margin - 3 Yr. Avg. 18.8%
Net Profit Margin 14.9%
Net Profit Margin - 3 Yr. Avg. 14.6%
Effective Tax Rate 3.6%
Eff/ Tax Rate - 3 Yr. Avg. 13.7%
Payout Ratio 44.3%

IBM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IBM stock intrinsic value calculation we used $79919 million for the last fiscal year's total revenue generated by International Business Machines. The default revenue input number comes from 2016 income statement of International Business Machines. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our IBM stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6.4%, whose default value for IBM is calculated based on our internal credit rating of International Business Machines, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of International Business Machines.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of IBM stock the variable cost ratio is equal to 80.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for IBM stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for International Business Machines.

Corporate tax rate of 27% is the nominal tax rate for International Business Machines. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the IBM stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for IBM are equal to 18.6%.

Life of production assets of 11.2 years is the average useful life of capital assets used in International Business Machines operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for IBM is equal to 8.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $18246 million for International Business Machines - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 929.54 million for International Business Machines is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of International Business Machines at the current share price and the inputted number of shares is $144.6 billion.

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Financial statements of IBM
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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