Intrinsic value of International Business Machines - IBM

Previous Close

$145.34

  Intrinsic Value

$149.81

stock screener

  Rating & Target

hold

+3%

Previous close

$145.34

 
Intrinsic value

$149.81

 
Up/down potential

+3%

 
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

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 135.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  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
  80,722
  82,578
  84,701
  87,083
  89,723
  92,620
  95,774
  99,189
  102,867
  106,815
  111,039
  115,545
  120,344
  125,443
  130,854
  136,589
  142,659
  149,078
  155,861
  163,022
  170,579
  178,548
  186,947
  195,798
  205,119
  214,933
  225,263
  236,134
  247,569
  259,598
Variable operating expenses, $m
  67,564
  69,025
  70,694
  72,569
  74,646
  76,925
  79,407
  82,093
  84,988
  88,094
  87,364
  90,909
  94,685
  98,697
  102,954
  107,466
  112,242
  117,293
  122,629
  128,264
  134,209
  140,479
  147,088
  154,051
  161,385
  169,107
  177,234
  185,787
  194,784
  204,248
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
  67,564
  69,025
  70,694
  72,569
  74,646
  76,925
  79,407
  82,093
  84,988
  88,094
  87,364
  90,909
  94,685
  98,697
  102,954
  107,466
  112,242
  117,293
  122,629
  128,264
  134,209
  140,479
  147,088
  154,051
  161,385
  169,107
  177,234
  185,787
  194,784
  204,248
Operating income, $m
  13,158
  13,554
  14,006
  14,514
  15,077
  15,695
  16,367
  17,095
  17,880
  18,721
  23,675
  24,636
  25,659
  26,746
  27,900
  29,123
  30,417
  31,785
  33,232
  34,759
  36,370
  38,069
  39,860
  41,747
  43,734
  45,827
  48,029
  50,347
  52,785
  55,350
EBITDA, $m
  22,482
  22,999
  23,590
  24,254
  24,989
  25,796
  26,674
  27,625
  28,650
  29,750
  30,926
  32,181
  33,517
  34,938
  36,445
  38,042
  39,732
  41,520
  43,409
  45,404
  47,508
  49,728
  52,067
  54,532
  57,128
  59,862
  62,739
  65,766
  68,951
  72,302
Interest expense (income), $m
  1,158
  2,528
  2,650
  2,787
  2,943
  3,118
  3,313
  3,526
  3,758
  4,009
  4,280
  4,571
  4,882
  5,213
  5,566
  5,942
  6,340
  6,762
  7,209
  7,681
  8,180
  8,707
  9,263
  9,850
  10,468
  11,120
  11,806
  12,528
  13,288
  14,088
  14,930
Earnings before tax, $m
  10,629
  10,904
  11,219
  11,571
  11,959
  12,382
  12,841
  13,337
  13,870
  14,441
  19,104
  19,754
  20,446
  21,180
  21,958
  22,783
  23,655
  24,577
  25,551
  26,578
  27,662
  28,805
  30,010
  31,279
  32,615
  34,021
  35,501
  37,059
  38,697
  40,420
Tax expense, $m
  2,870
  2,944
  3,029
  3,124
  3,229
  3,343
  3,467
  3,601
  3,745
  3,899
  5,158
  5,334
  5,520
  5,719
  5,929
  6,151
  6,387
  6,636
  6,899
  7,176
  7,469
  7,777
  8,103
  8,445
  8,806
  9,186
  9,585
  10,006
  10,448
  10,913
Net income, $m
  7,760
  7,960
  8,190
  8,447
  8,730
  9,039
  9,374
  9,736
  10,125
  10,542
  13,946
  14,421
  14,925
  15,461
  16,030
  16,631
  17,268
  17,941
  18,652
  19,402
  20,193
  21,028
  21,907
  22,833
  23,809
  24,835
  25,916
  27,053
  28,249
  29,507

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  127,927
  130,869
  134,232
  138,008
  142,192
  146,783
  151,782
  157,193
  163,023
  169,279
  175,973
  183,115
  190,719
  198,800
  207,376
  216,464
  226,084
  236,257
  247,006
  258,355
  270,331
  282,960
  296,272
  310,298
  325,070
  340,623
  356,994
  374,221
  392,345
  411,407
Adjusted assets (=assets-cash), $m
  127,927
  130,869
  134,232
  138,008
  142,192
  146,783
  151,782
  157,193
  163,023
  169,279
  175,973
  183,115
  190,719
  198,800
  207,376
  216,464
  226,084
  236,257
  247,006
  258,355
  270,331
  282,960
  296,272
  310,298
  325,070
  340,623
  356,994
  374,221
  392,345
  411,407
Revenue / Adjusted assets
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
Average production assets, $m
  52,711
  53,924
  55,310
  56,865
  58,589
  60,481
  62,541
  64,770
  67,172
  69,750
  72,508
  75,451
  78,584
  81,914
  85,448
  89,192
  93,156
  97,348
  101,777
  106,453
  111,388
  116,592
  122,077
  127,856
  133,943
  140,351
  147,097
  154,195
  161,663
  169,518
Working capital, $m
  -5,005
  -5,120
  -5,251
  -5,399
  -5,563
  -5,742
  -5,938
  -6,150
  -6,378
  -6,623
  -6,884
  -7,164
  -7,461
  -7,777
  -8,113
  -8,468
  -8,845
  -9,243
  -9,663
  -10,107
  -10,576
  -11,070
  -11,591
  -12,139
  -12,717
  -13,326
  -13,966
  -14,640
  -15,349
  -16,095
Total debt, $m
  49,079
  51,609
  54,502
  57,749
  61,347
  65,295
  69,595
  74,248
  79,262
  84,642
  90,398
  96,540
  103,080
  110,030
  117,405
  125,221
  133,494
  142,243
  151,487
  161,247
  171,546
  182,407
  193,856
  205,918
  218,622
  231,998
  246,077
  260,892
  276,478
  292,872
Total liabilities, $m
  110,017
  112,547
  115,440
  118,687
  122,285
  126,233
  130,533
  135,186
  140,200
  145,580
  151,336
  157,478
  164,018
  170,968
  178,343
  186,159
  194,432
  203,181
  212,425
  222,185
  232,484
  243,345
  254,794
  266,856
  279,560
  292,936
  307,015
  321,830
  337,416
  353,810
Total equity, $m
  17,910
  18,322
  18,793
  19,321
  19,907
  20,550
  21,249
  22,007
  22,823
  23,699
  24,636
  25,636
  26,701
  27,832
  29,033
  30,305
  31,652
  33,076
  34,581
  36,170
  37,846
  39,614
  41,478
  43,442
  45,510
  47,687
  49,979
  52,391
  54,928
  57,597
Total liabilities and equity, $m
  127,927
  130,869
  134,233
  138,008
  142,192
  146,783
  151,782
  157,193
  163,023
  169,279
  175,972
  183,114
  190,719
  198,800
  207,376
  216,464
  226,084
  236,257
  247,006
  258,355
  270,330
  282,959
  296,272
  310,298
  325,070
  340,623
  356,994
  374,221
  392,344
  411,407
Debt-to-equity ratio
  2.740
  2.820
  2.900
  2.990
  3.080
  3.180
  3.280
  3.370
  3.470
  3.570
  3.670
  3.770
  3.860
  3.950
  4.040
  4.130
  4.220
  4.300
  4.380
  4.460
  4.530
  4.600
  4.670
  4.740
  4.800
  4.860
  4.920
  4.980
  5.030
  5.080
Adjusted equity ratio
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7,760
  7,960
  8,190
  8,447
  8,730
  9,039
  9,374
  9,736
  10,125
  10,542
  13,946
  14,421
  14,925
  15,461
  16,030
  16,631
  17,268
  17,941
  18,652
  19,402
  20,193
  21,028
  21,907
  22,833
  23,809
  24,835
  25,916
  27,053
  28,249
  29,507
Depreciation, amort., depletion, $m
  9,324
  9,445
  9,584
  9,740
  9,912
  10,101
  10,307
  10,530
  10,770
  11,028
  7,251
  7,545
  7,858
  8,191
  8,545
  8,919
  9,316
  9,735
  10,178
  10,645
  11,139
  11,659
  12,208
  12,786
  13,394
  14,035
  14,710
  15,420
  16,166
  16,952
Funds from operations, $m
  17,084
  17,405
  17,774
  18,187
  18,642
  19,140
  19,681
  20,266
  20,896
  21,570
  21,197
  21,966
  22,784
  23,653
  24,574
  25,551
  26,584
  27,676
  28,830
  30,047
  31,332
  32,687
  34,115
  35,619
  37,203
  38,871
  40,626
  42,472
  44,415
  46,458
Change in working capital, $m
  -98
  -115
  -132
  -148
  -164
  -180
  -196
  -212
  -228
  -245
  -262
  -279
  -297
  -316
  -335
  -356
  -376
  -398
  -421
  -444
  -469
  -494
  -521
  -549
  -578
  -608
  -640
  -674
  -709
  -746
Cash from operations, $m
  17,182
  17,520
  17,906
  18,334
  18,806
  19,320
  19,877
  20,478
  21,124
  21,815
  21,459
  22,245
  23,081
  23,969
  24,910
  25,906
  26,960
  28,074
  29,250
  30,491
  31,801
  33,181
  34,636
  36,168
  37,781
  39,479
  41,266
  43,146
  45,124
  47,204
Maintenance CAPEX, $m
  -5,168
  -5,271
  -5,392
  -5,531
  -5,687
  -5,859
  -6,048
  -6,254
  -6,477
  -6,717
  -6,975
  -7,251
  -7,545
  -7,858
  -8,191
  -8,545
  -8,919
  -9,316
  -9,735
  -10,178
  -10,645
  -11,139
  -11,659
  -12,208
  -12,786
  -13,394
  -14,035
  -14,710
  -15,420
  -16,166
New CAPEX, $m
  -1,030
  -1,212
  -1,386
  -1,556
  -1,724
  -1,892
  -2,060
  -2,230
  -2,402
  -2,578
  -2,758
  -2,943
  -3,133
  -3,330
  -3,534
  -3,745
  -3,964
  -4,192
  -4,429
  -4,676
  -4,934
  -5,204
  -5,485
  -5,779
  -6,087
  -6,409
  -6,746
  -7,098
  -7,468
  -7,855
Cash from investing activities, $m
  -6,198
  -6,483
  -6,778
  -7,087
  -7,411
  -7,751
  -8,108
  -8,484
  -8,879
  -9,295
  -9,733
  -10,194
  -10,678
  -11,188
  -11,725
  -12,290
  -12,883
  -13,508
  -14,164
  -14,854
  -15,579
  -16,343
  -17,144
  -17,987
  -18,873
  -19,803
  -20,781
  -21,808
  -22,888
  -24,021
Free cash flow, $m
  10,984
  11,037
  11,128
  11,247
  11,395
  11,569
  11,769
  11,994
  12,245
  12,520
  11,726
  12,052
  12,403
  12,780
  13,185
  13,617
  14,077
  14,566
  15,086
  15,637
  16,221
  16,839
  17,491
  18,181
  18,908
  19,676
  20,485
  21,338
  22,237
  23,183
Issuance/(repayment) of debt, $m
  2,255
  2,530
  2,892
  3,247
  3,598
  3,948
  4,299
  4,654
  5,014
  5,380
  5,756
  6,142
  6,540
  6,950
  7,375
  7,816
  8,273
  8,749
  9,244
  9,760
  10,299
  10,861
  11,448
  12,062
  12,704
  13,376
  14,079
  14,815
  15,586
  16,394
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  2,255
  2,530
  2,892
  3,247
  3,598
  3,948
  4,299
  4,654
  5,014
  5,380
  5,756
  6,142
  6,540
  6,950
  7,375
  7,816
  8,273
  8,749
  9,244
  9,760
  10,299
  10,861
  11,448
  12,062
  12,704
  13,376
  14,079
  14,815
  15,586
  16,394
Total cash flow (excl. dividends), $m
  13,239
  13,567
  14,020
  14,495
  14,993
  15,517
  16,068
  16,648
  17,258
  17,900
  17,482
  18,194
  18,943
  19,731
  20,560
  21,432
  22,350
  23,315
  24,330
  25,398
  26,520
  27,700
  28,940
  30,243
  31,613
  33,052
  34,564
  36,154
  37,823
  39,577
Retained Cash Flow (-), $m
  -316
  -412
  -471
  -529
  -586
  -643
  -700
  -758
  -816
  -876
  -937
  -1,000
  -1,065
  -1,131
  -1,201
  -1,272
  -1,347
  -1,424
  -1,505
  -1,589
  -1,677
  -1,768
  -1,864
  -1,964
  -2,068
  -2,177
  -2,292
  -2,412
  -2,537
  -2,669
Prev. year cash balance distribution, $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 flow adjustment, $m
  554
  565
  578
  593
  610
  628
  648
  670
  694
  720
  748
  777
  809
  842
  878
  916
  956
  999
  1,044
  1,091
  1,141
  1,194
  1,250
  1,309
  1,371
  1,436
  1,505
  1,577
  1,653
  1,733
Cash available for distribution, $m
  12,923
  13,155
  13,549
  13,966
  14,407
  14,874
  15,368
  15,890
  16,442
  17,024
  16,545
  17,194
  17,878
  18,599
  19,359
  20,160
  21,003
  21,891
  22,826
  23,809
  24,843
  25,932
  27,076
  28,279
  29,545
  30,875
  32,273
  33,742
  35,286
  36,908
Discount rate, %
  5.80
  6.09
  6.39
  6.71
  7.05
  7.40
  7.77
  8.16
  8.57
  9.00
  9.45
  9.92
  10.42
  10.94
  11.48
  12.06
  12.66
  13.29
  13.96
  14.66
  15.39
  16.16
  16.97
  17.81
  18.71
  19.64
  20.62
  21.65
  22.74
  23.87
PV of cash for distribution, $m
  12,215
  11,688
  11,250
  10,769
  10,248
  9,691
  9,101
  8,483
  7,845
  7,193
  6,129
  5,527
  4,931
  4,349
  3,791
  3,262
  2,768
  2,315
  1,907
  1,544
  1,230
  961
  736
  553
  406
  292
  204
  140
  93
  60
Current shareholders' claim on cash, %
  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 11.6
Price to Sales 1.7
Price to Book 7.5
Price to Tangible Book
Price to Cash Flow 8.1
Price to Free Cash Flow 10.7
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 $79139 million for the last fiscal year's total revenue generated by International Business Machines. The default revenue input number comes from 2017 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 5.8%, 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 83.8%.

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 5.4% 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 0.7%.

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 65.3%.

Life of production assets of 10 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 -6.2%. 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 - $17594 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 933 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 $135.6 billion.

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