Company DCF analysis file
IBM DCF Analysis
An IBM DCF must align software, consulting, infrastructure and financing with the investor cash boundary. IBM’s reported free cash flow can exceed GAAP operating cash because it excludes a financing-receivable movement. That is a definition change, not another receipt from the same operations.
Revenue, expenses and profit on one annual basis
Historical IBM consolidated comparison, $ millions: FY2024 ended 2024-12-31 and FY2025 ended 2025-12-31. These annual periods are separate from the later interim observation below.
| Measure | FY2024 | FY2025 |
|---|---|---|
| Continuing revenue | 62,753 | 67,535 |
| Cost of revenue: derived as revenue less gross profit | 27,202 | 28,238 |
| Gross profit | 35,551 | 39,297 |
| Selling, general and administrative | 19,688 | 20,123 |
| Research and development | 7,479 | 8,316 |
| IP and custom-development income: income positive | 996 | 964 |
| Other net expense/(income) | 1,871 | -442 |
| Interest expense | 1,712 | 1,935 |
| Continuing income before tax | 5,797 | 10,328 |
| Continuing net income | 6,015 | 10,571 |
| Net income including discontinued operations | 6,023 | 10,593 |
Source: Annual financial statements. Annual values are reported unless a row is marked derived.
These are the issuer’s unaudited release figures. The derived cost-of-revenue line subtracts gross profit from revenue. The 2025 rounded expense components imply pretax income of10,329 versus reported10,328; retain the reported value and $1million rounding difference. Tax benefits and pension-settlement comparatives also affect net income, so it is not an unadjusted operating-margin trend.
Different contract types require different collection schedules
| Reported segment revenue, $ millions | FY2024 | FY2025 |
|---|---|---|
| Software | 27,085 | 29,962 |
| Consulting | 20,692 | 21,055 |
| Infrastructure | 14,020 | 15,718 |
| Financing | 713 | 737 |
| Other | 243 | 63 |
Source: Annual business disclosures and financial notes. Annual values are reported unless a row is marked derived.
The annual segment rows reconcile to group revenue. A subscription renewal, consulting milestone and infrastructure shipment do not have the same cash cycle. Financing receivables are also different from ordinary trade collections; the asset, credit exposure and matched funding belong together in the valuation.
Reconcile reported cash before forecasting investor cash
| Measure | FY2025 |
|---|---|
| GAAP operating cash | 13,193 |
| Financing-receivable cash change: already in GAAP operating cash | -3,159 |
| Net capital expenditure: positive deduction | 1,617 |
| GAAP operating cash less net capex: derived | 11,576 |
| Issuer non-GAAP FCF: financing movement excluded | 14,734 |
Source: Annual cash-flow statement and related notes. Annual values are reported unless a row is marked derived.
Keeping financing cash in the boundary gives 13,193 minus 1,617 = $11,576 million. Removing the negative financing movement first gives 13,193 - (-3,159) - 1,617 = $14,735 million from displayed rounded inputs, versus reported FCF14,734. Preserve the $1million rounding limit; neither figure is cash after every acquisition or distribution.
The later interim period stays separate
| Observation | Period-specific evidence |
|---|---|
| Reported period basis | Q3 2026 covers 2026-07-01 through 2026-09-30 and was released 2026-10-21. Revenue was $17,103 million in this quarter. |
| Interpretation boundary | GAAP operating cash and IBM's non-GAAP free cash flow use different financing-receivable boundaries. Keep the later quarterly/year-to-date figures separate from the annual series and retain the disclosed rounding limits in the older bridge. |
Source: official reporting for the stated period. The dated quarter is not annualized here and is not added to either full-year column. Later reporting must be checked before refreshing the valuation date.
Turn the statements into a DCF operating case
Forecast delivery and collection by contract type, then recurring costs, operating taxes, noncash expense and reinvestment. Decide whether Financing is valued with its matched funding or within a fully reconciled group case. Excluding its cash requirement while ignoring its associated funding claim is incomplete. Keep HashiCorp and the later Confluent acquisition on their actual consolidation and purchase-funding dates; acquired growth is not free terminal expansion.
| Driver | Evidence to carry into the forecast | Downside condition to test |
|---|---|---|
| Software renewal | Paid adoption, recognized service and delivery cost | Contract value is mistaken for collected cash |
| Consulting collection | Milestones, client acceptance and payroll timing | Receipts arrive later while delivery wages remain due |
| Financing and acquisitions | Receivable growth, matched funding and acquired scope | Reported FCF excludes a cash need that the equity case still bears |
Compare slower consulting collections with a separate increase in customer financing at unchanged operating output. Carry acquisition funding and compensation/dilution explicitly. A better adjusted earnings or cash label cannot replace the contract, operating-balance and financing schedules needed to define investor cash.
Use the IBM financial analysis for the broader operating context, the company forecast to state the operating assumptions, and the DCF calculator only after defining the investor cash stream. Keep the statement definitions, reporting dates and your own assumptions visible when comparing valuation cases.
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