Last update on 2024-06-05

International Business Machines (IBM) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Discover the 2023 Piotroski F-Score analysis of International Business Machines (IBM) with a final score of 7 out of 9, indicating solid financial health.

Short Analysis - Piotroski Score: 7

We're running International Business Machines (IBM) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is used to evaluate the financial strength of a company based on nine criteria related to profitability, liquidity, and operating efficiency. IBM’s Piotroski F-Score for 2023 is 7. Despite some historical fluctuations in net income, IBM reported a positive net income, worth $7.502 billion, and positive cash flow from operations, amounting to $13.93 billion for 2023. The return on assets (ROA) showed improvement, reaching 0.0572 in 2023. The company's operating cash flow exceeded its net income, which is favorable. However, leverage increased, and IBM issued more shares in 2023, both counting negatively against the score. Despite some challenges, IBM's gross margin and current ratio have improved alongside asset turnover, earning it a Piotroski score of 7 out of 9.

Insights for Value Investors Seeking Stable Income

IBM appears to be a relatively strong investment based on the Piotroski F-Score of 7. This indicates that IBM is financially resilient, with positive profitability and improving liquidity. For potential investors, IBM’s continual ability to generate substantial positive cash flow is encouraging. While increasing leverage and a rise in shares outstanding are points of concern, these factors do not heavily detract from the company's overall positive financial performance. It is worth investigating further into IBM's long-term strategies and specific market conditions. The score of 7 suggests that IBM may be a good candidate for investment research and potential investment.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of International Business Machines (IBM)

Company has a positive net income?

Check if the net income of 7502000000 in 2023 is positive or negative. If the net income is positive, add 1 point; if not, set it to 0.

The net income for IBM in 2023 is $7,502,000,000, which is a positive figure. As per the Piotroski Score criteria, a positive net income results in adding 1 point. Over the last 20 years, IBM's net income has shown fluctuations but generally indicates a downward trend since peaking in 2011 ($15,855,000,000). Despite this recessionary pattern, the net income for 2023 has rebounded positively compared to the substantial dips observed in 2020 ($1,640,000,000) and 2019 ($5,742,000,000). Hence, for 2023, IBM earns 1 point for its positive net income.

Company has a positive cash flow?

Positive Cash Flow from Operations (CFO) indicates a company's ability to generate sufficient cash from its core business activities, demonstrating operational efficiency and financial health.

IBM has consistently demonstrated its ability to generate positive Cash Flow from Operations (CFO). For the year 2023, IBM reported a CFO of $13.93 billion, marking a substantial recovery from the preceding year’s figure of $10.44 billion. This upward trend earns IBM a full point in the Piotroski analysis, reinforcing its operational competence. Over the last 20 years, IBM has consistently reported positive CFO, with a historical peak of $20.77 billion in 2009. This persistent ability to generate cash indicates robust operational management and positions IBM favorably in terms of liquidity and financial stability.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) over a year is a crucial indicator of a company's asset efficiency and profitability.

In 2023, IBM’s ROA increased to 0.0572 from 0.0127 in 2022. This upward trend suggests improved efficiency in utilizing its assets to generate profits. Historically, looking at the past 20 years, IBM’s ROA has seen various fluctuations. For example, IBM's operating cash flow reached its peak at $20.7 billion in 2009 and declined to $13.93 billion by 2023, indicating variability in operational efficiency. The industry median ROA has also varied, maintaining a relatively high level around 0.30 to 0.33 over the years; significantly higher than IBM, showing IBM's struggles to keep up. Hence, the positive trend in 2023 is a good sign, earning IBM one point in the Piotroski analysis for this criterion.

Operating Cashflow are higher than Netincome?

This criterion compares the Operating Cash Flow with the Net Income.

For 2023, IBM's Operating Cash Flow (OCF) is $13.93 billion and its Net Income is $7.50 billion. Operating Cash Flow exceeding Net Income is often seen as a positive sign because it indicates effective cash generation from core business operations, suggesting that the company is able to generate sufficient cash to cover expenses, investments, and potentially dividends. This adds 1 point in Piotroski Analysis. As shown by historical data, it has been a mixed trend for IBM over the past two decades. For instance, in 2018, 2019, and 2020, IBM faced notable declines in OCF compared to previous years. However, in 2023, OCF once again shows a significant positive delta over Net Income, reaffirming a strong position in core operations despite previous challenges. Historically, accruals have shown a volatile pattern but have been relatively lower in recent years, indicating potentially less earnings manipulation, adding more credibility to the higher OCF over Net Income.

Liquidity of International Business Machines (IBM)

Leverage is declining?

Change in leverage measures the ratio of a company's total liabilities to its total equities, providing insights on its reliance on debt.

The leverage ratio for IBM increased from 0.3802 in 2022 to 0.3896 in 2023, reflecting a growing reliance on debt financing. Historically, from 2015 onwards, IBM has seen varying leverage ratios, peaking at 0.381 in 2019 before dropping and subsequently rising again. The consistent use of leverage above 0.3 in recent years indicates an ongoing strategic choice in utilizing debt. This time however, as leverage has increased, IBM will not receive a point for this criterion in Piotroski analysis.

Current Ratio is growing?

Evaluate IBM's change in current ratio and its impact on liquidity.

In 2022, IBM had a current ratio of 0.9242, which increased to 0.9644 in 2023. Although this is a positive trend, we should analyze it in the context of historical and industry numbers. Over the last 20 years, IBM's current ratio has fluctuated significantly, reaching levels above 1.3 during favorable years. Compared to the industry median current ratio of 1.4169 in 2023, IBM's current ratio of 0.9644 is considerably lower. This suggests that while there has been an improvement for IBM, it still has room to enhance its liquidity to match industry standards. Hence, according to the Piotroski criteria, IBM scores 1 point for an increased current ratio in 2023.

Number of shares not diluted?

Shares outstanding represent the number of a company's shares currently held by all its shareholders, including share blocks held by institutional investors and restricted shares.

In 2022, IBM had 902,664,190 shares outstanding, which increased to 911,210,319 shares in 2023. This represents an increase in shares outstanding rather than a decrease, which would generally be perceived negatively from a Piotroski analysis perspective, resulting in 0 points. Historically, IBM has demonstrated a pattern of decreasing shares outstanding from 1,756,090,689 in 2003 to 911,210,319 in 2023. The trend reversed after 2019, indicating a dilution over the recent years. This uptrend may suggest the issuance of new shares potentially for raising capital or fulfilling employee stock options.

Operating of International Business Machines (IBM)

Cross Margin is growing?

The change in gross margin evaluates how efficiently a company generates profit from its revenue and can indicate improvement or decline in operational efficiency.

Between 2022 and 2023, IBM's gross margin increased from 0.54 to 0.5545. This uptick reflects a slight but positive trend, showcasing IBM's improved operational efficiency. Historically, IBM has seen considerable fluctuations in its gross margin. For example, it increased significantly in 2020 but then faced declines. Comparing these figures, IBM maintains an above-industry median gross margin, which was 0.3391 in 2023. Over two decades, IBM’s highest margin was 0.5594 in 2020. Given the context and metrics, the increase in 2023 earns a positive point.

Asset Turnover Ratio is growing?

Asset Turnover measures the efficiency of a company's use of its assets to generate revenue. A higher asset turnover ratio signifies better performance and operational efficiency.

The Asset Turnover for IBM increased slightly from 0.467 in 2022 to 0.4713 in 2023. This is a positive trend, indicating that IBM is making better use of its assets to generate revenue. Reviewing the last 20 years, the company has experienced a declining trend, peaking in 2010 at 0.9302 and reaching its lowest at 0.3581 in 2020. Despite this long-term decline, the recent increase adds a point to the Piotroski score, highlighting a potential improvement in operational efficiency for the year.