Using an unlevered Free Cash Flow to Firm (FCFF) model, we project International Business Machines Corporation's cash flows over 5 years with line-by-line expense modeling. Revenue is projected revenue growing from 5.4% to 2.8% annually, with expenses (COGS, SG&A, R&D) held at historical ratios. Depreciation is computed from a vintage matrix based on a 5-year useful life. Working capital is modeled using historical turnover days (DSO 69, DPO 56, DIO 19). At a 8.3% WACC with mid-year discounting, the terminal value (75% of enterprise value) is derived by applying the industry peer median EV/EBITDA multiple of 13.9x to Year 6 EBITDA. After subtracting net debt, the equity value implies a fair price of $133.31 per share, suggesting IBM is overvalued by 45.0% at the current price of $242.54.
Adjust parameters to explore scenarios. Changes are for exploration only and do not affect saved valuations.
| 2026 | 2027 | 2028 | 2029 | 2030 | Terminal | |
|---|---|---|---|---|---|---|
| Profit Before Tax | 8,356 | 8,739 | 9,192 | 9,460 | 9,727 | 9,971 |
| (−) Net Interest | 1,739 | 1,818 | 1,913 | 1,969 | 2,024 | 2,075 |
| (+) D&A | 1,970 | 1,875 | 1,960 | 2,102 | 2,283 | 2,340 |
| EBITDA | 12,065 | 12,432 | 13,064 | 13,530 | 14,035 | 14,386 |
| (−) Tax | 0 | 0 | 0 | 0 | 0 | — |
| (−) CapEx | 2,291 | 2,396 | 2,520 | 2,593 | 2,667 | — |
| (−) ΔWC | -3,815 | 472 | 558 | 330 | 329 | — |
| Free Cash Flow (FCF) | 13,589 | 9,565 | 9,986 | 10,607 | 11,039 | — |
| Peers' EBITDA Multiple | 13.9x | |||||
| Terminal Value | 200,538 | |||||
| WACC / Discount Rate | 8.32% | |||||
| Timing of FCF (mid year) | 0.5 | 1.5 | 2.5 | 3.5 | 4.5 | 5 |
| Present Value of FCF | 13,057 | 8,485 | 8,178 | 8,020 | 7,706 | 134,499 |
| Enterprise Value | 179,944 | |||||
| Projection Period | 45,445 | 25.3% | ||||
| Terminal Value | 134,499 | 74.7% | ||||
| (−) Current Net Debt | 53,513 | |||||
| Equity Value | 126,431 | |||||
| (÷) Outstanding Shares | 949M | |||||
| Fair Price | $133 | -45.1% | ||||
| WACC \ EV/EBITDA Exit Multiple | 9.9x | 11.9x | 13.9x | 15.9x | 17.9x |
|---|---|---|---|---|---|
| 6.3% | $105 | $127 | $149 | $172 | $194 |
| 7.3% | $98 | $120 | $141 | $162 | $184 |
| 8.3% | $93 | $113 | $133 | $154 | $174 |
| 9.3% | $87 | $107 | $126 | $145 | $165 |
| 10.3% | $82 | $100 | $119 | $138 | $156 |
Current price: $242.54. Green = undervalued, Red = overvalued.
Based on default parameters
This is an unlevered Free Cash Flow to Firm (FCFF) model with a 5-year projection period. Revenue, expenses, D&A, and working capital are projected using the same line-by-line approach as the Growth Exit models. The key difference is the terminal value methodology: instead of assuming perpetual cash flow growth, the terminal value is calculated by applying the industry peer median EV/EBITDA multiple to the projected Year 6 EBITDA.
Using a peer exit multiple anchors the terminal value to how the market currently prices comparable companies, rather than relying on a theoretical perpetual growth assumption. This approach captures relative valuation dynamics and is particularly useful when a company is expected to converge toward industry-average profitability over time. The sensitivity matrix shows how fair value changes across different WACC and EV/EBITDA multiple scenarios.