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IBM's Balance Sheet And Strategy Are Colliding


  • IBM has issued a moderate amount of new debt in the past few years.
  • But waning operating profits and higher financing costs mean that IBM is spending much more of its operating income on debt.
  • This could be a problem going forward for a couple of reasons.

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IBM’s (NYSE:IBM) cash generation has always been outstanding. In fact, despite what has become years of struggles to get back on track, one thing that has remained terrific is its ability to generate very high FCF margins. But it also likes to do acquisitions, pay a high dividend and especially, buy back stock. These things all take cash and that means that sometimes, IBM has to supplement what it produces with debt. Debt can be a good thing when used properly but it can also destroy a company’s ability to grow earnings if misused. In this article, we’ll take a look at IBM and see which category it falls into.

I’ll be using data from Seeking Alpha for this exercise.

Let’s begin by having a look at IBM’s short term and long term debt as well as the interest expense associated with it.

IBM’s debt hasn’t moved around all that much in the past few years but it is undoubtedly higher than it was in 2012. Total debt was about $33B in that year and now, it is about $43B. That’s certainly a lot of money but as I said, IBM has maintained some level of profitability and FCF generation despite some tough years so financing costs should have remained fairly low in a relative sense; more on that in a bit.

Apart from the total rising, IBM has also come to rely upon long term debt more so than the short term variety. It still has several billion dollars of ST debt so it certainly hasn’t stopped using that, but LT debt is where all the growth in the total came from. Given the rock bottom interest rates we’ve seen for the past several years, IBM is certainly not alone in striking while the iron is hot and issuing LT debt at

This article was written by

Josh Arnold profile picture
Leader of Timely Trader
Maximize your gains through live trading with alerts ahead of market trends

I've been covering financial markets for ten years, using a combination of technical and fundamental analysis to identify potential winners (and losers) early, particularly when it comes to growth stocks.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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