Intrinsic value of Salesforce.com - CRM

Previous Close

$97.15

  Intrinsic Value

$92.53

stock screener

  Rating & Target

hold

-5%

  Value-price divergence*

-32%

Previous close

$97.15

 
Intrinsic value

$92.53

 
Up/down potential

-5%

 
Rating

hold

 
Value-price divergence*

-32%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CRM 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 69.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  25.87
  25.80
  23.72
  21.85
  20.16
  18.65
  17.28
  16.05
  14.95
  13.95
  13.06
  12.25
  11.53
  10.87
  10.29
  9.76
  9.28
  8.85
  8.47
  8.12
  7.81
  7.53
  7.28
  7.05
  6.84
  6.66
  6.49
  6.34
  6.21
  6.09
  5.98
Revenue, $m
  8,392
  10,557
  13,061
  15,915
  19,124
  22,690
  26,611
  30,883
  35,500
  40,454
  45,736
  51,340
  57,258
  63,485
  70,015
  76,848
  83,981
  91,417
  99,159
  107,213
  115,586
  124,288
  133,331
  142,728
  152,496
  162,651
  173,212
  184,201
  195,639
  207,550
  219,961
Variable operating expenses, $m
 
  10,190
  12,435
  14,993
  17,870
  21,067
  24,582
  28,412
  32,550
  36,991
  41,726
  46,023
  51,328
  56,910
  62,765
  68,889
  75,284
  81,950
  88,890
  96,110
  103,616
  111,417
  119,523
  127,948
  136,704
  145,807
  155,275
  165,125
  175,379
  186,057
  197,182
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
  8,330
  10,190
  12,435
  14,993
  17,870
  21,067
  24,582
  28,412
  32,550
  36,991
  41,726
  46,023
  51,328
  56,910
  62,765
  68,889
  75,284
  81,950
  88,890
  96,110
  103,616
  111,417
  119,523
  127,948
  136,704
  145,807
  155,275
  165,125
  175,379
  186,057
  197,182
Operating income, $m
  62
  367
  626
  922
  1,254
  1,623
  2,029
  2,472
  2,950
  3,463
  4,010
  5,317
  5,930
  6,574
  7,251
  7,958
  8,697
  9,467
  10,269
  11,103
  11,970
  12,871
  13,808
  14,781
  15,792
  16,844
  17,938
  19,076
  20,260
  21,494
  22,779
EBITDA, $m
  694
  1,355
  1,677
  2,043
  2,455
  2,913
  3,416
  3,964
  4,557
  5,193
  5,871
  6,590
  7,350
  8,149
  8,988
  9,865
  10,780
  11,735
  12,729
  13,763
  14,837
  15,955
  17,115
  18,322
  19,576
  20,879
  22,235
  23,645
  25,114
  26,643
  28,236
Interest expense (income), $m
  55
  94
  185
  290
  410
  545
  695
  859
  1,039
  1,232
  1,440
  1,662
  1,897
  2,146
  2,407
  2,682
  2,968
  3,268
  3,580
  3,905
  4,243
  4,595
  4,960
  5,340
  5,735
  6,145
  6,571
  7,015
  7,476
  7,956
  8,456
Earnings before tax, $m
  25
  273
  441
  631
  844
  1,079
  1,335
  1,613
  1,911
  2,230
  2,570
  3,654
  4,032
  4,428
  4,843
  5,277
  5,728
  6,199
  6,689
  7,198
  7,726
  8,276
  8,847
  9,441
  10,058
  10,699
  11,366
  12,061
  12,784
  13,537
  14,323
Tax expense, $m
  -155
  74
  119
  170
  228
  291
  360
  435
  516
  602
  694
  987
  1,089
  1,196
  1,308
  1,425
  1,547
  1,674
  1,806
  1,943
  2,086
  2,235
  2,389
  2,549
  2,716
  2,889
  3,069
  3,256
  3,452
  3,655
  3,867
Net income, $m
  180
  199
  322
  461
  616
  787
  974
  1,177
  1,395
  1,628
  1,876
  2,668
  2,943
  3,233
  3,536
  3,852
  4,182
  4,525
  4,883
  5,254
  5,640
  6,042
  6,458
  6,892
  7,342
  7,810
  8,298
  8,805
  9,332
  9,882
  10,455

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,209
  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
  17,585
  19,335
  23,922
  29,148
  35,025
  41,557
  48,738
  56,563
  65,018
  74,091
  83,766
  94,029
  104,868
  116,272
  128,233
  140,747
  153,811
  167,430
  181,610
  196,360
  211,695
  227,633
  244,196
  261,407
  279,297
  297,896
  317,239
  337,364
  358,313
  380,129
  402,859
Adjusted assets (=assets-cash), $m
  15,376
  19,335
  23,922
  29,148
  35,025
  41,557
  48,738
  56,563
  65,018
  74,091
  83,766
  94,029
  104,868
  116,272
  128,233
  140,747
  153,811
  167,430
  181,610
  196,360
  211,695
  227,633
  244,196
  261,407
  279,297
  297,896
  317,239
  337,364
  358,313
  380,129
  402,859
Revenue / Adjusted assets
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
Average production assets, $m
  2,726
  3,431
  4,245
  5,172
  6,215
  7,374
  8,649
  10,037
  11,537
  13,147
  14,864
  16,685
  18,609
  20,632
  22,755
  24,975
  27,294
  29,710
  32,227
  34,844
  37,565
  40,394
  43,333
  46,387
  49,561
  52,862
  56,294
  59,865
  63,583
  67,454
  71,487
Working capital, $m
  -1,298
  -4,392
  -5,433
  -6,621
  -7,956
  -9,439
  -11,070
  -12,847
  -14,768
  -16,829
  -19,026
  -21,357
  -23,819
  -26,410
  -29,126
  -31,969
  -34,936
  -38,029
  -41,250
  -44,600
  -48,084
  -51,704
  -55,466
  -59,375
  -63,438
  -67,663
  -72,056
  -76,627
  -81,386
  -86,341
  -91,504
Total debt, $m
  2,710
  5,290
  8,294
  11,717
  15,567
  19,845
  24,549
  29,674
  35,212
  41,154
  47,492
  54,214
  61,314
  68,783
  76,618
  84,814
  93,371
  102,292
  111,579
  121,241
  131,285
  141,725
  152,573
  163,847
  175,564
  187,747
  200,416
  213,598
  227,320
  241,609
  256,498
Total liabilities, $m
  10,085
  12,665
  15,669
  19,092
  22,942
  27,220
  31,924
  37,049
  42,587
  48,529
  54,867
  61,589
  68,689
  76,158
  83,993
  92,189
  100,746
  109,667
  118,954
  128,616
  138,660
  149,100
  159,948
  171,222
  182,939
  195,122
  207,791
  220,973
  234,695
  248,984
  263,873
Total equity, $m
  7,500
  6,671
  8,253
  10,056
  12,084
  14,337
  16,815
  19,514
  22,431
  25,561
  28,899
  32,440
  36,180
  40,114
  44,240
  48,558
  53,065
  57,763
  62,655
  67,744
  73,035
  78,533
  84,248
  90,186
  96,357
  102,774
  109,447
  116,391
  123,618
  131,144
  138,986
Total liabilities and equity, $m
  17,585
  19,336
  23,922
  29,148
  35,026
  41,557
  48,739
  56,563
  65,018
  74,090
  83,766
  94,029
  104,869
  116,272
  128,233
  140,747
  153,811
  167,430
  181,609
  196,360
  211,695
  227,633
  244,196
  261,408
  279,296
  297,896
  317,238
  337,364
  358,313
  380,128
  402,859
Debt-to-equity ratio
  0.361
  0.790
  1.000
  1.170
  1.290
  1.380
  1.460
  1.520
  1.570
  1.610
  1.640
  1.670
  1.690
  1.710
  1.730
  1.750
  1.760
  1.770
  1.780
  1.790
  1.800
  1.800
  1.810
  1.820
  1.820
  1.830
  1.830
  1.840
  1.840
  1.840
  1.850
Adjusted equity ratio
  0.344
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  180
  199
  322
  461
  616
  787
  974
  1,177
  1,395
  1,628
  1,876
  2,668
  2,943
  3,233
  3,536
  3,852
  4,182
  4,525
  4,883
  5,254
  5,640
  6,042
  6,458
  6,892
  7,342
  7,810
  8,298
  8,805
  9,332
  9,882
  10,455
Depreciation, amort., depletion, $m
  632
  988
  1,050
  1,121
  1,201
  1,289
  1,387
  1,493
  1,607
  1,730
  1,861
  1,274
  1,421
  1,575
  1,737
  1,907
  2,083
  2,268
  2,460
  2,660
  2,868
  3,083
  3,308
  3,541
  3,783
  4,035
  4,297
  4,570
  4,854
  5,149
  5,457
Funds from operations, $m
  2,304
  1,187
  1,372
  1,582
  1,817
  2,077
  2,361
  2,670
  3,002
  3,358
  3,737
  3,941
  4,364
  4,808
  5,273
  5,758
  6,265
  6,793
  7,343
  7,914
  8,508
  9,125
  9,766
  10,433
  11,125
  11,846
  12,595
  13,374
  14,186
  15,031
  15,913
Change in working capital, $m
  142
  -901
  -1,042
  -1,187
  -1,335
  -1,483
  -1,631
  -1,777
  -1,921
  -2,061
  -2,198
  -2,331
  -2,462
  -2,590
  -2,717
  -2,842
  -2,967
  -3,093
  -3,221
  -3,350
  -3,483
  -3,620
  -3,762
  -3,909
  -4,063
  -4,224
  -4,394
  -4,571
  -4,758
  -4,955
  -5,163
Cash from operations, $m
  2,162
  2,088
  2,414
  2,769
  3,152
  3,560
  3,992
  4,447
  4,923
  5,419
  5,934
  6,273
  6,826
  7,398
  7,989
  8,601
  9,233
  9,887
  10,563
  11,264
  11,991
  12,745
  13,528
  14,342
  15,189
  16,070
  16,988
  17,946
  18,944
  19,987
  21,075
Maintenance CAPEX, $m
  0
  -208
  -262
  -324
  -395
  -474
  -563
  -660
  -766
  -881
  -1,004
  -1,135
  -1,274
  -1,421
  -1,575
  -1,737
  -1,907
  -2,083
  -2,268
  -2,460
  -2,660
  -2,868
  -3,083
  -3,308
  -3,541
  -3,783
  -4,035
  -4,297
  -4,570
  -4,854
  -5,149
New CAPEX, $m
  -464
  -706
  -814
  -927
  -1,043
  -1,159
  -1,274
  -1,388
  -1,500
  -1,610
  -1,717
  -1,821
  -1,923
  -2,024
  -2,122
  -2,221
  -2,318
  -2,417
  -2,516
  -2,617
  -2,721
  -2,828
  -2,939
  -3,054
  -3,174
  -3,300
  -3,432
  -3,571
  -3,717
  -3,871
  -4,034
Cash from investing activities, $m
  -2,684
  -914
  -1,076
  -1,251
  -1,438
  -1,633
  -1,837
  -2,048
  -2,266
  -2,491
  -2,721
  -2,956
  -3,197
  -3,445
  -3,697
  -3,958
  -4,225
  -4,500
  -4,784
  -5,077
  -5,381
  -5,696
  -6,022
  -6,362
  -6,715
  -7,083
  -7,467
  -7,868
  -8,287
  -8,725
  -9,183
Free cash flow, $m
  -522
  1,174
  1,338
  1,518
  1,714
  1,927
  2,155
  2,398
  2,656
  2,928
  3,214
  3,317
  3,629
  3,954
  4,292
  4,643
  5,008
  5,386
  5,779
  6,187
  6,610
  7,049
  7,506
  7,980
  8,473
  8,986
  9,521
  10,077
  10,657
  11,262
  11,893
Issuance/(repayment) of debt, $m
  596
  2,600
  3,004
  3,423
  3,850
  4,278
  4,704
  5,125
  5,538
  5,942
  6,337
  6,723
  7,100
  7,470
  7,834
  8,196
  8,557
  8,920
  9,288
  9,661
  10,045
  10,439
  10,848
  11,274
  11,718
  12,182
  12,670
  13,182
  13,721
  14,290
  14,889
Issuance/(repurchase) of shares, $m
  0
  1,161
  1,260
  1,342
  1,412
  1,466
  1,503
  1,522
  1,522
  1,502
  1,462
  873
  796
  702
  591
  465
  326
  173
  9
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  998
  3,761
  4,264
  4,765
  5,262
  5,744
  6,207
  6,647
  7,060
  7,444
  7,799
  7,596
  7,896
  8,172
  8,425
  8,661
  8,883
  9,093
  9,297
  9,661
  10,045
  10,439
  10,848
  11,274
  11,718
  12,182
  12,670
  13,182
  13,721
  14,290
  14,889
Total cash flow (excl. dividends), $m
  448
  4,935
  5,603
  6,283
  6,975
  7,671
  8,362
  9,046
  9,716
  10,373
  11,013
  10,912
  11,524
  12,125
  12,717
  13,305
  13,891
  14,480
  15,076
  15,848
  16,655
  17,489
  18,354
  19,254
  20,191
  21,169
  22,190
  23,259
  24,378
  25,551
  26,781
Retained Cash Flow (-), $m
  -2,497
  -1,360
  -1,582
  -1,803
  -2,028
  -2,253
  -2,478
  -2,699
  -2,917
  -3,130
  -3,338
  -3,541
  -3,739
  -3,934
  -4,127
  -4,317
  -4,507
  -4,699
  -4,892
  -5,089
  -5,291
  -5,499
  -5,714
  -5,938
  -6,172
  -6,417
  -6,673
  -6,943
  -7,227
  -7,527
  -7,842
Prev. year cash balance distribution, $m
 
  2,189
  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
 
  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 available for distribution, $m
 
  5,764
  4,020
  4,480
  4,948
  5,417
  5,885
  6,346
  6,799
  7,243
  7,675
  7,372
  7,785
  8,191
  8,591
  8,988
  9,384
  9,782
  10,184
  10,759
  11,364
  11,990
  12,640
  13,316
  14,019
  14,752
  15,517
  16,316
  17,151
  18,025
  18,939
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  5,526
  3,681
  3,899
  4,074
  4,199
  4,271
  4,287
  4,250
  4,160
  4,024
  3,501
  3,322
  3,114
  2,884
  2,639
  2,385
  2,128
  1,876
  1,657
  1,444
  1,240
  1,049
  873
  714
  574
  453
  350
  265
  197
  143
Current shareholders' claim on cash, %
  100
  97.7
  95.7
  94.1
  92.7
  91.5
  90.4
  89.5
  88.8
  88.2
  87.6
  87.3
  87.1
  86.9
  86.8
  86.7
  86.6
  86.6
  86.6
  86.6
  86.6
  86.6
  86.6
  86.6
  86.6
  86.6
  86.6
  86.6
  86.6
  86.6
  86.6

Salesforce.com, inc. is a provider of enterprise software, delivered through the cloud, with a focus on customer relationship management (CRM). The Company focuses on cloud, mobile, social, Internet of Things (IoT) and artificial intelligence technologies. The Company's service offerings are configured and integrated with other platforms and enterprise applications. The Company delivers its service offerings via Internet browsers and on mobile devices. Its Customer Success Platform is a portfolio of service offerings providing sales force automation, customer service and support, marketing automation, digital commerce, community management, analytics, application development, IoT integration, collaborative productivity tools and its professional cloud services. Its cloud service offerings include Sales Cloud, Service Cloud, Marketing Cloud, Commerce Cloud, Community Cloud, Analytics Cloud, Salesforce Quip and Salesforce Platform.

FINANCIAL RATIOS  of  Salesforce.com (CRM)

Valuation Ratios
P/E Ratio 381.8
Price to Sales 8.2
Price to Book 9.2
Price to Tangible Book
Price to Cash Flow 31.8
Price to Free Cash Flow 40.5
Growth Rates
Sales Growth Rate 25.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -34.6%
Cap. Spend. - 3 Yr. Gr. Rate 9.2%
Financial Strength
Quick Ratio 110
Current Ratio 0
LT Debt to Equity 35.9%
Total Debt to Equity 36.1%
Interest Coverage 1
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. 0.3%
Return On Total Capital 2.1%
Ret/ On T. Cap. - 3 Yr. Avg. -1%
Return On Equity 2.9%
Return On Equity - 3 Yr. Avg. -1.9%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 73.4%
Gross Margin - 3 Yr. Avg. 74.9%
EBITDA Margin 8.5%
EBITDA Margin - 3 Yr. Avg. 7.6%
Operating Margin 0.7%
Oper. Margin - 3 Yr. Avg. -0.1%
Pre-Tax Margin 0.3%
Pre-Tax Margin - 3 Yr. Avg. -0.9%
Net Profit Margin 2.1%
Net Profit Margin - 3 Yr. Avg. -1.2%
Effective Tax Rate -620%
Eff/ Tax Rate - 3 Yr. Avg. -156.7%
Payout Ratio 0%

CRM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CRM stock intrinsic value calculation we used $8392 million for the last fiscal year's total revenue generated by Salesforce.com. The default revenue input number comes from 2017 income statement of Salesforce.com. 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 CRM stock valuation model: a) initial revenue growth rate of 25.8% 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 4.3%, whose default value for CRM is calculated based on our internal credit rating of Salesforce.com, 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 Salesforce.com.
    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 CRM stock the variable cost ratio is equal to 98.3%.

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 CRM 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 3.5% for Salesforce.com.

Corporate tax rate of 27% is the nominal tax rate for Salesforce.com. 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 CRM stock is equal to 0%.

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 CRM are equal to 32.5%.

Life of production assets of 13.1 years is the average useful life of capital assets used in Salesforce.com 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 CRM is equal to -41.6%. 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 - $7500 million for Salesforce.com - 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 711.796 million for Salesforce.com 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 Salesforce.com at the current share price and the inputted number of shares is $69.2 billion.

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Financial statements of CRM
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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