Intrinsic value of Salesforce.com - CRM

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$88.62

  Intrinsic Value

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  Value-price divergence*

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$88.62

 
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*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 61.6

 

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
  24.10
  22.19
  20.47
  18.92
  17.53
  16.28
  15.15
  14.14
  13.22
  12.40
  11.66
  10.99
  10.39
  9.85
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
Revenue, $m
  8,392
  8,274
  10,110
  12,179
  14,484
  17,023
  19,794
  22,793
  26,015
  29,455
  33,107
  36,968
  41,032
  45,297
  49,761
  54,423
  59,284
  64,347
  69,614
  75,090
  80,782
  86,697
  92,844
  99,233
  105,874
  112,781
  119,966
  127,445
  135,233
  143,346
  151,803
Variable operating expenses, $m
 
  6,543
  7,909
  9,449
  11,165
  13,055
  15,117
  17,349
  19,747
  22,307
  25,025
  27,513
  30,538
  33,712
  37,035
  40,505
  44,123
  47,890
  51,810
  55,886
  60,122
  64,525
  69,099
  73,854
  78,797
  83,937
  89,285
  94,851
  100,647
  106,686
  112,980
Fixed operating expenses, $m
 
  1,270
  1,302
  1,334
  1,368
  1,402
  1,437
  1,473
  1,510
  1,547
  1,586
  1,626
  1,666
  1,708
  1,751
  1,794
  1,839
  1,885
  1,932
  1,981
  2,030
  2,081
  2,133
  2,186
  2,241
  2,297
  2,354
  2,413
  2,474
  2,535
  2,599
Total operating expenses, $m
  8,330
  7,813
  9,211
  10,783
  12,533
  14,457
  16,554
  18,822
  21,257
  23,854
  26,611
  29,139
  32,204
  35,420
  38,786
  42,299
  45,962
  49,775
  53,742
  57,867
  62,152
  66,606
  71,232
  76,040
  81,038
  86,234
  91,639
  97,264
  103,121
  109,221
  115,579
Operating income, $m
  62
  461
  899
  1,396
  1,952
  2,567
  3,241
  3,972
  4,759
  5,601
  6,496
  7,829
  8,827
  9,877
  10,976
  12,124
  13,323
  14,571
  15,871
  17,223
  18,630
  20,092
  21,612
  23,192
  24,836
  26,546
  28,327
  30,180
  32,112
  34,125
  36,224
EBITDA, $m
  694
  1,081
  1,571
  2,127
  2,748
  3,435
  4,188
  5,004
  5,883
  6,822
  7,822
  8,879
  9,993
  11,163
  12,389
  13,670
  15,007
  16,399
  17,849
  19,357
  20,924
  22,554
  24,249
  26,011
  27,844
  29,750
  31,734
  33,801
  35,953
  38,197
  40,537
Interest expense (income), $m
  55
  71
  136
  211
  295
  389
  492
  604
  726
  857
  997
  1,145
  1,302
  1,467
  1,641
  1,822
  2,012
  2,209
  2,415
  2,629
  2,851
  3,083
  3,323
  3,573
  3,832
  4,102
  4,383
  4,675
  4,979
  5,295
  5,625
Earnings before tax, $m
  25
  390
  762
  1,185
  1,657
  2,178
  2,749
  3,367
  4,032
  4,743
  5,499
  6,683
  7,525
  8,409
  9,335
  10,302
  11,311
  12,362
  13,456
  14,595
  15,778
  17,009
  18,289
  19,619
  21,004
  22,444
  23,944
  25,506
  27,133
  28,830
  30,600
Tax expense, $m
  -155
  105
  206
  320
  447
  588
  742
  909
  1,089
  1,281
  1,485
  1,804
  2,032
  2,270
  2,520
  2,782
  3,054
  3,338
  3,633
  3,941
  4,260
  4,592
  4,938
  5,297
  5,671
  6,060
  6,465
  6,887
  7,326
  7,784
  8,262
Net income, $m
  180
  285
  557
  865
  1,209
  1,590
  2,007
  2,458
  2,944
  3,463
  4,014
  4,879
  5,493
  6,139
  6,814
  7,520
  8,257
  9,024
  9,823
  10,654
  11,518
  12,417
  13,351
  14,322
  15,333
  16,384
  17,479
  18,619
  19,807
  21,046
  22,338

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
  14,167
  17,311
  20,855
  24,801
  29,149
  33,895
  39,030
  44,547
  50,437
  56,691
  63,301
  70,260
  77,563
  85,207
  93,190
  101,514
  110,183
  119,202
  128,579
  138,326
  148,454
  158,979
  169,919
  181,291
  193,118
  205,421
  218,228
  231,563
  245,456
  259,937
Adjusted assets (=assets-cash), $m
  15,376
  14,167
  17,311
  20,855
  24,801
  29,149
  33,895
  39,030
  44,547
  50,437
  56,691
  63,301
  70,260
  77,563
  85,207
  93,190
  101,514
  110,183
  119,202
  128,579
  138,326
  148,454
  158,979
  169,919
  181,291
  193,118
  205,421
  218,228
  231,563
  245,456
  259,937
Revenue / Adjusted assets
  0.546
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
  0.584
Average production assets, $m
  2,726
  2,656
  3,245
  3,910
  4,649
  5,464
  6,354
  7,317
  8,351
  9,455
  10,627
  11,867
  13,171
  14,540
  15,973
  17,470
  19,030
  20,655
  22,346
  24,104
  25,931
  27,830
  29,803
  31,854
  33,986
  36,203
  38,509
  40,910
  43,410
  46,014
  48,729
Working capital, $m
  -1,298
  -3,218
  -3,933
  -4,738
  -5,634
  -6,622
  -7,700
  -8,867
  -10,120
  -11,458
  -12,879
  -14,380
  -15,961
  -17,620
  -19,357
  -21,171
  -23,062
  -25,031
  -27,080
  -29,210
  -31,424
  -33,725
  -36,116
  -38,601
  -41,185
  -43,872
  -46,667
  -49,576
  -52,605
  -55,762
  -59,051
Total debt, $m
  2,710
  3,894
  6,026
  8,429
  11,104
  14,052
  17,270
  20,751
  24,492
  28,485
  32,725
  37,207
  41,925
  46,877
  52,059
  57,472
  63,116
  68,993
  75,108
  81,466
  88,074
  94,941
  102,077
  109,494
  117,204
  125,223
  133,565
  142,247
  151,289
  160,708
  170,526
Total liabilities, $m
  10,085
  9,605
  11,737
  14,140
  16,815
  19,763
  22,981
  26,462
  30,203
  34,196
  38,436
  42,918
  47,636
  52,588
  57,770
  63,183
  68,827
  74,704
  80,819
  87,177
  93,785
  100,652
  107,788
  115,205
  122,915
  130,934
  139,276
  147,958
  157,000
  166,419
  176,237
Total equity, $m
  7,500
  4,562
  5,574
  6,715
  7,986
  9,386
  10,914
  12,568
  14,344
  16,241
  18,254
  20,383
  22,624
  24,975
  27,437
  30,007
  32,688
  35,479
  38,383
  41,403
  44,541
  47,802
  51,191
  54,714
  58,376
  62,184
  66,146
  70,269
  74,563
  79,037
  83,700
Total liabilities and equity, $m
  17,585
  14,167
  17,311
  20,855
  24,801
  29,149
  33,895
  39,030
  44,547
  50,437
  56,690
  63,301
  70,260
  77,563
  85,207
  93,190
  101,515
  110,183
  119,202
  128,580
  138,326
  148,454
  158,979
  169,919
  181,291
  193,118
  205,422
  218,227
  231,563
  245,456
  259,937
Debt-to-equity ratio
  0.361
  0.850
  1.080
  1.260
  1.390
  1.500
  1.580
  1.650
  1.710
  1.750
  1.790
  1.830
  1.850
  1.880
  1.900
  1.920
  1.930
  1.940
  1.960
  1.970
  1.980
  1.990
  1.990
  2.000
  2.010
  2.010
  2.020
  2.020
  2.030
  2.030
  2.040
Adjusted equity ratio
  0.344
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  180
  285
  557
  865
  1,209
  1,590
  2,007
  2,458
  2,944
  3,463
  4,014
  4,879
  5,493
  6,139
  6,814
  7,520
  8,257
  9,024
  9,823
  10,654
  11,518
  12,417
  13,351
  14,322
  15,333
  16,384
  17,479
  18,619
  19,807
  21,046
  22,338
Depreciation, amort., depletion, $m
  632
  620
  672
  731
  796
  869
  947
  1,032
  1,124
  1,222
  1,325
  1,050
  1,166
  1,287
  1,414
  1,546
  1,684
  1,828
  1,978
  2,133
  2,295
  2,463
  2,637
  2,819
  3,008
  3,204
  3,408
  3,620
  3,842
  4,072
  4,312
Funds from operations, $m
  2,304
  905
  1,229
  1,596
  2,006
  2,459
  2,954
  3,490
  4,068
  4,684
  5,340
  5,929
  6,659
  7,425
  8,228
  9,066
  9,941
  10,852
  11,801
  12,787
  13,813
  14,879
  15,988
  17,141
  18,340
  19,588
  20,887
  22,239
  23,649
  25,118
  26,650
Change in working capital, $m
  142
  -625
  -714
  -805
  -897
  -988
  -1,078
  -1,167
  -1,253
  -1,338
  -1,421
  -1,502
  -1,581
  -1,659
  -1,736
  -1,814
  -1,891
  -1,969
  -2,049
  -2,130
  -2,214
  -2,301
  -2,391
  -2,485
  -2,584
  -2,687
  -2,795
  -2,909
  -3,029
  -3,156
  -3,290
Cash from operations, $m
  2,162
  1,762
  1,943
  2,401
  2,902
  3,446
  4,032
  4,657
  5,321
  6,023
  6,761
  7,431
  8,240
  9,085
  9,964
  10,880
  11,832
  12,822
  13,850
  14,917
  16,027
  17,180
  18,379
  19,626
  20,924
  22,275
  23,682
  25,149
  26,678
  28,274
  29,940
Maintenance CAPEX, $m
  0
  -189
  -235
  -287
  -346
  -411
  -484
  -562
  -647
  -739
  -837
  -940
  -1,050
  -1,166
  -1,287
  -1,414
  -1,546
  -1,684
  -1,828
  -1,978
  -2,133
  -2,295
  -2,463
  -2,637
  -2,819
  -3,008
  -3,204
  -3,408
  -3,620
  -3,842
  -4,072
New CAPEX, $m
  -464
  -519
  -589
  -664
  -740
  -815
  -890
  -963
  -1,034
  -1,104
  -1,172
  -1,239
  -1,305
  -1,369
  -1,433
  -1,497
  -1,560
  -1,625
  -1,691
  -1,758
  -1,827
  -1,899
  -1,973
  -2,051
  -2,132
  -2,217
  -2,307
  -2,401
  -2,500
  -2,604
  -2,715
Cash from investing activities, $m
  -2,684
  -708
  -824
  -951
  -1,086
  -1,226
  -1,374
  -1,525
  -1,681
  -1,843
  -2,009
  -2,179
  -2,355
  -2,535
  -2,720
  -2,911
  -3,106
  -3,309
  -3,519
  -3,736
  -3,960
  -4,194
  -4,436
  -4,688
  -4,951
  -5,225
  -5,511
  -5,809
  -6,120
  -6,446
  -6,787
Free cash flow, $m
  -522
  1,054
  1,119
  1,449
  1,817
  2,220
  2,659
  3,132
  3,639
  4,179
  4,751
  5,251
  5,885
  6,550
  7,245
  7,970
  8,726
  9,512
  10,331
  11,182
  12,067
  12,987
  13,943
  14,938
  15,973
  17,050
  18,172
  19,340
  20,558
  21,828
  23,153
Issuance/(repayment) of debt, $m
  596
  1,860
  2,131
  2,403
  2,676
  2,948
  3,217
  3,482
  3,741
  3,993
  4,240
  4,482
  4,718
  4,952
  5,183
  5,413
  5,644
  5,877
  6,115
  6,358
  6,608
  6,867
  7,136
  7,417
  7,710
  8,018
  8,342
  8,683
  9,041
  9,419
  9,818
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  998
  1,860
  2,131
  2,403
  2,676
  2,948
  3,217
  3,482
  3,741
  3,993
  4,240
  4,482
  4,718
  4,952
  5,183
  5,413
  5,644
  5,877
  6,115
  6,358
  6,608
  6,867
  7,136
  7,417
  7,710
  8,018
  8,342
  8,683
  9,041
  9,419
  9,818
Total cash flow (excl. dividends), $m
  448
  2,914
  3,250
  3,852
  4,492
  5,168
  5,876
  6,614
  7,380
  8,173
  8,992
  9,733
  10,604
  11,501
  12,427
  13,383
  14,370
  15,390
  16,446
  17,540
  18,675
  19,854
  21,079
  22,355
  23,683
  25,069
  26,514
  28,023
  29,599
  31,247
  32,971
Retained Cash Flow (-), $m
  -2,497
  -885
  -1,012
  -1,141
  -1,271
  -1,400
  -1,528
  -1,654
  -1,776
  -1,897
  -2,014
  -2,128
  -2,241
  -2,352
  -2,461
  -2,571
  -2,680
  -2,791
  -2,904
  -3,020
  -3,138
  -3,261
  -3,389
  -3,522
  -3,662
  -3,808
  -3,962
  -4,124
  -4,294
  -4,473
  -4,663
Prev. year cash balance distribution, $m
 
  1,326
  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
 
  3,355
  2,238
  2,711
  3,222
  3,768
  4,348
  4,960
  5,603
  6,276
  6,978
  7,604
  8,363
  9,150
  9,966
  10,812
  11,689
  12,598
  13,542
  14,520
  15,537
  16,593
  17,690
  18,832
  20,022
  21,260
  22,552
  23,899
  25,305
  26,774
  28,308
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
 
  3,217
  2,049
  2,359
  2,653
  2,921
  3,155
  3,351
  3,502
  3,605
  3,658
  3,611
  3,569
  3,479
  3,346
  3,174
  2,970
  2,741
  2,494
  2,236
  1,974
  1,716
  1,468
  1,234
  1,020
  827
  658
  513
  392
  292
  213
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

salesforce.com, inc. provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide. It offers enterprise cloud computing applications and platform services, including Sales Cloud that enables companies to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence, and collaborate around sales on desktop and mobile devices. The company also provides Service Cloud that enables companies to deliver personalized customer service and support, as well as connects their service agents with customers on various devices; and Marketing Cloud, which enables companies to plan, personalize, and optimize customer interactions. In addition, it offers Community Cloud that enables companies to engage with groups of people by giving them access to information, applications, and experts; Analytics Cloud, an application, which enables companies to deploy sales, service, marketing, and custom analytics applications using various data source; Internet of Things Cloud that enables customers to process data, as well as build personalized actions and engage with customers in real time; and App Cloud, an application development platform for companies to deliver connected applications for various business needs. Further, the company provides professional services, including consulting, deployment, training, and design and integration services to facilitate the adoption of its cloud solutions, as well as offers various education service offerings ranging from introductory online courses to advanced architecture certifications. It sells and markets services primarily through its direct sales force, as well as through consulting firms, systems integrators, and regional partners. The company has a strategic alliance with Cisco to develop IoT and contact center platforms. salesforce.com, inc. was founded in 1999 and is headquartered in San Francisco, California.

FINANCIAL RATIOS  of  Salesforce.com (CRM)

Valuation Ratios
P/E Ratio 348.3
Price to Sales 7.5
Price to Book 8.4
Price to Tangible Book
Price to Cash Flow 29
Price to Free Cash Flow 36.9
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 $6667 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 24.1% 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 80.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1239 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 32.1%.

Life of production assets of 11.3 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 -38.9%. 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 - $5003 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 695.024 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 $61.6 billion.


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Stock chart of CRM Financial statements of CRM Annual reports 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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