Intrinsic value of Salesforce.com - CRM

Previous Close

$92.24

  Intrinsic Value

$68.98

stock screener

  Rating & Target

sell

-25%

  Value-price divergence*

+73%

Previous close

$92.24

 
Intrinsic value

$68.98

 
Up/down potential

-25%

 
Rating

sell

 
Value-price divergence*

+73%

*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 64.1

 

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
  24.60
  22.64
  20.88
  19.29
  17.86
  16.57
  15.42
  14.37
  13.44
  12.59
  11.83
  11.15
  10.54
  9.98
  9.48
  9.04
  8.63
  8.27
  7.94
  7.65
  7.38
  7.14
  6.93
  6.74
  6.56
  6.41
  6.27
  6.14
  6.03
  5.92
Revenue, $m
  8,392
  10,456
  12,824
  15,501
  18,491
  21,793
  25,405
  29,321
  33,536
  38,043
  42,834
  47,903
  53,244
  58,854
  64,728
  70,867
  77,270
  83,940
  90,881
  98,099
  105,601
  113,397
  121,499
  129,919
  138,672
  147,774
  157,242
  167,095
  177,354
  188,041
  199,179
Variable operating expenses, $m
 
  10,100
  12,222
  14,622
  17,302
  20,263
  23,500
  27,011
  30,790
  34,829
  39,124
  42,942
  47,730
  52,759
  58,025
  63,528
  69,268
  75,247
  81,469
  87,940
  94,665
  101,654
  108,917
  116,465
  124,311
  132,470
  140,958
  149,791
  158,987
  168,568
  178,552
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
  10,100
  12,222
  14,622
  17,302
  20,263
  23,500
  27,011
  30,790
  34,829
  39,124
  42,942
  47,730
  52,759
  58,025
  63,528
  69,268
  75,247
  81,469
  87,940
  94,665
  101,654
  108,917
  116,465
  124,311
  132,470
  140,958
  149,791
  158,987
  168,568
  178,552
Operating income, $m
  62
  356
  602
  879
  1,188
  1,530
  1,905
  2,310
  2,747
  3,213
  3,709
  4,961
  5,514
  6,095
  6,703
  7,339
  8,002
  8,693
  9,412
  10,159
  10,936
  11,743
  12,582
  13,454
  14,361
  15,303
  16,284
  17,304
  18,367
  19,473
  20,627
EBITDA, $m
  694
  1,342
  1,646
  1,990
  2,374
  2,798
  3,261
  3,764
  4,305
  4,883
  5,498
  6,149
  6,835
  7,555
  8,309
  9,097
  9,919
  10,775
  11,666
  12,593
  13,556
  14,557
  15,597
  16,677
  17,801
  18,969
  20,185
  21,450
  22,767
  24,138
  25,568
Interest expense (income), $m
  55
  94
  181
  280
  393
  518
  657
  809
  973
  1,150
  1,339
  1,540
  1,753
  1,977
  2,213
  2,460
  2,717
  2,986
  3,266
  3,558
  3,861
  4,176
  4,503
  4,843
  5,197
  5,564
  5,946
  6,344
  6,758
  7,188
  7,637
Earnings before tax, $m
  25
  262
  421
  599
  796
  1,012
  1,248
  1,502
  1,774
  2,063
  2,370
  3,420
  3,761
  4,117
  4,490
  4,879
  5,285
  5,706
  6,145
  6,601
  7,075
  7,568
  8,079
  8,611
  9,164
  9,739
  10,337
  10,960
  11,609
  12,285
  12,990
Tax expense, $m
  -155
  71
  114
  162
  215
  273
  337
  405
  479
  557
  640
  924
  1,015
  1,112
  1,212
  1,317
  1,427
  1,541
  1,659
  1,782
  1,910
  2,043
  2,181
  2,325
  2,474
  2,630
  2,791
  2,959
  3,134
  3,317
  3,507
Net income, $m
  180
  191
  307
  437
  581
  739
  911
  1,096
  1,295
  1,506
  1,730
  2,497
  2,745
  3,006
  3,278
  3,562
  3,858
  4,166
  4,486
  4,819
  5,165
  5,524
  5,898
  6,286
  6,690
  7,109
  7,546
  8,001
  8,474
  8,968
  9,482

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
  19,151
  23,487
  28,390
  33,866
  39,914
  46,529
  53,702
  61,422
  69,675
  78,450
  87,734
  97,516
  107,790
  118,550
  129,793
  141,521
  153,737
  166,449
  179,668
  193,408
  207,687
  222,526
  237,947
  253,978
  270,648
  287,988
  306,035
  324,824
  344,397
  364,797
Adjusted assets (=assets-cash), $m
  15,376
  19,151
  23,487
  28,390
  33,866
  39,914
  46,529
  53,702
  61,422
  69,675
  78,450
  87,734
  97,516
  107,790
  118,550
  129,793
  141,521
  153,737
  166,449
  179,668
  193,408
  207,687
  222,526
  237,947
  253,978
  270,648
  287,988
  306,035
  324,824
  344,397
  364,797
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
  3,398
  4,168
  5,038
  6,009
  7,083
  8,257
  9,529
  10,899
  12,364
  13,921
  15,568
  17,304
  19,127
  21,037
  23,032
  25,113
  27,281
  29,536
  31,882
  34,320
  36,854
  39,487
  42,224
  45,068
  48,026
  51,103
  54,306
  57,640
  61,113
  64,733
Working capital, $m
  -1,298
  -1,046
  -1,282
  -1,550
  -1,849
  -2,179
  -2,540
  -2,932
  -3,354
  -3,804
  -4,283
  -4,790
  -5,324
  -5,885
  -6,473
  -7,087
  -7,727
  -8,394
  -9,088
  -9,810
  -10,560
  -11,340
  -12,150
  -12,992
  -13,867
  -14,777
  -15,724
  -16,709
  -17,735
  -18,804
  -19,918
Total debt, $m
  2,710
  5,169
  8,009
  11,220
  14,807
  18,769
  23,102
  27,800
  32,856
  38,262
  44,010
  50,090
  56,498
  63,228
  70,275
  77,640
  85,321
  93,322
  101,649
  110,307
  119,307
  128,660
  138,379
  148,480
  158,981
  169,899
  181,257
  193,078
  205,385
  218,205
  231,567
Total liabilities, $m
  10,085
  12,544
  15,384
  18,595
  22,182
  26,144
  30,477
  35,175
  40,231
  45,637
  51,385
  57,465
  63,873
  70,603
  77,650
  85,015
  92,696
  100,697
  109,024
  117,682
  126,682
  136,035
  145,754
  155,855
  166,356
  177,274
  188,632
  200,453
  212,760
  225,580
  238,942
Total equity, $m
  7,500
  6,607
  8,103
  9,794
  11,684
  13,770
  16,053
  18,527
  21,191
  24,038
  27,065
  30,268
  33,643
  37,188
  40,900
  44,779
  48,825
  53,039
  57,425
  61,985
  66,726
  71,652
  76,771
  82,092
  87,622
  93,373
  99,356
  105,582
  112,064
  118,817
  125,855
Total liabilities and equity, $m
  17,585
  19,151
  23,487
  28,389
  33,866
  39,914
  46,530
  53,702
  61,422
  69,675
  78,450
  87,733
  97,516
  107,791
  118,550
  129,794
  141,521
  153,736
  166,449
  179,667
  193,408
  207,687
  222,525
  237,947
  253,978
  270,647
  287,988
  306,035
  324,824
  344,397
  364,797
Debt-to-equity ratio
  0.361
  0.780
  0.990
  1.150
  1.270
  1.360
  1.440
  1.500
  1.550
  1.590
  1.630
  1.650
  1.680
  1.700
  1.720
  1.730
  1.750
  1.760
  1.770
  1.780
  1.790
  1.800
  1.800
  1.810
  1.810
  1.820
  1.820
  1.830
  1.830
  1.840
  1.840
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
  191
  307
  437
  581
  739
  911
  1,096
  1,295
  1,506
  1,730
  2,497
  2,745
  3,006
  3,278
  3,562
  3,858
  4,166
  4,486
  4,819
  5,165
  5,524
  5,898
  6,286
  6,690
  7,109
  7,546
  8,001
  8,474
  8,968
  9,482
Depreciation, amort., depletion, $m
  632
  986
  1,045
  1,111
  1,185
  1,267
  1,357
  1,454
  1,558
  1,670
  1,789
  1,188
  1,321
  1,460
  1,606
  1,758
  1,917
  2,082
  2,255
  2,434
  2,620
  2,813
  3,014
  3,223
  3,440
  3,666
  3,901
  4,145
  4,400
  4,665
  4,941
Funds from operations, $m
  2,304
  1,177
  1,352
  1,548
  1,766
  2,006
  2,267
  2,550
  2,853
  3,176
  3,519
  3,685
  4,066
  4,466
  4,884
  5,320
  5,775
  6,248
  6,741
  7,253
  7,785
  8,338
  8,912
  9,509
  10,130
  10,776
  11,447
  12,146
  12,874
  13,633
  14,424
Change in working capital, $m
  142
  -206
  -237
  -268
  -299
  -330
  -361
  -392
  -421
  -451
  -479
  -507
  -534
  -561
  -587
  -614
  -640
  -667
  -694
  -722
  -750
  -780
  -810
  -842
  -875
  -910
  -947
  -985
  -1,026
  -1,069
  -1,114
Cash from operations, $m
  2,162
  1,384
  1,588
  1,816
  2,065
  2,336
  2,629
  2,942
  3,275
  3,627
  3,998
  4,192
  4,600
  5,027
  5,471
  5,934
  6,415
  6,915
  7,435
  7,974
  8,535
  9,117
  9,722
  10,351
  11,005
  11,686
  12,394
  13,132
  13,900
  14,702
  15,538
Maintenance CAPEX, $m
  0
  -208
  -259
  -318
  -385
  -459
  -541
  -630
  -727
  -832
  -944
  -1,063
  -1,188
  -1,321
  -1,460
  -1,606
  -1,758
  -1,917
  -2,082
  -2,255
  -2,434
  -2,620
  -2,813
  -3,014
  -3,223
  -3,440
  -3,666
  -3,901
  -4,145
  -4,400
  -4,665
New CAPEX, $m
  -464
  -673
  -769
  -870
  -972
  -1,073
  -1,174
  -1,273
  -1,370
  -1,465
  -1,557
  -1,647
  -1,736
  -1,823
  -1,909
  -1,995
  -2,081
  -2,168
  -2,256
  -2,346
  -2,438
  -2,534
  -2,633
  -2,737
  -2,845
  -2,958
  -3,077
  -3,202
  -3,334
  -3,473
  -3,620
Cash from investing activities, $m
  -2,684
  -881
  -1,028
  -1,188
  -1,357
  -1,532
  -1,715
  -1,903
  -2,097
  -2,297
  -2,501
  -2,710
  -2,924
  -3,144
  -3,369
  -3,601
  -3,839
  -4,085
  -4,338
  -4,601
  -4,872
  -5,154
  -5,446
  -5,751
  -6,068
  -6,398
  -6,743
  -7,103
  -7,479
  -7,873
  -8,285
Free cash flow, $m
  -522
  503
  560
  627
  709
  804
  914
  1,038
  1,177
  1,330
  1,498
  1,482
  1,676
  1,883
  2,102
  2,333
  2,576
  2,830
  3,097
  3,374
  3,663
  3,964
  4,276
  4,600
  4,937
  5,287
  5,651
  6,028
  6,421
  6,828
  7,253
Issuance/(repayment) of debt, $m
  596
  2,479
  2,840
  3,212
  3,587
  3,962
  4,333
  4,698
  5,056
  5,406
  5,747
  6,081
  6,408
  6,729
  7,048
  7,364
  7,681
  8,001
  8,326
  8,659
  9,000
  9,353
  9,719
  10,101
  10,500
  10,919
  11,358
  11,820
  12,307
  12,820
  13,362
Issuance/(repurchase) of shares, $m
  0
  1,105
  1,189
  1,255
  1,308
  1,348
  1,371
  1,379
  1,369
  1,341
  1,297
  706
  630
  539
  434
  317
  188
  49
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  998
  3,584
  4,029
  4,467
  4,895
  5,310
  5,704
  6,077
  6,425
  6,747
  7,044
  6,787
  7,038
  7,268
  7,482
  7,681
  7,869
  8,050
  8,326
  8,659
  9,000
  9,353
  9,719
  10,101
  10,500
  10,919
  11,358
  11,820
  12,307
  12,820
  13,362
Total cash flow (excl. dividends), $m
  448
  4,086
  4,588
  5,094
  5,604
  6,114
  6,619
  7,115
  7,602
  8,078
  8,542
  8,269
  8,714
  9,151
  9,584
  10,014
  10,446
  10,881
  11,423
  12,033
  12,663
  13,316
  13,995
  14,701
  15,438
  16,206
  17,009
  17,849
  18,728
  19,649
  20,614
Retained Cash Flow (-), $m
  -2,497
  -1,296
  -1,496
  -1,692
  -1,889
  -2,087
  -2,282
  -2,475
  -2,663
  -2,847
  -3,027
  -3,203
  -3,375
  -3,545
  -3,712
  -3,879
  -4,046
  -4,215
  -4,386
  -4,561
  -4,740
  -4,926
  -5,119
  -5,320
  -5,531
  -5,751
  -5,983
  -6,226
  -6,482
  -6,753
  -7,038
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
 
  4,979
  3,092
  3,402
  3,715
  4,027
  4,336
  4,641
  4,939
  5,230
  5,515
  5,066
  5,338
  5,606
  5,872
  6,135
  6,400
  6,666
  7,037
  7,472
  7,922
  8,390
  8,876
  9,381
  9,907
  10,455
  11,026
  11,623
  12,245
  12,896
  13,576
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
 
  4,774
  2,831
  2,961
  3,059
  3,121
  3,147
  3,135
  3,087
  3,004
  2,891
  2,406
  2,278
  2,132
  1,971
  1,801
  1,626
  1,450
  1,296
  1,150
  1,007
  868
  736
  615
  505
  407
  322
  249
  189
  141
  102
Current shareholders' claim on cash, %
  100
  97.6
  95.6
  93.9
  92.5
  91.2
  90.2
  89.3
  88.5
  87.9
  87.3
  87.1
  86.8
  86.7
  86.6
  86.5
  86.4
  86.4
  86.4
  86.4
  86.4
  86.4
  86.4
  86.4
  86.4
  86.4
  86.4
  86.4
  86.4
  86.4
  86.4

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 362.5
Price to Sales 7.8
Price to Book 8.7
Price to Tangible Book
Price to Cash Flow 30.2
Price to Free Cash Flow 38.4
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 24.6% 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 -10%. 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 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 $64.1 billion.

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Stock chart of CRM 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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