Intrinsic value of Salesforce.com - CRM

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$86.12

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$86.12

 
Intrinsic value

$92.81

 
Up/down potential

+8%

 
Rating

hold

 
Value-price divergence* premium content

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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 60.9

 

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
  26.80
  24.62
  22.66
  20.89
  19.30
  17.87
  16.59
  15.43
  14.38
  13.45
  12.60
  11.84
  11.16
  10.54
  9.99
  9.49
  9.04
  8.64
  8.27
  7.94
  7.65
  7.39
  7.15
  6.93
  6.74
  6.57
  6.41
  6.27
  6.14
  6.03
Revenue, $m
  8,392
  10,641
  13,261
  16,266
  19,664
  23,459
  27,652
  32,239
  37,212
  42,565
  48,288
  54,373
  60,811
  67,595
  74,721
  82,183
  89,981
  98,115
  106,588
  115,405
  124,574
  134,104
  144,008
  154,300
  164,997
  176,115
  187,677
  199,705
  212,222
  225,254
  238,830
Variable operating expenses, $m
 
  10,265
  12,614
  15,307
  18,354
  21,756
  25,515
  29,626
  34,085
  38,883
  44,013
  48,742
  54,513
  60,595
  66,983
  73,673
  80,663
  87,955
  95,550
  103,454
  111,673
  120,217
  129,095
  138,321
  147,910
  157,877
  168,242
  179,024
  190,244
  201,927
  214,097
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
  10,265
  12,614
  15,307
  18,354
  21,756
  25,515
  29,626
  34,085
  38,883
  44,013
  48,742
  54,513
  60,595
  66,983
  73,673
  80,663
  87,955
  95,550
  103,454
  111,673
  120,217
  129,095
  138,321
  147,910
  157,877
  168,242
  179,024
  190,244
  201,927
  214,097
Operating income, $m
  62
  376
  647
  958
  1,310
  1,703
  2,137
  2,612
  3,127
  3,682
  4,274
  5,631
  6,297
  7,000
  7,738
  8,511
  9,318
  10,161
  11,038
  11,951
  12,901
  13,888
  14,913
  15,979
  17,087
  18,238
  19,436
  20,681
  21,977
  23,327
  24,733
EBITDA, $m
  694
  1,366
  1,702
  2,088
  2,524
  3,011
  3,550
  4,138
  4,777
  5,464
  6,199
  6,980
  7,806
  8,677
  9,592
  10,550
  11,551
  12,595
  13,682
  14,814
  15,991
  17,215
  18,486
  19,807
  21,180
  22,608
  24,092
  25,636
  27,242
  28,915
  30,658
Interest expense (income), $m
  55
  94
  189
  299
  425
  568
  727
  903
  1,095
  1,304
  1,529
  1,769
  2,025
  2,295
  2,580
  2,879
  3,193
  3,520
  3,861
  4,217
  4,587
  4,972
  5,373
  5,788
  6,221
  6,670
  7,136
  7,622
  8,127
  8,652
  9,200
Earnings before tax, $m
  25
  281
  458
  659
  885
  1,136
  1,410
  1,709
  2,032
  2,377
  2,745
  3,861
  4,273
  4,705
  5,158
  5,632
  6,126
  6,641
  7,177
  7,734
  8,313
  8,915
  9,541
  10,191
  10,866
  11,569
  12,299
  13,059
  13,850
  14,675
  15,533
Tax expense, $m
  -155
  76
  124
  178
  239
  307
  381
  462
  549
  642
  741
  1,043
  1,154
  1,270
  1,393
  1,521
  1,654
  1,793
  1,938
  2,088
  2,245
  2,407
  2,576
  2,752
  2,934
  3,124
  3,321
  3,526
  3,740
  3,962
  4,194
Net income, $m
  180
  205
  334
  481
  646
  829
  1,030
  1,248
  1,483
  1,735
  2,004
  2,819
  3,119
  3,435
  3,765
  4,111
  4,472
  4,848
  5,239
  5,646
  6,069
  6,508
  6,965
  7,439
  7,932
  8,445
  8,978
  9,533
  10,111
  10,712
  11,339

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
  19,489
  24,287
  29,790
  36,014
  42,966
  50,645
  59,045
  68,154
  77,957
  88,439
  99,583
  111,375
  123,801
  136,851
  150,519
  164,801
  179,698
  195,216
  211,365
  228,157
  245,612
  263,751
  282,601
  302,191
  322,556
  343,732
  365,760
  388,684
  412,553
  437,417
Adjusted assets (=assets-cash), $m
  15,376
  19,489
  24,287
  29,790
  36,014
  42,966
  50,645
  59,045
  68,154
  77,957
  88,439
  99,583
  111,375
  123,801
  136,851
  150,519
  164,801
  179,698
  195,216
  211,365
  228,157
  245,612
  263,751
  282,601
  302,191
  322,556
  343,732
  365,760
  388,684
  412,553
  437,417
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
  3,458
  4,310
  5,286
  6,391
  7,624
  8,987
  10,478
  12,094
  13,833
  15,694
  17,671
  19,764
  21,969
  24,284
  26,710
  29,244
  31,887
  34,641
  37,507
  40,487
  43,584
  46,803
  50,148
  53,624
  57,238
  60,995
  64,904
  68,972
  73,208
  77,620
Working capital, $m
  -1,261
  -4,373
  -5,450
  -6,685
  -8,082
  -9,642
  -11,365
  -13,250
  -15,294
  -17,494
  -19,846
  -22,347
  -24,993
  -27,782
  -30,710
  -33,777
  -36,982
  -40,325
  -43,808
  -47,431
  -51,200
  -55,117
  -59,187
  -63,417
  -67,814
  -72,383
  -77,135
  -82,079
  -87,223
  -92,579
  -98,159
Total debt, $m
  2,710
  5,390
  8,533
  12,138
  16,214
  20,768
  25,798
  31,299
  37,266
  43,687
  50,553
  57,852
  65,576
  73,715
  82,263
  91,215
  100,570
  110,327
  120,492
  131,069
  142,068
  153,501
  165,382
  177,729
  190,560
  203,899
  217,769
  232,198
  247,213
  262,847
  279,133
Total liabilities, $m
  10,085
  12,765
  15,908
  19,513
  23,589
  28,143
  33,173
  38,674
  44,641
  51,062
  57,928
  65,227
  72,951
  81,090
  89,638
  98,590
  107,945
  117,702
  127,867
  138,444
  149,443
  160,876
  172,757
  185,104
  197,935
  211,274
  225,144
  239,573
  254,588
  270,222
  286,508
Total equity, $m
  7,500
  6,724
  8,379
  10,278
  12,425
  14,823
  17,473
  20,371
  23,513
  26,895
  30,511
  34,356
  38,424
  42,711
  47,214
  51,929
  56,856
  61,996
  67,350
  72,921
  78,714
  84,736
  90,994
  97,497
  104,256
  111,282
  118,587
  126,187
  134,096
  142,331
  150,909
Total liabilities and equity, $m
  17,585
  19,489
  24,287
  29,791
  36,014
  42,966
  50,646
  59,045
  68,154
  77,957
  88,439
  99,583
  111,375
  123,801
  136,852
  150,519
  164,801
  179,698
  195,217
  211,365
  228,157
  245,612
  263,751
  282,601
  302,191
  322,556
  343,731
  365,760
  388,684
  412,553
  437,417
Debt-to-equity ratio
  0.361
  0.800
  1.020
  1.180
  1.300
  1.400
  1.480
  1.540
  1.580
  1.620
  1.660
  1.680
  1.710
  1.730
  1.740
  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
  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
  205
  334
  481
  646
  829
  1,030
  1,248
  1,483
  1,735
  2,004
  2,819
  3,119
  3,435
  3,765
  4,111
  4,472
  4,848
  5,239
  5,646
  6,069
  6,508
  6,965
  7,439
  7,932
  8,445
  8,978
  9,533
  10,111
  10,712
  11,339
Depreciation, amort., depletion, $m
  632
  990
  1,055
  1,130
  1,214
  1,308
  1,412
  1,526
  1,650
  1,782
  1,924
  1,349
  1,509
  1,677
  1,854
  2,039
  2,232
  2,434
  2,644
  2,863
  3,091
  3,327
  3,573
  3,828
  4,093
  4,369
  4,656
  4,955
  5,265
  5,588
  5,925
Funds from operations, $m
  2,304
  1,196
  1,390
  1,611
  1,860
  2,137
  2,442
  2,774
  3,133
  3,518
  3,928
  4,168
  4,628
  5,112
  5,619
  6,150
  6,704
  7,282
  7,883
  8,509
  9,159
  9,835
  10,537
  11,267
  12,026
  12,814
  13,635
  14,488
  15,376
  16,301
  17,264
Change in working capital, $m
  142
  -924
  -1,077
  -1,235
  -1,397
  -1,560
  -1,723
  -1,885
  -2,044
  -2,200
  -2,352
  -2,501
  -2,646
  -2,788
  -2,929
  -3,067
  -3,205
  -3,343
  -3,482
  -3,624
  -3,768
  -3,917
  -4,071
  -4,230
  -4,396
  -4,570
  -4,752
  -4,943
  -5,144
  -5,356
  -5,580
Cash from operations, $m
  2,162
  2,477
  2,467
  2,846
  3,257
  3,697
  4,165
  4,659
  5,177
  5,718
  6,281
  6,669
  7,274
  7,900
  8,548
  9,217
  9,909
  10,625
  11,366
  12,133
  12,928
  13,752
  14,608
  15,497
  16,422
  17,384
  18,386
  19,431
  20,520
  21,657
  22,844
Maintenance CAPEX, $m
  0
  -208
  -264
  -329
  -404
  -488
  -582
  -686
  -800
  -923
  -1,056
  -1,198
  -1,349
  -1,509
  -1,677
  -1,854
  -2,039
  -2,232
  -2,434
  -2,644
  -2,863
  -3,091
  -3,327
  -3,573
  -3,828
  -4,093
  -4,369
  -4,656
  -4,955
  -5,265
  -5,588
New CAPEX, $m
  -464
  -733
  -851
  -977
  -1,104
  -1,234
  -1,363
  -1,491
  -1,616
  -1,740
  -1,860
  -1,978
  -2,092
  -2,205
  -2,316
  -2,425
  -2,534
  -2,644
  -2,754
  -2,866
  -2,980
  -3,097
  -3,219
  -3,345
  -3,476
  -3,614
  -3,758
  -3,909
  -4,068
  -4,236
  -4,412
Cash from investing activities, $m
  -2,684
  -941
  -1,115
  -1,306
  -1,508
  -1,722
  -1,945
  -2,177
  -2,416
  -2,663
  -2,916
  -3,176
  -3,441
  -3,714
  -3,993
  -4,279
  -4,573
  -4,876
  -5,188
  -5,510
  -5,843
  -6,188
  -6,546
  -6,918
  -7,304
  -7,707
  -8,127
  -8,565
  -9,023
  -9,501
  -10,000
Free cash flow, $m
  -522
  1,536
  1,351
  1,541
  1,749
  1,976
  2,221
  2,482
  2,761
  3,055
  3,365
  3,493
  3,832
  4,186
  4,555
  4,938
  5,336
  5,749
  6,178
  6,623
  7,085
  7,564
  8,062
  8,580
  9,118
  9,677
  10,260
  10,866
  11,498
  12,157
  12,844
Issuance/(repayment) of debt, $m
  596
  2,700
  3,143
  3,604
  4,077
  4,553
  5,030
  5,502
  5,966
  6,421
  6,866
  7,300
  7,724
  8,139
  8,548
  8,952
  9,355
  9,758
  10,164
  10,577
  10,999
  11,433
  11,881
  12,347
  12,832
  13,339
  13,870
  14,428
  15,016
  15,634
  16,286
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
  2,700
  3,143
  3,604
  4,077
  4,553
  5,030
  5,502
  5,966
  6,421
  6,866
  7,300
  7,724
  8,139
  8,548
  8,952
  9,355
  9,758
  10,164
  10,577
  10,999
  11,433
  11,881
  12,347
  12,832
  13,339
  13,870
  14,428
  15,016
  15,634
  16,286
Total cash flow (excl. dividends), $m
  448
  4,236
  4,494
  5,145
  5,826
  6,529
  7,250
  7,984
  8,727
  9,476
  10,230
  10,793
  11,556
  12,325
  13,103
  13,890
  14,691
  15,507
  16,342
  17,200
  18,084
  18,997
  19,943
  20,926
  21,949
  23,016
  24,130
  25,294
  26,513
  27,791
  29,129
Retained Cash Flow (-), $m
  -2,497
  -1,413
  -1,655
  -1,899
  -2,147
  -2,398
  -2,649
  -2,898
  -3,143
  -3,382
  -3,616
  -3,845
  -4,068
  -4,287
  -4,502
  -4,715
  -4,927
  -5,140
  -5,354
  -5,571
  -5,793
  -6,022
  -6,258
  -6,503
  -6,759
  -7,026
  -7,306
  -7,600
  -7,909
  -8,235
  -8,578
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
 
  5,012
  2,839
  3,247
  3,678
  4,131
  4,601
  5,086
  5,584
  6,094
  6,614
  6,948
  7,488
  8,038
  8,600
  9,175
  9,763
  10,367
  10,988
  11,629
  12,290
  12,975
  13,685
  14,423
  15,191
  15,990
  16,824
  17,695
  18,604
  19,556
  20,551
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
 
  4,806
  2,599
  2,825
  3,029
  3,202
  3,339
  3,436
  3,490
  3,501
  3,467
  3,299
  3,195
  3,056
  2,887
  2,694
  2,481
  2,256
  2,024
  1,791
  1,562
  1,342
  1,136
  945
  774
  622
  491
  380
  288
  213
  155
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 338.5
Price to Sales 7.3
Price to Book 8.1
Price to Tangible Book
Price to Cash Flow 28.2
Price to Free Cash Flow 35.9
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 $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 26.8% 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 -41.1%. 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 706.874 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 $60.9 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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