# Salesforce Inc. (NYSE:CRM)

## Present Value of Free Cash Flow to Equity (FCFE)

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

### Intrinsic Stock Value (Valuation Summary)

Salesforce Inc., free cash flow to equity (FCFE) forecast

US\$ in millions, except per share data

Year Value FCFEt or Terminal value (TVt) Calculation Present value at 16.47%
01 FCFE0 7,687
1 FCFE1 7,994 = 7,687 × (1 + 4.00%) 6,863
2 FCFE2 8,491 = 7,994 × (1 + 6.22%) 6,259
3 FCFE3 9,208 = 8,491 × (1 + 8.44%) 5,827
4 FCFE4 10,189 = 9,208 × (1 + 10.66%) 5,536
5 FCFE5 11,501 = 10,189 × (1 + 12.88%) 5,365
5 Terminal value (TV5) 361,060 = 11,501 × (1 + 12.88%) ÷ (16.47%12.88%) 168,437
Intrinsic value of Salesforce Inc. common stock 198,288

Intrinsic value of Salesforce Inc. common stock (per share) \$207.41
Current share price \$252.43

Based on: 10-K (reporting date: 2024-01-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

### Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF 4.06% Expected rate of return on market portfolio2 E(RM) 13.81% Systematic risk of Salesforce Inc. common stock βCRM 1.27 Required rate of return on Salesforce Inc. common stock3 rCRM 16.47%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

3 rCRM = RF + βCRM [E(RM) – RF]
= 4.06% + 1.27 [13.81%4.06%]
= 16.47%

### FCFE Growth Rate (g)

#### FCFE growth rate (g) implied by PRAT model

Salesforce Inc., PRAT model

Average Jan 31, 2024 Jan 31, 2023 Jan 31, 2022 Jan 31, 2021 Jan 31, 2020 Jan 31, 2019
Selected Financial Data (US\$ in millions)
Net income 4,136 208 1,444 4,072 126 1,110
Revenues 34,857 31,352 26,492 21,252 17,098 13,282
Total assets 99,823 98,849 95,209 66,301 55,126 30,737
Stockholders’ equity 59,646 58,359 58,131 41,493 33,885 15,605
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00 1.00
Profit margin2 11.87% 0.66% 5.45% 19.16% 0.74% 8.36%
Asset turnover3 0.35 0.32 0.28 0.32 0.31 0.43
Financial leverage4 1.67 1.69 1.64 1.60 1.63 1.97
Averages
Retention rate 1.00
Profit margin 7.71%
Asset turnover 0.32
Financial leverage 1.65

FCFE growth rate (g)5 4.00%

Based on: 10-K (reporting date: 2024-01-31), 10-K (reporting date: 2023-01-31), 10-K (reporting date: 2022-01-31), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-01-31).

2024 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income ÷ Revenues
= 100 × 4,136 ÷ 34,857
= 11.87%

3 Asset turnover = Revenues ÷ Total assets
= 34,857 ÷ 99,823
= 0.35

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 99,823 ÷ 59,646
= 1.67

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × 7.71% × 0.32 × 1.65
= 4.00%

#### FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (241,323 × 16.47%7,687) ÷ (241,323 + 7,687)
= 12.88%

where:
Equity market value0 = current market value of Salesforce Inc. common stock (US\$ in millions)
FCFE0 = the last year Salesforce Inc. free cash flow to equity (US\$ in millions)
r = required rate of return on Salesforce Inc. common stock

#### FCFE growth rate (g) forecast

Salesforce Inc., H-model

Year Value gt
1 g1 4.00%
2 g2 6.22%
3 g3 8.44%
4 g4 10.66%
5 and thereafter g5 12.88%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 4.00% + (12.88%4.00%) × (2 – 1) ÷ (5 – 1)
= 6.22%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 4.00% + (12.88%4.00%) × (3 – 1) ÷ (5 – 1)
= 8.44%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 4.00% + (12.88%4.00%) × (4 – 1) ÷ (5 – 1)
= 10.66%