Stock Analysis on Net
Stock Analysis on Net

Salesforce Inc. (NYSE:CRM)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Salesforce Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 15.39%
01 FCFF0 9,710
1 FCFF1 10,084 = 9,710 × (1 + 3.85%) 8,740
2 FCFF2 10,663 = 10,084 × (1 + 5.74%) 8,009
3 FCFF3 11,477 = 10,663 × (1 + 7.63%) 7,471
4 FCFF4 12,571 = 11,477 × (1 + 9.52%) 7,092
5 FCFF5 14,006 = 12,571 × (1 + 11.42%) 6,848
5 Terminal value (TV5) 393,092 = 14,006 × (1 + 11.42%) ÷ (15.39% – 11.42%) 192,196
Intrinsic value of Salesforce Inc. capital 230,356
Less: Debt and finance lease liabilities (fair value) 8,774
Intrinsic value of Salesforce Inc. common stock 221,582
 
Intrinsic value of Salesforce Inc. common stock (per share) $228.44
Current share price $271.92

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

1 See details »

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.

Weighted Average Cost of Capital (WACC)

Salesforce Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 263,762 0.97 15.84%
Debt and finance lease liabilities (fair value) 8,774 0.03 1.64% = 2.56% × (1 – 35.80%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 970,000,000 × $271.92
= $263,762,400,000.00

   Debt and finance lease liabilities (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (16.44% + 68.48% + 5.74% + 21.00% + 82.15% + 21.00%) ÷ 6
= 35.80%

WACC = 15.39%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Salesforce Inc., PRAT model

Microsoft Excel
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)
Interest expense on debt 254 287 216 110 110 126
Net income 4,136 208 1,444 4,072 126 1,110
 
Effective income tax rate (EITR)1 16.44% 68.48% 5.74% 21.00% 82.15% 21.00%
 
Interest expense on debt, after tax2 212 90 204 87 20 100
Interest expense (after tax) and dividends 212 90 204 87 20 100
 
EBIT(1 – EITR)3 4,348 298 1,648 4,159 146 1,210
 
Finance lease liabilities, current 372 257 114 35 53 —
Debt, current 999 1,182 4 4 4 3
Noncurrent debt, excluding current portion 8,427 9,419 10,592 2,673 2,673 3,173
Noncurrent finance lease liabilities 602 534 271 93 332 —
Capital lease obligations — — — — — 191
Stockholders’ equity 59,646 58,359 58,131 41,493 33,885 15,605
Total capital 70,046 69,751 69,112 44,298 36,947 18,972
Financial Ratios
Retention rate (RR)4 0.95 0.70 0.88 0.98 0.87 0.92
Return on invested capital (ROIC)5 6.21% 0.43% 2.38% 9.39% 0.39% 6.38%
Averages
RR 0.92
ROIC 4.20%
 
FCFF growth rate (g)6 3.85%

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).

1 See details »

2024 Calculations

2 Interest expense on debt, after tax = Interest expense on debt × (1 – EITR)
= 254 × (1 – 16.44%)
= 212

3 EBIT(1 – EITR) = Net income + Interest expense on debt, after tax
= 4,136 + 212
= 4,348

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,348 – 212] ÷ 4,348
= 0.95

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,348 ÷ 70,046
= 6.21%

6 g = RR × ROIC
= 0.92 × 4.20%
= 3.85%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (272,536 × 15.39% – 9,710) ÷ (272,536 + 9,710)
= 11.42%

where:

Total capital, fair value0 = current fair value of Salesforce Inc. debt and equity (US$ in millions)
FCFF0 = the last year Salesforce Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Salesforce Inc. capital

FCFF growth rate (g) forecast

Salesforce Inc., H-model

Microsoft Excel
Year Value gt
1 g1 3.85%
2 g2 5.74%
3 g3 7.63%
4 g4 9.52%
5 and thereafter g5 11.42%

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 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 3.85% + (11.42% – 3.85%) × (2 – 1) ÷ (5 – 1)
= 5.74%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 3.85% + (11.42% – 3.85%) × (3 – 1) ÷ (5 – 1)
= 7.63%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 3.85% + (11.42% – 3.85%) × (4 – 1) ÷ (5 – 1)
= 9.52%