Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

salesforce.com inc. (NYSE:CRM)

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

Intermediate level

Intrinsic Stock Value (Valuation Summary)

salesforce.com inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

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Year Value FCFFt or Terminal value (TVt) Calculation Present value at 14.77%
01 FCFF0 3,707
1 FCFF1 3,742 = 3,707 × (1 + 0.94%) 3,260
2 FCFF2 3,889 = 3,742 × (1 + 3.93%) 2,953
3 FCFF3 4,158 = 3,889 × (1 + 6.92%) 2,751
4 FCFF4 4,570 = 4,158 × (1 + 9.90%) 2,634
5 FCFF5 5,159 = 4,570 × (1 + 12.89%) 2,591
5 Terminal value (TV5) 310,238 = 5,159 × (1 + 12.89%) ÷ (14.77%12.89%) 155,810
Intrinsic value of salesforce.com inc.’s capital 169,998
Less: Debt (fair value) 2,893
Intrinsic value of salesforce.com inc.’s common stock 167,105
 
Intrinsic value of salesforce.com inc.’s common stock (per share) $182.63
Current share price $240.47

Based on: 10-K (filing date: 2020-03-05).

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.com inc., cost of capital

Microsoft Excel LibreOffice Calc
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 220,030 0.99 14.93%
Debt (fair value) 2,893 0.01 2.39% = 3.54% × (1 – 32.59%)

Based on: 10-K (filing date: 2020-03-05).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 915,000,000 × $240.47
= $220,030,050,000.00

   Debt (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
= (82.15% + 21.00% + 36.93% + 35.00% + 35.00% + 35.00%) ÷ 6
= 32.59%

WACC = 14.77%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

salesforce.com inc., PRAT model

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Average Jan 31, 2020 Jan 31, 2019 Jan 31, 2018 Jan 31, 2017 Jan 31, 2016 Jan 31, 2015
Selected Financial Data (US$ in millions)
Interest expense 131  154  87  89  72  73 
Net income (loss) 126  1,110  127  180  (47) (263)
 
Effective income tax rate (EITR)1 82.15% 21.00% 36.93% 35.00% 35.00% 35.00%
 
Interest expense, after tax2 23  122  55  58  47  48 
Interest expense (after tax) and dividends 23  122  55  58  47  48 
 
EBIT(1 – EITR)3 149  1,232  182  237  —  (215)
 
Current portion of debt 1,025  —  —  — 
Noncurrent debt, excluding current portion 2,673  3,173  695  2,008  1,294  1,371 
Stockholders’ equity 33,885  15,605  9,388  7,500  5,003  3,975 
Total capital 36,562  18,781  11,108  9,509  6,297  5,346 
Financial Ratios
Retention rate (RR)4 0.84 0.90 0.70 0.76
Return on invested capital (ROIC)5 0.41% 6.56% 1.64% 2.50% 0.00% -4.02%
Averages
RR 0.80
ROIC 1.18%
 
FCFF growth rate (g)6 0.94%

Based on: 10-K (filing date: 2020-03-05), 10-K (filing date: 2019-03-08), 10-K (filing date: 2018-03-09), 10-K (filing date: 2017-03-06), 10-K (filing date: 2016-03-07), 10-K (filing date: 2015-03-06).

1 See details »

2020 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 131 × (1 – 82.15%)
= 23

3 EBIT(1 – EITR) = Net income (loss) + Interest expense, after tax
= 126 + 23
= 149

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [14923] ÷ 149
= 0.84

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 149 ÷ 36,562
= 0.41%

6 g = RR × ROIC
= 0.80 × 1.18%
= 0.94%


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (222,923 × 14.77%3,707) ÷ (222,923 + 3,707)
= 12.89%

where:

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


FCFF growth rate (g) forecast

salesforce.com inc., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1 0.94%
2 g2 3.93%
3 g3 6.92%
4 g4 9.90%
5 and thereafter g5 12.89%

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)
= 0.94% + (12.89%0.94%) × (2 – 1) ÷ (5 – 1)
= 3.93%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 0.94% + (12.89%0.94%) × (3 – 1) ÷ (5 – 1)
= 6.92%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 0.94% + (12.89%0.94%) × (4 – 1) ÷ (5 – 1)
= 9.90%