Company DCF analysis file
Salesforce DCF Analysis
Salesforce’s DCF needs to connect subscription earnings to the cash cost of acquiring and serving contracts. Deferred revenue can fund delivery, while capitalized commissions defer expense rather than remove cash cost. The annual bridge below separates those effects from investment gains and acquisition spending before a forward cash case is discounted.
Read subscription growth together with its delivery and selling costs
Fiscal years ended January 31, 2025 and January 31, 2026; consolidated company. Amounts use the monetary scale stated in each table caption. Source: annual financial statements. Reported lines retain the issuer’s scope; derived ratios use the displayed denominators.
| Measure | FY2025 | FY2026 |
|---|---|---|
| Revenue | 37,895 | 41,525 |
| Subscription / support cost | 6,198 | 6,796 |
| Professional / other cost | 2,445 | 2,474 |
| Gross profit | 29,252 | 32,255 |
| R&D | 5,493 | 5,993 |
| Sales / marketing | 13,257 | 14,345 |
| General / administrative | 2,836 | 3,000 |
| Restructuring | 461 | 586 |
| Operating income | 7,205 | 8,331 |
| Net income | 6,197 | 7,457 |
| Gross margin: derived | 77.2% | 77.7% |
| Operating margin: derived | 19.0% | 20.1% |
The growth case must fund both delivery and contract acquisition. Sales and marketing remain an operating cost even when some incremental contract costs first enter an asset balance. Test the assumed renewal rate and new-business productivity against the selling expense and commission cash required by the same case.
The later annual period contains a changed acquisition perimeter. Separate acquired contribution from the comparable business before assigning one growth rate or cost ratio to the entire subscription base. Acquisition consideration belongs in a capital-allocation bridge; omitting it from a narrow post-capex cash measure does not make it costless.
Distinguish subscription contribution from professional services
The annual revenue and cost statement supports these selected gross contributions. These categories are not separately allocated operating cash flows.
| Category | Revenue | Direct cost | Gross contribution |
|---|---|---|---|
| Subscription / support | 39,388 | 6,796 | 32,592 |
| Professional / other | 2,137 | 2,474 | -337 |
| Consolidated | 41,525 | 9,270 | 32,255 |
The services category has a negative direct gross contribution on this basis, but a valuation decision also needs its relationship to implementation and subscription retention. Do not remove a service cost while retaining all assumed subscription economics without explaining how customers would still be deployed and supported.
Trace earnings into cash and reinvestment
Reconciliation source: annual earnings and cash-flow statements. Subtotals below are checkpoints, not extra amounts to add. Grouped adjustments are calculated from the disclosed cash-flow lines.
| Step | FY2026 |
|---|---|
| Operating income | 8,331 |
| Net nonoperating bridge | 1,189 |
| Income tax | -2,063 |
| Net income: subtotal | 7,457 |
| Depreciation / amortization | 3,631 |
| Contract-cost amortization | 2,197 |
| Share-based compensation | 3,509 |
| Strategic investment gains | -1,017 |
| Capitalized contract costs: cash | -2,811 |
| Other operating balance changes | 2,030 |
| Operating cash: subtotal | 14,996 |
| Capital expenditures | -594 |
| Cash after capex: derived | 14,402 |
The contract-cost pair is a net $614 million cash drag relative to the earnings starting point: $2,197 million of amortization is added back, but $2,811 million of new contract costs is paid and capitalized. Forecast both lines. The other operating-balance group combines receivables, prepayments, payables, leases and unearned revenue; customer advances still carry a future service obligation.
The narrow remainder precedes $9,268 million of business purchases, net of acquired cash, and other investing and financing flows. Investment gains are removed in the cash reconciliation; share compensation still requires a dilution or replacement-cost policy. Neither item justifies treating accounting earnings as distributable common cash.
Test contract acquisition cash before assuming better cash conversion
Illustration: increase cash capitalized contract costs by 10%, holding current amortization, all other operating cash movements and capex fixed. This isolates acquisition cash timing; it assumes no extra revenue or improved retention.
| Measure | Historical basis | Illustrative case |
|---|---|---|
| Cash capitalized contract costs | 2,811 | 3,092.1 |
| Operating cash | 14,996 | 14,714.9 |
| Cash after capex | 14,402 | 14,120.9 |
The cash reduction is $281.1 million. A complete multi-year case must also roll forward the contract-cost asset and its later amortization, rather than perpetually deducting higher cash cost with an unchanged accounting asset. Any revenue benefit needs its own explicit renewal or acquisition assumption.
Keep interim reporting separate from the annual basis
Q2 FY2027 covers 2026-05-01 through 2026-07-31 and was released 2026-08-26. Revenue was $11,345 million in this quarter. Source: official Q2 FY2027 results.
The later quarter belongs to FY2027 and a different acquisition perimeter from the annual opening comparison. Use its contract collections and delivery commitments to roll the annual cash schedules forward; do not annualize quarterly revenue or treat unearned revenue as a second source of value after it has already funded operating cash.
Turn the financial basis into a DCF case
| Decision | Treatment |
|---|---|
| Revenue | Separate comparable subscription demand, acquired contribution and professional services. |
| Cost base | Retain delivery, research and selling support consistent with the renewal and acquisition case. |
| Contract investment | Roll forward capitalized commission cash and amortization together; avoid a free non-cash add-back. |
| Cash definition | Reconcile customer advances, investment gains, tax and financing effects before choosing enterprise or equity cash. |
| Equity bridge | Use dated financing claims, available cash and dilution; distinguish acquisition deployment from recurring physical capex. |
An enterprise case should begin with operating profit after an explicit operating tax assumption and deduct the contract investment and operating funding needed by its revenue path. If reported CFO is used as the starting point, reconcile the tax and financing convention explicitly. A terminal subscription margin must still fund customer retention and product delivery.
The Salesforce company analysis explains the wider operating context. Use the company forecast tool and DCF calculator with explicit assumptions. Use the historical financials to define an explicit operating and reinvestment case, then supply valuation-date capital costs, claims and diluted shares. Check that each cash claim is counted once before deriving a per-share value.
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