Salesforce: valuing a software business

Excel model available. Version 1.2 · Valuation date: 2026-09-04.

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Start with one piece of the business

Follow one subscription from the customer commitment to service delivery and cash collection. Keep bookings, recognised revenue, and cash receipts separate. They describe different stages of the same relationship.

Three things to work through

Revenue that lasts

Ask: What supports the next period of revenue, and what still depends on selling more?

Find: Subscription and support revenue, services revenue, remaining performance obligations, and disclosed customer indicators.

Then decide: Remaining performance obligations are contracted work still to be recognised as revenue, not cash already available to shareholders.

Growth that earns its cost

Ask: What does the business need to spend to sell, support, and improve the product?

Find: Sales and marketing, research and development, service delivery costs, and acquisition disclosures.

Then decide: Separate acquired growth from organic growth where the evidence allows. Do not project margin expansion while ignoring the spending needed for the growth case.

Cash per share

Ask: How much of the cash generation belongs to each share after dilution?

Find: Stock compensation, share awards, repurchases, diluted shares, and the cash-flow statement.

Then decide: Explain the economic cost of stock compensation. Adding it back while ignoring dilution can overstate value.

Where the valuation can go wrong

A revenue multiple needs a view on future margins and cash conversion. Company-reported free cash flow and the unlevered cash flow used in a DCF may differ; reconcile them. Keep undisclosed retention or customer metrics visibly unavailable.

Apply Mike’s judgment

A compelling growth story is a hypothesis to test. Ask what evidence supports the renewal, margin, and cash assumptions, then keep the downside visible if the growth arrives later or costs more.

Write down what must be true for the price to make sense. Test lower revenue and lower margins together, including financing and required investment. Keep buyer-created synergies separate from the business’s standalone value.

Open the workbook and try one change

1. Read Start Here, then open Valuation Summary to see the range of methods.
2. Review Assumptions and Sources & Adjustments. Separate reported figures from assumptions before changing the case.
3. Change one operating assumption, then test lower revenue and lower margins together. Follow the effect through Operating Forecast, DCF, and Sensitivities.
4. Read Checks after each change. Resolve a failed check or funding shortfall before relying on the result.

Use KPIs & SBC-FCF to follow stock compensation and cash generation through to each share. Then test slower subscription growth and the cost of delivering it. Keep the acquisition bridge separate from the operating forecast.

Compare the answers

Use Trading Comps and DCF to compare market pricing with the cash the business can generate. The Transactions and Sum-of-the-Parts sheets add perspectives where the inputs support them; read their assumptions before treating the outputs as evidence. Acquisition Returns is a buyer-affordability exercise, with its own financing and return assumptions.

Check enterprise value (the operating business) separately from equity value (what remains for shareholders after the relevant cash, debt, and other adjustments). If methods disagree, identify the assumption causing the gap before choosing a range.

Choose a valuation method

Copy this assumption note

• Assumption that matters: ___
• Evidence supporting it: ___
• What is still unknown: ___
• What changes in the downside: ___
• Effect on cash, price, or the handover: ___
• Next evidence to obtain and owner: ___

Carry the finding into the deal

Before You Buy: Follow the Work helps test the operating assumptions. After the Deal: Keep the Business Working helps assign the changes and protect continuity.