CRM — Salesforce Inc.

Will it survive?

• Can it pay its interest? 54.1×
  Comfortable
  Operating income $8.3B ÷ interest expense $154M

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient — it says solvent, not cheap.

• How heavy is the debt? 1.7×
  Conservative
  Total debt $14.4B ÷ operating income $8.3B

  Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.

• How long is cash tied up? 120d
  Capital-hungry
  DSO 126 + DIO 0 − DPO 6 days

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash. (Little or no inventory — a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital 10%
  Solid
  NOPAT $6.5B ÷ invested capital $66.3B (debt + equity − cash)

  The rate the business earns on the money tied up in it — Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high — pair this with Owner Earnings.

• Owner Earnings (free cash) margin 35%
  Cash machine
  Owner Earnings $14.4B = operating cash $15.0B − capex $594M

  What an owner could take out without starving the business. That's 35% of revenue. Treating stock comp as the real expense it is (less $3.5B of SBC) leaves $10.9B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).

• Are earnings backed by cash? 2.01×
  Cash-backed
  Cash from ops $15.0B ÷ net income $7.5B

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy — growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 98%
  Returns most of it
  Dividends + buybacks $14.2B ÷ Owner Earnings $14.4B

  Of $14.4B Owner Earnings, $14.2B (98%) went back to shareholders — $1.6B dividends, $12.6B buybacks. Net of $3.5B stock comp, the real buyback was about $9.1B. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway — or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 0.49×
  Harvesting
  Capex $594M ÷ depreciation $1.2B

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth — or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency — or a melting asset base). The ratio won't tell you which; the filings will.

Durability & moat — 2017–2026

A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says — judgments, not another chart of the numbers.

• Profitable years 10 of 10

  Never lost money over the record — the earnings stability Graham insisted on.

• Return on capital ≥ 15% 0 of 10 yrs

  A moat shows up as a high return on invested capital that holds year after year — not one good vintage.

• Operating margin 3% → 20%

  Margins are widening — pricing power intact or improving.

• Reinvestment — incremental ROIC 10%

  Reinvested capital earned only a modest return — growth is getting expensive.

• Owner earnings growth +24%/yr

  Free cash to owners grew about 24% a year over the record.

• Worst year 2020 · 1.7% op. margin

  Stayed profitable even in its hardest year — the resilience that survives recessions.

• Share count +3.5%/yr

  The share count is rising — dilution works against you on a per-share basis.

• Dividend record paid

  Paid a dividend in 2 of the years on record.