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Kwasi Boateng
ACCT 3123
11/24/2021
Discussion Memo
1) Salesforce creates and supports customer relationship management (CRM) software that helps
break down the technology silos between departments to give companies a complete view of
their customer everywhere they interact with their brand. The main objective of Salesforce is to
optimize the performance of the sales and marketing teams. Salesforce also seeks to drive sales
growth, sales turnover, increasing sales to existing customers, and up-sell strategies. Salesforce
derives its revenue from two main sources: 1) subscription revenues, which are comprised of
subscription fees from customers accessing their enterprise cloud computing services, software
licenses, and from customers paying for additional support beyond the standard support that is
included in the basic subscription fees; and 2) related professional services such as process
mapping, project management, implementation services, and other revenue.
Subscription and support revenues accounted for approximately 93 percent of Salesforce’s total
revenues for the fiscal year 2019.
2a) Performance Obligation is a form of a promise in a contract with a customer to transfer an
asset (such as goods or services) to that customer.
2b) It means that Salesforce has projects that have a written award, a letter of intent, a notice to
proceed, or an agreed-upon work order to perform work on mutually accepted terms and
conditions. Performance Obligation represents contracted revenue that has not yet been
recognized, which includes unearned revenue and unbilled amounts that will be recognized as
revenue in future periods.
3) When it comes to software companies it is suggested that the cost of goods sold is directly
linked to the profitability of the company through gross margin. The gross margin should be
around 80-90% which means that the cost of goods sold should be about 10-20% of the revenue.
Based on the above suggestion Salesforce’s cost of goods sold can be determined by taking 10-
20% of their revenue.
4) The full retrospective method is used to determine the cumulative effects (difference between
the actual retained earnings reported at the beginning of the year using the old method versus
what it would have been if the needed method is used) of applying the new standard as of the
beginning of the first historical period presented.
The full retrospective approach ensures comparability, better data, and more useful trends will
have an impact on the financial statement of Salesforce. Additionally, looking at the open
contracts at the end of the year, will ensure apples-to-apples insight across reporting periods.
5) There are four categories in Salesforce’s disaggregated revenue disclosure and they are Sales
Cloud, Salesforce Platform and Other, Marketing and Commerce Cloud, and Service Cloud. The
category that experienced the most revenue growth in 2019 was the Salesforce Platform and
Other, followed by the Marketing and Commerce Cloud, Service Cloud, and the Sales Cloud
recording the least revenue growth in 2019.
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6) Europe and the Asia Pacific experienced the greatest revenue growth in 2019.
7) The acquisition of Tableau was seen as the biggest bid for Salesforce. Tableau was acquired
by Salesforce for a whopping sum of $15.7 billion, which was 13.5x Tableau’s 2018 revenue of
$1.16 billion. Few other acquisitions made by Salesforce in 2019 were Griddable, MapAnything,
Bonobo AI, and Click Software.
8) Account receivable decreases when payment from customers is received. When cash payment
is received from a debtor, cash is increased and the accounts receivable is decreased.
According to Salesforce, the revenue growth rates of each core service offerings fluctuate from
quarter to quarter over time.
The reason for a general spike in the fourth-quarter is as a result of large enterprise account
buying patterns. According to Salesforce, their fourth quarter has historically been their strongest
quarter for new business and renewals. The year-on-year compounding effect of the seasonality
in both billing patterns and overall new and renewal business causes the value of invoices
generated in the fourth quarter for both new business and renewals to increase as a proportion of
the total annual billing.
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