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Salesforce is Stashing $1.4 Billion in Debt Off-Balance Sheet
Investors should add back operating lease liabilities the cloud software provider conveniently excludes.
June 2, 2021
In its Q1 2021 10-Q, Salesforce (CRM), best known for its customer relationship management (CRM) software, offers investors an incomplete picture of its debt. The company says it has $3.5 billion in operating lease liabilities. This understates Salesforce’s true liability since the company doesn’t count leases not yet commenced. The additional liabilities— which are buried in the footnotes— significantly understate the company’s future liabilities:
“As of April 30, 2021, the Company has additional operating leases that have not yet commenced totaling $1.4 billion and therefore not reflected on the condensed consolidated balance sheets and tables above.”
We calculate that Salesforce discounts its operating leases by approximately 3%. If we add the hidden $1.4 billion to Salesforce’s future lease liabilities, our analysis reveals the net present value of the company's future operating lease liabilities is actually $4.5 billion, not $3.5 billion as Salesforce would prefer investors believe. In other words, Salesforce is understating its future operating lease obligations by 22.2% and its total liabilities by 4.48%.
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