This Revenue and Expense Recognition at the salesforce.com case study discusses the company's accounting methods in relation to its financial performance and considering the commissions of its sales representatives.
Harvard Business Review (TB0305-PDF-ENG)
October 04, 2012
Case questions answered:
- What is the salesforce.com business model?
- What are the key success factors in the company’s business?
- How will these be observable from the company’s financial performance?
- How successful has the company been recently?
- What is your assessment of the company’s financial performance?
- How does salesforce.com recognize subscription revenue? Is it consistent with GAAP?
- How does salesforce.com account for sales commissions? Is it consistent with GAAP?
- How should salesforce.com’s management respond, if at all to the criticism that its method of accounting for sales commissions distorts the company’s financial performance?
- Are the company’s shares are worth more than $100 per share? Less than $100 per share?
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Case answers for Revenue and Expense Recognition at salesforce.com
1. What is the salesforce.com business model?
Salesforce.com provides CRM (Customer and Collaboration Relationship Management) to various businesses around the world. It is also the leading provider of enterprise cloud computing applications.
2. What are the key success factors in the company’s business?
Cloud computing is an efficient and alternative to traditional software, which has less upfront risk than traditional software, and that gives the business access to a variety of robust, secure, scalable, and highly available applications, without the costs of managing them.
This is a major competitive advantage that salesforce.com has on its competitors, Oracle and SAP, who provide lock-in software options rather than cloud computing, and thus have less sophisticated options
3. How will these be observable from the company’s financial performance?
The company’s success is visible through the income statement. Both its revenue and net income have been increasing heartily. As an example, in 2010, salesforce.com has a 95% growth in its net income.
4. How successful has the company been recently?
The company has been very successful recently. With the increase in its net income, it is obvious that the business has thrived successfully over recent years.
5. What is your assessment of the company’s financial performance?
The financial performance of salesforce.com has been…