Andrew Ferris, a financial analyst at Southern Cross Capital, is being tasked wi

Andrew Ferris, a financial analyst at Southern Cross Capital, is being tasked with evaluating SalesForce.com’s accounting methods and recent financial performance in order to determine whether to recommend that SalesForce.com’s stock should be acquired for Southern Cross Capital’s Growth Service Fund. In order to make a recommendation, you will first need to analyze SalesForce.com’s business strategy, growth outlook, and primarily, its accounting methods and their impact on the company’s financial performance.
As Andrew Ferris, please prepare a maximum 2-page (minimum 1.5 line spacing) memorandum to your boss at Southern Cross Capital that considers the below five questions, primarily focused on making a recommendation on whether to buy or not. You are limited to a maximum of 2 pages of text, but you can include an additional 2 pages for any exhibits you prepare if you think they will help your boss in understanding your analysis.
1) What is salesforce.com’s business model? What are the key success factors in the company’s business? How will these be observable from the company’s financial performance?
2) How successful has the company been recently? What is your assessment of the company’s financial performance?
3) How does salesforce.com recognize subscriiption revenue? Is it consistent with GAAP? Evaluate the impact on the company’s financial statements if the company had always recognized revenue at the time a contract was signed, instead of deferring revenue over time?
4) How does salesforce.com account for sales commissions? Are these accounting methods in accordance with GAAP? Evaluate the impact on the company’s financial statements if the company had always expensed sales commissions instead of capitalizing and amortizing them over time.
5) Do you think the company’s shares are worth more or less than $100 per share? Should Southern Cross Capital add shares of SalesForce.com to its Growth Service Fund?