earning management of CRM (stock name) (salesforce company)

NASDAQ: SQ Team 1

Company Overview I Company Description

● Founded in 2009 ● Purpose: give sellers “economic empowerment” by

providing them with quick and dependable services throughout a business’s entire development

● One of the largest players in the mobile processing market and has garnered an impressive reputation

● Products and services to include affordable tools for smaller businesses to give them the same benefits as larger companies

● Seamless point-of-sale (POS) solutions to sync your online, mobile and in-store credit card transactions.

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

82%Transactions

2% Hardware18% Subscription & Service

Company Overview II

● CEO of Twitter and Co-Founder of both companies

● Took Square public in 2015

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

Jack Dorsey - CEO, Chairman, and President (2009-Present)

Financial Overview Market Data (in USD Millions)

Share Price (11/19) $70.40

Shares Outstanding 395,194 shares

Market Capitalization (11/5) $30,224

Cash $219,087

Debt $2,851,224

P/E $(440)

Recent Acquisitions

Industry Analysis

STRENGTHS

S.W.O.T. Analysis

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

● Great performance in new markets ● Robust brand portfolio ● Successful track record of developing and implementing new products

WEAKNESSES

OPPORTUNITIES

THREATS

● Gaps in product range marketed by company ● Limited success outside of core business ● Investment in R&D is far below the fastest growing players in the market

● Market development lead to dilution of competitor’s advantage ● Expanding into international markets ● Stable free cash flow

● Shortage of skilled workforce in certain global markets ● New technologies developed by competitor or market disruptor

Porter’s Five Forces

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

Industry: Merchant Payment Services

Threat of Entry Low

Threat of Substitutes High

Supplier Power Low

Buyer Power High

Existing Rivalry High

Industry Competition

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

(Payment Processing)

History Market Share

20 Years 8 Years 9 Years

Years Active

Acquisitions

16 5 13 62.8%

19.7%

2.2%

15.3%

(Out of 1,270,057 Domains World-Wide)

Ratio Analysis

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

Ratios

● Current Ratio: 1.83 ● Quick Ratio: 1.66

Liquidity Solvency ● Liabilities-to-Assets: 0.64 ● Financial Leverage: 2.78 ● Interest Coverage: 6.41

Quick Ratio

Current Ratio

Debt-to-Equity

Liabilities to Assets

Interest Coverage

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

Ratios

● Gross Margin: 37.90% ● Net Profit Margin: -2.84% ● ROA: -3.70% ● ROE: -9.22%

Profitability ● A/R Turnover: 4.70 ● Inventory Turnover: 90.16 ● Asset Turnover: 1.30

Turnover

Valuation

Free Cash Flow to Equity

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

CAPM/Expected Rate of Return

Growth Rate of FCFE and Terminal Growth

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

Valuation and Sensitivity

Accounting Implications

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

Revenue Recognition Overview

A company recognizes revenue when: ○ A persuasive evidence of an agreement exists ○ The delivery of obligations to its customers has occurred ○ The related fees are fixed or determinable, and collectability is reasonably

assured

Square, Inc. charges retailers a transaction fee based on a percentage of the total amount of the payment that is being processed.

○ Transaction fees recognized as revenue on a gross basis.

Square - Primary obligor to seller ○ Responsible for processing payment ○ Has latitude in establishing pricing with respect to sellers ○ Assumes credit risk for service

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

Revenue Recognition

● Recorded net of returns ● Recognized upon delivery of hardware

to end customer ○ Delivery occurs once title and risk of

loss transferred to customer

Hardware ● Recognized as right of access is utilized ● Net of returns

Subscription/Service Based

● Generated from sales of: ○ Contactless chip readers ○ Physical card readers ○ Square Stand ○ Square Register

● Generated from: ○ Instant Deposit ○ Square Capital ○ Various software as a service

products

Ratio AnalysisCompany Overview Industry Analysis Valuation Accounting Implications

Caviar

● Caviar is an integrated food ordering platform that facilitates food delivery services for restaurants.

● Revenue consists of fees charged to restaurants, as sellers, and delivery and service fees charged to customers.

● All of these fees are recognized as revenue upon delivery of the food, net of refunds

Weebly

● Weebly is a website editor that allows you to drag-and-drop features onto your page, eliminating the need for previous coding knowledge.

● Subscription based

Acquisitions

References

Jiang, Li. “I Can't Circle Square ($SQ)'s Valuation – Li Jiang – Medium.” Medium.com, Medium, 2 Aug. 2018, medium.com/@lijiang2087/i-cant-circle-square-sq-s-valuation-9a8729c88aba.

“Square's Financials.” MarketWatch, MarketWatch, 2018, www.marketwatch.com/investing/stock/sq/financials. “Square, Inc. Form 10-K for Fiscal Year Ended December 31, 2017.” EDGAR. Securities and Exchange

Commission, 2017, https://www.sec.gov/Archives/edgar/data/1512673/000151267318000004/a10-kfilingsq uarein2017.htm.

“Square, Inc. Form 10-K for Fiscal Year Ended December 31, 2016.” EDGAR. Securities and Exchange Commission, 2016, https://www.sec.gov/Archives/edgar/data/1512673/000162828017001754/a10-kfili ngsquareinc2016.htm.

“Square, Inc. Form 10-K for Fiscal Year Ended December 31, 2015.” EDGAR. Securities and Exchange Commission, 2015, https://www.sec.gov/Archives/edgar/data/1512673/00015126731600 0002/a10-kfilingsquareinc2015.htm.

“Square Inc (SQ) People.” Reuters, Thomson Reuters, 2018, www.reuters.com/finance/stocks/company-officers/SQ.

Questions?