Salesforce Debt Rises: Is This a Riskier Investment?

Salesforce's financial structure has undergone a notable shift, with debt now financing 38.1% of its assets, a substantial increase compared to its 14-year average of 14.8%. This elevated debt load follows recent senior note issuances, placing common equity in a more junior position. Despite the increased leverage, Salesforce's operational performance has also improved.

In contrast to its historical thin operating margins, the company now boasts a 21.5% operating margin. Furthermore, free cash flow has seen a significant boost, currently standing at 34.5% of revenue, a marked improvement from the 14-year average of 20.2%. This enhanced cash generation is partly supported by $33.5 billion in current remaining performance obligations, representing contracted revenue due within the next twelve months.

A critical indicator for lenders and investors is the growth rate of cash flow relative to debt. Salesforce projects fiscal 2027 subscription and support revenue to grow above 12% year-over-year, with operating and free cash flow expected to increase by approximately 4% to 5%. The rapid compounding of subscription revenue, more than double the pace of cash available for debt servicing, highlights an unusual financial configuration demanding close monitoring.