VEEVA SYSTEMS INC. (VEEV) valuation

1 · Enterprise-value target (what the DCF must match)

Diluted shares = point-in-time basic × 1.0203× (filer's TSM dilution multiplier from WeightedAverageNumberOfDilutedSharesOutstanding ÷ WeightedAverageNumberOfSharesOutstandingBasic , period ending 2026-01-31 ). See the diluted-shares methodology.

Cash on this page folds the base cash concept together with marketable / available-for-sale securities ( AvailableForSaleSecuritiesDebtSecuritiesCurrent $5.14B ) — the non-operating liquid pile an acquirer would pocket at close. Excluded for insurers and REITs whose investment portfolios back operating liabilities; see the methodology for the full rule.

Cash is split into the operating floor an operating business needs (2% of revenue, Damodaran heuristic) and the distributable surplus that flows to equity holders. Only excess cash is netted against debt because the DCF values the operating business, and the operating cash stays inside it. Banks, insurers, and REITs are exempt — their cash backs deposits / regulatory reserves / investment portfolios rather than working capital. See the methodology.

Fair-value hierarchy on the marketable / AFS / FvNi portion (ASC 820, as of 2026-01-31): L1 $0 (active-market quotes — 0% ), L2 $5.14B (observable inputs — 100% ), L3 $0 (unobservable inputs — 0% ). Reported at par in the equity bridge above; a reader who finds the L3 share large may mentally haircut it. Sourced from us-gaap:AvailableForSaleSecuritiesDebtSecuritiesCurrent under FairValueByFairValueHierarchyLevelAxis. See the methodology.

Market cap     = price × diluted shares
               = $203.92 × 167.1M
               = $34.08B

Total cash     = $6.56B
Operating cash = 2% × revenue = $63.9M
Excess cash    = max(0, total − operating) = $6.50B

EV target      = market cap + total debt − excess cash
               = $34.08B + $95.9M − $6.50B
               = $27.68B
            

2 · Starting NOPAT (base year 0)

Tax rate source: 3-year median of EffectiveTaxRate. See the tax-rate methodology for the precedence ladder.

GAAP EBIT          = $916.4M   (28.7% of revenue)
× (1 − tax rate)  = × (1 − 22.3%) = × 0.7768
= NOPAT₀            = $711.8M
            

3 · Invested capital & starting ROIC

Total debt above includes the operating-lease liability ($95.9M). The corresponding ROU asset sits on the balance sheet and flows through book equity via the accounting identity (E = Assets − Liabilities), so IC reflects the post-ASC-842 operating-capital base without an explicit add-back.

Net deferred-tax position ($272.3M net DTA) stripped from IC. DTAs (NOL / credit carryforwards, post valuation allowance) and DTLs (timing differences from accelerated depreciation) are tax-accounting artifacts, not capital deployed in operations — equity-based IC inadvertently absorbs them via E = Assets − Liabilities, so we back them out so ROIC reflects operating returns on operating capital.

Invested capital = total debt + book equity − excess cash − net deferred tax (DTA)
                 = $95.9M + $7.21B − $6.50B − $272.3M
                 = $541.4M

Raw ROIC₀        = NOPAT₀ / Invested capital
                 = $711.8M / $541.4M
                 = 131.5%
Cap applied    = min(raw, 40.0%)   (buyback-shrunk IC inflates raw NOPAT/IC past 40%; capping prevents the DCF from modelling infinite return on capital)
ROIC₀ used       = 40.0%
            

4 · WACC derivation

Cost of equity from CAPM , after-tax cost of debt from a synthetic credit rating built off interest coverage , weighted by market values of equity and debt. Inputs: Rf is FRED DGS10's 90-day mean (latest 2026-05-29); β is the 5-yr weekly regression vs VOO, floored at 0.80 (Health Care sector floor) for the cost-of-equity step (the empirical security market line is much flatter than CAPM predicts — Frazzini-Pedersen 2014, "Betting Against Beta" — so unfloored CAPM systematically under-estimates required return for low-β filers); ERP is the latest Damodaran US total ERP (2026-01-01). The synthetic rating is a Damodaran coverage-table heuristic, not an empirical S&P / Moody's letter. It maps EBIT-÷-interest into a letter-grade bucket and reads the spread out of a lookup table; an actual agency rating considers qualitative factors (governance, market position, jurisdiction, off-balance-sheet exposure) the coverage ratio can't capture. For most filers the gap is small; for capital-light, high-coverage names — software, IT services, consumer brands — this method tends to print AAA/AA where actual agency ratings sit at A/BBB+, and the resulting cost of debt is a few tens of bps light. WACC is more sensitive to β and weights than to credit, so the headline barely moves; flagged here so readers don't read the rating as an empirical agency assessment.

Cost of equity        = Rf + β × ERP
                      = 4.3% + 1.22 × 4.5%
                      = 9.8%

Cost of debt (pretax) = Rf + credit spread
                      = 4.3% + 1.5%   (synthetic A− (low leverage, coverage uncomputable))
                      = 5.8%
× (1 − tax rate)      = × (1 − 22.3%)
= Cost of debt (a/t)  = 4.5%

Weights               E/V = 99.7%, D/V = 0.3%

WACC (raw)            = E/V × cost_e + D/V × cost_d_after_tax
                      = 99.7% × 9.8% + 0.3% × 4.5%
                      = 9.8%
                

5 · Growth path construction

Source       = analyst consensus: Y1 = 12.7%, Y2 = 12.2%

Detailed derivation:
  Current-FY analyst avg revenue forecast = $3.60B
  Next-FY analyst avg revenue forecast    = $4.04B
  Base revenue (FY2026) = $3.20B

  Y1 = current-FY forecast / FY base revenue − 1
     = $3.60B / $3.20B − 1
     = 12.7%

  Y2 = next-FY forecast / current-FY forecast − 1
     = $4.04B / $3.60B − 1
     = 12.2%
Clamp        = [2.5%, 60%] (no sub-terminal or 60%+ starts)
Plateau rate = 12.2% (Y2 — held from year 2 through end of plateau)
Tier         = 3 years (rule: plateau rate < 15% → 3y, < 25% → 5y, else 7y)
Solver ext.  = 5 years (solver extended to reconcile the DCF with the current price)
Plateau      = 5 years
Fade         = linear from effective Y2 to terminal 2.5% across the remaining 5 years

Effective Y1 growth after solver bumps = 30.7%
Effective Y2 growth after solver bumps = 30.2%
Growth by year:
  Y1 = 30.7%
  Y2 = 30.2%
  Y3 = 30.2%
  Y4 = 30.2%
  Y5 = 30.2%
  Y6 = 24.7%
  Y7 = 19.1%
  Y8 = 13.6%
  Y9 = 8.0%
  Y10 = 2.5%
                

6 · Margin path construction

Starting margin (Y0) = 27.1%   (source: 66% latest FY + 34% 3-yr mean (gap 4.7pp falls in 4–6pp transition band))
Target margin (Y10)  = 31.2%   (solver output, normal band)
Year-t margin        = starting + (target − starting) × (t / 10)
Margin by year:
  Y1 = 27.5%
  Y2 = 27.9%
  Y3 = 28.3%
  Y4 = 28.8%
  Y5 = 29.2%
  Y6 = 29.6%
  Y7 = 30.0%
  Y8 = 30.4%
  Y9 = 30.8%
  Y10 = 31.2%

Filer-history margin distribution (16 FY, trimmed-10-90):
  p25 = 20.8%, p50 = 22.6%, p75 = 25.3%
  raw min = 10.8%, raw max = 28.7%
Path-stretch sub-counts:
  10 of 10 years above filer p75 (25.3%)
  7 of 10 years above filer max-ever (28.7%)
  Terminal/start ratio = 115%
Binding trigger = unprecedented-margin (drives the page badge)
            

7 · ROIC path construction

The capex heuristic compares latest-period CapEx (—) against the Normalized CapEx (3-yr mean) of — — mean of the last three annual CapEx values. When the latest is above 1.4× that mean and CapEx is at least 5% of revenue, we treat the filer as capital-intensive and mid-investment, hold ROIC flat for a 5-year harvest phase, and only then fade to terminal ROIC. The 3-yr mean does not feed the DCF directly — it only gates this flag.

Capex-heuristic inactive (latest CapEx vs the 3-yr mean of — — below the 1.4× / 5%-of-revenue gates).
Fade from Y1: ROIC_t = ROIC₀ + (ROIC_terminal − ROIC₀) × (t / 10)
ROIC₀ = 40.0%; ROIC_terminal = 9.8%

ROIC by year:
  Y1 = 37.0%
  Y2 = 34.0%
  Y3 = 30.9%
  Y4 = 27.9%
  Y5 = 24.9%
  Y6 = 21.9%
  Y7 = 18.9%
  Y8 = 15.8%
  Y9 = 12.8%
  Y10 = 9.8%
            

7a · Reinvestment formula

The Damodaran growth-firm closure Reinvestment_t = ΔRevenue_t ÷ salesToCapital collapses to noise whenever EITHER the 3-year revenue change OR the 3-year net reinvestment is small relative to the revenue base. The model picks the most-honest formula via a 3-tier ladder: tier-1 standard sales-to-capital fires only when both signals carry magnitude AND the resulting ratio sits inside the typical 0.5–8 band; tier-2 substitutes a TTM (CapEx − D&A) ÷ Revenue ratio applied to each projection year's revenue (not its delta); tier-3 falls through to the ΔNOPAT ÷ ROIC closure when neither signal is usable.

Inputs:
  ΔRev_3y                          = $1.04B
  netReinvest_3y (CapEx − D&A)     = n/a
  avgRevenue_3y                    = $2.68B
  TTM CapEx − D&A                  = n/a
  TTM Revenue                      = $3.20B

Tier-1 gates (all three must clear):
  |ΔRev_3y| / avgRev_3y > 1.0%     38.89%         ✓ pass
  netReinv_3y / avgRev_3y > 1.5%   n/a            ✗ fail
  0.5 ≤ s2c candidate ≤ 8          n/a            ✗ fail

Tier-3 fires (no usable s2c or CapEx-of-revenue input — gate failed: denominator). Falling through to the ΔNOPAT ÷ ROIC closure.
  Reinvestment_t = max(0, ΔNOPAT_t ÷ ROIC_t)   when ΔNOPAT_t > 0
            

8 · Solver iterations

Each row is one configuration in the solver ladder; the "Solved margin" column is the result of bisecting the EBIT margin (up to 80 inner iterations) to match the EV target for that row's plateau / Y1 bump / phase. The solver sweeps Y1 growth bumps 0pp → +20pp across the plateau ladder inside the normal margin bracket, then — if nothing reconciles — repeats the same sweep in a widened margin band ([-10%, 80%]). The first feasible row is the one the page uses. If no combination reconciles, the page shows the row whose PV sits closest to the target EV so both levers are balanced.

9 · Terminal value derivation

NOPAT_{N+1}         = NOPAT_{10} × (1 + g_terminal)
                    = $5.44B × (1 + 2.5%)
                    = $5.58B

ΔNOPAT              = NOPAT_{N+1} − NOPAT_{10}
                    = $136.0M
Reinvestment_{N+1}  = ΔNOPAT / ROIC_terminal
                    = $136.0M / 9.8%
                    = $1.39B

FCF_{N+1}           = NOPAT_{N+1} − Reinvestment_{N+1}
                    = $5.58B − $1.39B
                    = $4.19B

Terminal value (TV) = FCF_{N+1} / (WACC − g_terminal)
                    = $4.19B / (9.8% − 2.5%)
                    = $57.44B

PV(TV)              = TV / (1 + WACC)^(10 − 0.5)
                    = $57.44B / 2.428
                    = $23.66B

10 · Reconciliation check (DCF PV vs. the market)

This isn't a fair value — it's the inverse check. The solver built the scenario so that DCF PV reproduces the current enterprise value; if the normal bracket worked the delta below is ~0 by construction. A non-zero delta only appears when the solver fell through to the widened margin band.

Σ PV(FCF_1..10) = $4.02B
+ PV(TV)          = $23.66B
= Enterprise value = $27.68B   (≈ EV target $27.68B by construction)
− Total debt      = $95.9M
+ Excess cash     = $6.50B   (total $6.56B − operating $63.9M)
= Equity value    = $34.08B
÷ Diluted shares  = 167.1M
= DCF PV / share  = $203.92

Market price      = $203.92
Reconciliation Δ  = +0.0%   (≈ 0 by construction — the solver anchored on this price)