When you are looking at a software company that has a lot of subscription based revenue, what is best practice for projecting this deferred revenue out over a few years? Do you assume it's some % of net income / sales, or look at historical changes, or something else?
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Seeing as it probably won't impact your valuation much, i think a % revenue should suffice. Although you could be more accurate. % of cash sales or function of unit sales might be more accurate.
Not sure of the level of detail you have been provided, but if you understand the terms (life) of the contracts associated with the deferred revenue and the company's revenue recognition policy, and you are provided unit sales, you should be able to come up with a pretty solid number.
Although, I'm lazy and project WC as a % of revenue whenever I can get away with it. Something to keep in mind with deferred revenue is that it tends to overstate a company's liabilities, since the cost of servicing $100 in deferred revenue is not actually $100. It might be more of a $70 liability depending on the company's margins
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