Shares of on-demand software provider Salesforce.com (NYSE:CRM) are anything but on sale this week, easing back just a bit from their 19% leap skywards last week in the wake of a strong earnings report.

Appropriately enough, sales was the story last week. Salesforce.com turned in 64% sales growth, up to $118 million for the quarter, and brought its total subscriber count up past the half-million mark as it added new subscribers at Bear Stearns (NYSE:BSC), Hitachi (NYSE:HIT), and New York Times (NYSE:NYT). In the face of those numbers, the fact that GAAP profits were non-existent went unnoticed.

And perhaps rightly so. Because whatever its accounting profits, on a cash profits basis, Salesforce.com turned in quite a good quarter indeed. It generated approximately $30 million in operating cash flow, which was more than twice what it earned in fiscal third-quarter 2005, and close to three times its first-quarter 2006 results. Meanwhile, capital expenditures moderated (again, in both year over year and sequential comparisons), with the result that the business has now generated a total of $37 million in free cash flow during the first half of 2006 -- a 90% improvement over last year's $19.5 million.

Telescope out that $37 million in first half of the year 2006 free cash flow, and the company is currently on track to delivering $74 million in free cash flow for the year, and could do even more. Historically, free cash flow in the second half of the year has outstripped first half of the year free cash flow for this company.

Is that good or bad?
Well, it's clearly good when stood in contrast to the results under generally accepted accounting principles. Expand those out to get a run rate on GAAP profits, and the firm is on track to lose $0.7 million this year. And this isn't just an exercise in creative mathematics, either; in the guidance portion of the earnings release, management itself warned investors to expect a full-year GAAP loss of as much as $0.04 per share (and in the best possible case, breakeven results.) It's kind of hard to work a useful P/E ratio with numbers like those.

But with the positive free cash flow? Now that's what I'm talking about. That gives us something to work with. Take Salesforce.com's $3.7 billion market cap and divide it by the hypothesized $74 million in full-year 2006 free cash flow, and we're looking at a company that could potentially sport a price-to-free cash flow ratio of 50 by the end of the year.

Personally, I think that's insane. Overpriced. Way too expensive. But, when measured against the 90% year-over-year growth in free cash flow, the 50 P/FCF ratio almost looks. cheap?! Well, that's the trouble with trying to value a young, fast-growing company with traditional valuation measures.

What were we looking for on the day before Salesforce.com's news? Certainly not news that the CFO would be sticking around. (Oh, yeah. Did I mention that CFO Steve Cakebread is staying?) Read last week's earnings preview in "Foolish Forecast: Salesforce.com, on Balance."

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Fool contributor Rich Smith does not own shares of any company named above.