Intrinsic value of Morgan Stanley - MS

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$43.69

  Intrinsic Value

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  Value-price divergence*

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$43.69

 
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Our model is not good at valuating stocks of financial companies, such as MS.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 81.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  0.14
  21.80
  20.12
  18.61
  17.25
  16.02
  14.92
  13.93
  13.04
  12.23
  11.51
  10.86
  10.27
  9.74
  9.27
  8.84
  8.46
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.09
  5.98
  5.88
  5.79
Revenue, $m
  37,949
  46,222
  55,522
  65,853
  77,211
  89,582
  102,948
  117,287
  132,576
  148,792
  165,916
  183,931
  202,824
  222,589
  243,224
  264,733
  287,127
  310,421
  334,640
  359,810
  385,966
  413,148
  441,400
  470,772
  501,321
  533,105
  566,190
  600,645
  636,545
  673,969
  713,000
Variable operating expenses, $m
 
  35,725
  42,780
  50,618
  59,235
  68,621
  78,761
  89,640
  101,239
  113,542
  126,533
  139,543
  153,876
  168,871
  184,526
  200,845
  217,834
  235,507
  253,881
  272,977
  292,821
  313,442
  334,876
  357,160
  380,336
  404,450
  429,550
  455,691
  482,927
  511,319
  540,931
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  29,101
  35,725
  42,780
  50,618
  59,235
  68,621
  78,761
  89,640
  101,239
  113,542
  126,533
  139,543
  153,876
  168,871
  184,526
  200,845
  217,834
  235,507
  253,881
  272,977
  292,821
  313,442
  334,876
  357,160
  380,336
  404,450
  429,550
  455,691
  482,927
  511,319
  540,931
Operating income, $m
  8,848
  10,497
  12,741
  15,235
  17,976
  20,961
  24,187
  27,647
  31,337
  35,250
  39,383
  44,388
  48,948
  53,718
  58,698
  63,888
  69,293
  74,914
  80,759
  86,833
  93,146
  99,705
  106,524
  113,612
  120,984
  128,655
  136,639
  144,954
  153,618
  162,650
  172,069
EBITDA, $m
  10,584
  12,162
  14,608
  17,327
  20,315
  23,570
  27,087
  30,860
  34,882
  39,149
  43,655
  48,394
  53,366
  58,566
  63,995
  69,654
  75,546
  81,676
  88,048
  94,670
  101,552
  108,704
  116,138
  123,866
  131,903
  140,266
  148,971
  158,037
  167,483
  177,329
  187,599
Interest expense (income), $m
  2,834
  12,786
  18,028
  24,131
  30,911
  38,365
  46,483
  55,255
  64,664
  74,698
  85,340
  96,577
  108,400
  120,798
  133,769
  147,311
  161,426
  176,122
  191,409
  207,302
  223,820
  240,985
  258,823
  277,364
  296,639
  316,687
  337,545
  359,257
  381,868
  405,428
  429,987
Earnings before tax, $m
  8,848
  -2,289
  -5,287
  -8,896
  -12,935
  -17,403
  -22,296
  -27,607
  -33,327
  -39,447
  -45,957
  -52,189
  -59,452
  -67,081
  -75,072
  -83,422
  -92,133
  -101,207
  -110,650
  -120,469
  -130,675
  -141,280
  -152,300
  -163,752
  -175,655
  -188,032
  -200,906
  -214,303
  -228,250
  -242,778
  -257,918
Tax expense, $m
  2,726
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  5,979
  -2,289
  -5,287
  -8,896
  -12,935
  -17,403
  -22,296
  -27,607
  -33,327
  -39,447
  -45,957
  -52,189
  -59,452
  -67,081
  -75,072
  -83,422
  -92,133
  -101,207
  -110,650
  -120,469
  -130,675
  -141,280
  -152,300
  -163,752
  -175,655
  -188,032
  -200,906
  -214,303
  -228,250
  -242,778
  -257,918

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  22,017
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  814,949
  962,956
  1,156,703
  1,371,942
  1,608,563
  1,866,295
  2,144,751
  2,443,476
  2,761,993
  3,099,835
  3,456,585
  3,831,894
  4,225,507
  4,637,275
  5,067,166
  5,515,270
  5,981,805
  6,467,114
  6,971,663
  7,496,043
  8,040,962
  8,607,246
  9,195,830
  9,807,759
  10,444,182
  11,106,351
  11,795,619
  12,513,437
  13,261,354
  14,041,019
  14,854,177
Adjusted assets (=assets-cash), $m
  792,932
  962,956
  1,156,703
  1,371,942
  1,608,563
  1,866,295
  2,144,751
  2,443,476
  2,761,993
  3,099,835
  3,456,585
  3,831,894
  4,225,507
  4,637,275
  5,067,166
  5,515,270
  5,981,805
  6,467,114
  6,971,663
  7,496,043
  8,040,962
  8,607,246
  9,195,830
  9,807,759
  10,444,182
  11,106,351
  11,795,619
  12,513,437
  13,261,354
  14,041,019
  14,854,177
Revenue / Adjusted assets
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
  0.048
Average production assets, $m
  6,039
  7,349
  8,828
  10,471
  12,277
  14,244
  16,369
  18,649
  21,080
  23,658
  26,381
  29,245
  32,249
  35,392
  38,673
  42,093
  45,653
  49,357
  53,208
  57,210
  61,369
  65,691
  70,183
  74,853
  79,710
  84,764
  90,024
  95,503
  101,211
  107,161
  113,367
Working capital, $m
  0
  23,111
  27,761
  32,927
  38,606
  44,791
  51,474
  58,643
  66,288
  74,396
  82,958
  91,965
  101,412
  111,295
  121,612
  132,366
  143,563
  155,211
  167,320
  179,905
  192,983
  206,574
  220,700
  235,386
  250,660
  266,552
  283,095
  300,322
  318,272
  336,984
  356,500
Total debt, $m
  387,325
  515,086
  689,458
  883,174
  1,096,133
  1,328,092
  1,578,702
  1,847,554
  2,134,219
  2,438,278
  2,759,353
  3,097,131
  3,451,382
  3,821,973
  4,208,875
  4,612,169
  5,032,051
  5,468,828
  5,922,923
  6,394,864
  6,885,292
  7,394,948
  7,924,673
  8,475,409
  9,048,190
  9,644,142
  10,264,483
  10,910,519
  11,583,645
  12,285,343
  13,017,185
Total liabilities, $m
  738,899
  866,660
  1,041,032
  1,234,748
  1,447,707
  1,679,666
  1,930,276
  2,199,128
  2,485,793
  2,789,852
  3,110,927
  3,448,705
  3,802,956
  4,173,547
  4,560,449
  4,963,743
  5,383,625
  5,820,402
  6,274,497
  6,746,438
  7,236,866
  7,746,522
  8,276,247
  8,826,983
  9,399,764
  9,995,716
  10,616,057
  11,262,093
  11,935,219
  12,636,917
  13,368,759
Total equity, $m
  76,050
  96,296
  115,670
  137,194
  160,856
  186,630
  214,475
  244,348
  276,199
  309,984
  345,659
  383,189
  422,551
  463,727
  506,717
  551,527
  598,181
  646,711
  697,166
  749,604
  804,096
  860,725
  919,583
  980,776
  1,044,418
  1,110,635
  1,179,562
  1,251,344
  1,326,135
  1,404,102
  1,485,418
Total liabilities and equity, $m
  814,949
  962,956
  1,156,702
  1,371,942
  1,608,563
  1,866,296
  2,144,751
  2,443,476
  2,761,992
  3,099,836
  3,456,586
  3,831,894
  4,225,507
  4,637,274
  5,067,166
  5,515,270
  5,981,806
  6,467,113
  6,971,663
  7,496,042
  8,040,962
  8,607,247
  9,195,830
  9,807,759
  10,444,182
  11,106,351
  11,795,619
  12,513,437
  13,261,354
  14,041,019
  14,854,177
Debt-to-equity ratio
  5.093
  5.350
  5.960
  6.440
  6.810
  7.120
  7.360
  7.560
  7.730
  7.870
  7.980
  8.080
  8.170
  8.240
  8.310
  8.360
  8.410
  8.460
  8.500
  8.530
  8.560
  8.590
  8.620
  8.640
  8.660
  8.680
  8.700
  8.720
  8.730
  8.750
  8.760
Adjusted equity ratio
  0.096
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,979
  -2,289
  -5,287
  -8,896
  -12,935
  -17,403
  -22,296
  -27,607
  -33,327
  -39,447
  -45,957
  -52,189
  -59,452
  -67,081
  -75,072
  -83,422
  -92,133
  -101,207
  -110,650
  -120,469
  -130,675
  -141,280
  -152,300
  -163,752
  -175,655
  -188,032
  -200,906
  -214,303
  -228,250
  -242,778
  -257,918
Depreciation, amort., depletion, $m
  1,736
  1,664
  1,867
  2,092
  2,339
  2,609
  2,900
  3,212
  3,545
  3,899
  4,271
  4,006
  4,418
  4,848
  5,298
  5,766
  6,254
  6,761
  7,289
  7,837
  8,407
  8,999
  9,614
  10,254
  10,919
  11,611
  12,332
  13,083
  13,864
  14,680
  15,530
Funds from operations, $m
  -5,921
  -624
  -3,420
  -6,804
  -10,596
  -14,795
  -19,396
  -24,395
  -29,782
  -35,549
  -41,685
  -48,183
  -55,034
  -62,232
  -69,774
  -77,656
  -85,879
  -94,446
  -103,361
  -112,632
  -122,268
  -132,281
  -142,686
  -153,498
  -164,736
  -176,420
  -188,574
  -201,220
  -214,386
  -228,098
  -242,388
Change in working capital, $m
  -8,368
  4,136
  4,650
  5,166
  5,679
  6,186
  6,683
  7,169
  7,644
  8,108
  8,562
  9,007
  9,447
  9,882
  10,317
  10,755
  11,197
  11,647
  12,109
  12,585
  13,078
  13,591
  14,126
  14,686
  15,274
  15,892
  16,542
  17,228
  17,950
  18,712
  19,516
Cash from operations, $m
  2,447
  -8,079
  -8,070
  -11,970
  -16,275
  -20,980
  -26,079
  -31,564
  -37,427
  -43,657
  -50,247
  -57,190
  -64,481
  -72,115
  -80,091
  -88,411
  -97,076
  -106,094
  -115,470
  -125,217
  -135,346
  -145,872
  -156,812
  -168,184
  -180,010
  -192,312
  -205,116
  -218,448
  -232,336
  -246,810
  -261,904
Maintenance CAPEX, $m
  0
  -827
  -1,007
  -1,209
  -1,434
  -1,682
  -1,951
  -2,242
  -2,555
  -2,888
  -3,241
  -3,614
  -4,006
  -4,418
  -4,848
  -5,298
  -5,766
  -6,254
  -6,761
  -7,289
  -7,837
  -8,407
  -8,999
  -9,614
  -10,254
  -10,919
  -11,611
  -12,332
  -13,083
  -13,864
  -14,680
New CAPEX, $m
  -1,276
  -1,310
  -1,479
  -1,643
  -1,806
  -1,967
  -2,125
  -2,280
  -2,431
  -2,578
  -2,723
  -2,864
  -3,004
  -3,143
  -3,281
  -3,420
  -3,561
  -3,704
  -3,851
  -4,002
  -4,159
  -4,322
  -4,492
  -4,670
  -4,857
  -5,054
  -5,260
  -5,478
  -5,708
  -5,950
  -6,206
Cash from investing activities, $m
  -19,508
  -2,137
  -2,486
  -2,852
  -3,240
  -3,649
  -4,076
  -4,522
  -4,986
  -5,466
  -5,964
  -6,478
  -7,010
  -7,561
  -8,129
  -8,718
  -9,327
  -9,958
  -10,612
  -11,291
  -11,996
  -12,729
  -13,491
  -14,284
  -15,111
  -15,973
  -16,871
  -17,810
  -18,791
  -19,814
  -20,886
Free cash flow, $m
  -17,061
  -10,216
  -10,555
  -14,822
  -19,515
  -24,629
  -30,156
  -36,087
  -42,412
  -49,123
  -56,211
  -63,668
  -71,491
  -79,675
  -88,220
  -97,128
  -106,403
  -116,051
  -126,082
  -136,508
  -147,342
  -158,600
  -170,302
  -182,468
  -195,121
  -208,285
  -221,988
  -236,258
  -251,126
  -266,625
  -282,789
Issuance/(repayment) of debt, $m
  12,030
  149,778
  174,372
  193,715
  212,959
  231,959
  250,610
  268,853
  286,665
  304,058
  321,075
  337,778
  354,252
  370,591
  386,902
  403,294
  419,882
  436,777
  454,094
  471,942
  490,428
  509,655
  529,726
  550,736
  572,781
  595,952
  620,341
  646,036
  673,126
  701,698
  731,842
Issuance/(repurchase) of shares, $m
  -3,933
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  9,170
  149,778
  174,372
  193,715
  212,959
  231,959
  250,610
  268,853
  286,665
  304,058
  321,075
  337,778
  354,252
  370,591
  386,902
  403,294
  419,882
  436,777
  454,094
  471,942
  490,428
  509,655
  529,726
  550,736
  572,781
  595,952
  620,341
  646,036
  673,126
  701,698
  731,842
Total cash flow (excl. dividends), $m
  -8,956
  139,562
  163,817
  178,893
  193,444
  207,330
  220,454
  232,766
  244,253
  254,936
  264,864
  274,110
  282,761
  290,916
  298,681
  306,166
  313,479
  320,726
  328,012
  335,434
  343,086
  351,055
  359,423
  368,268
  377,660
  387,667
  398,353
  409,778
  422,000
  435,073
  449,053
Retained Cash Flow (-), $m
  -868
  -20,246
  -19,375
  -21,524
  -23,662
  -25,773
  -27,846
  -29,873
  -31,852
  -33,784
  -35,675
  -37,531
  -39,361
  -41,177
  -42,989
  -44,810
  -46,654
  -48,531
  -50,455
  -52,438
  -54,492
  -56,628
  -58,858
  -61,193
  -63,642
  -66,217
  -68,927
  -71,782
  -74,792
  -77,966
  -81,316
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  119,316
  144,442
  157,369
  169,782
  181,557
  192,609
  202,894
  212,401
  221,151
  229,189
  236,579
  243,399
  249,739
  255,692
  261,355
  266,825
  272,195
  277,557
  282,996
  288,594
  294,427
  300,565
  307,075
  314,017
  321,450
  329,426
  337,996
  347,208
  357,107
  367,737
Discount rate, %
 
  12.80
  13.44
  14.11
  14.82
  15.56
  16.34
  17.15
  18.01
  18.91
  19.86
  20.85
  21.89
  22.99
  24.14
  25.34
  26.61
  27.94
  29.34
  30.80
  32.34
  33.96
  35.66
  37.44
  39.32
  41.28
  43.35
  45.51
  47.79
  50.18
  52.69
PV of cash for distribution, $m
 
  105,777
  112,244
  105,907
  97,692
  88,105
  77,693
  66,987
  56,465
  46,524
  37,459
  29,462
  22,626
  16,956
  12,392
  8,825
  6,120
  4,128
  2,706
  1,722
  1,062
  634
  366
  204
  110
  57
  28
  14
  6
  3
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Morgan Stanley, a financial holding company, provides various financial products and services to corporations, governments, financial institutions, and individuals in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. The company’s Institutional Securities segment offers capital raising and financial advisory services, including services related to the underwriting of debt, equity, and other securities, as well as advice on mergers and acquisitions, restructurings, real estate, and project finance. This segment also provides sales and trading services, such as sales, financing, and market-making services in equity securities and fixed income products, including foreign exchange and commodities, as well as prime brokerage services; corporate loans, commercial and residential mortgage lending, and asset-backed lending; financing for equities and commodities customers; loans to municipalities; and investments and research services. Its Wealth Management segment offers various financial services and solutions covering brokerage and investment advisory services, financial and wealth planning services, annuity and insurance products, credit and other lending products, and banking and retirement plan services to individual investors, small-to-medium sized businesses, and institutions. The company’s Investment Management segment provides various investment strategies and products comprising equity, fixed income, liquidity, and alternative/other products, as well as managed futures products to a group of clients across institutional and intermediary channels. Morgan Stanley was founded in 1924 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  Morgan Stanley (MS)

Valuation Ratios
P/E Ratio 13.5
Price to Sales 2.1
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 33.1
Price to Free Cash Flow 69.1
Growth Rates
Sales Growth Rate 0.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -7.1%
Cap. Spend. - 3 Yr. Gr. Rate -0.6%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 231.3%
Total Debt to Equity 509.3%
Interest Coverage 4
Management Effectiveness
Return On Assets 1%
Ret/ On Assets - 3 Yr. Avg. 1%
Return On Total Capital 1.3%
Ret/ On T. Cap. - 3 Yr. Avg. 1.2%
Return On Equity 7.9%
Return On Equity - 3 Yr. Avg. 7.1%
Asset Turnover 0
Profitability Ratios
Gross Margin 86.2%
Gross Margin - 3 Yr. Avg. 86.5%
EBITDA Margin 35.4%
EBITDA Margin - 3 Yr. Avg. 30.2%
Operating Margin 23.3%
Oper. Margin - 3 Yr. Avg. 18.4%
Pre-Tax Margin 23.3%
Pre-Tax Margin - 3 Yr. Avg. 18.4%
Net Profit Margin 15.8%
Net Profit Margin - 3 Yr. Avg. 13.7%
Effective Tax Rate 30.8%
Eff/ Tax Rate - 3 Yr. Avg. 18.1%
Payout Ratio 29.2%

MS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MS stock intrinsic value calculation we used $37949 million for the last fiscal year's total revenue generated by Morgan Stanley. The default revenue input number comes from 2016 income statement of Morgan Stanley. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MS stock valuation model: a) initial revenue growth rate of 21.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 12.8%, whose default value for MS is calculated based on our internal credit rating of Morgan Stanley, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Morgan Stanley.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MS stock the variable cost ratio is equal to 77.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Morgan Stanley.

Corporate tax rate of 27% is the nominal tax rate for Morgan Stanley. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MS are equal to 15.9%.

Life of production assets of 7.3 years is the average useful life of capital assets used in Morgan Stanley operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MS is equal to 50%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $76050 million for Morgan Stanley - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1865.84 million for Morgan Stanley is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Morgan Stanley at the current share price and the inputted number of shares is $81.5 billion.


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COMPANY NEWS

▶ Morgan Stanley: It Really Wasn't That Bad. Really.   [Jun-23-17 02:03PM  Barrons.com]
▶ [$$] A New Risk for Goldman, Morgan Stanley in Stress Tests   [12:19AM  The Wall Street Journal]
▶ Fed: Biggest US banks strong enough to withstand recession   [Jun-22-17 06:07PM  Associated Press]
▶ [$$] A New Risk for Goldman, Morgan Stanley in Stress Tests   [05:30PM  The Wall Street Journal]
▶ Big Banks Edge Up Late On Stress-Test Pass   [10:48AM  Investor's Business Daily]
▶ Stocks With More Upside Based on Price Action   [Jun-21-17 01:00PM  Investopedia]
▶ Paul Allen convenes Google, Microsoft, Baidu for AI search engine mission   [Jun-20-17 02:20PM  American City Business Journals]
▶ Markets Right Now: Tech gains send S&P 500 to another record   [Jun-19-17 04:09PM  Associated Press]
▶ Here Comes Morgan Stanley's Robo Advisor   [01:35PM  Barrons.com]
▶ [$$] Big banks poised to unveil bigger payouts to shareholders   [Jun-18-17 06:19AM  Financial Times]
▶ [$$] Morgan Stanley Aims Robo Service at Next-Generation Investors   [Jun-17-17 12:10AM  The Wall Street Journal]
▶ Cool Offices: Madeira Partners finds new office home minutes from Lake Minnetonka   [Jun-16-17 12:30PM  American City Business Journals]
▶ [$$] Merrill Lures $300 Million Morgan Stanley Team   [Jun-15-17 05:02PM  The Wall Street Journal]
▶ This Key Sector Bucks Market Selloff, Hails Aggressive Fed   [Jun-14-17 04:23PM  Investor's Business Daily]
▶ Morgan Stanley advisors: Text away!   [02:22PM  Barrons.com]
▶ FAANG Stocks Hit Hard in Tech Selloff   [09:52AM  Bloomberg Video]
▶ Top Asset Managers Still Bullish On Crude   [05:00PM  Oilprice.com]
▶ Why Aggressive Buyers Should Watch This Bank Stock Ahead Of Fed Meeting   [Jun-09-17 04:25PM  Investor's Business Daily]
▶ Lesser-Known Bank Stock Rallies As BofA, JPMorgan Rise   [12:08PM  Investor's Business Daily]
▶ 4 Tips To Ace Your Mortgage In 2017   [Jun-06-17 12:25PM  Forbes]
▶ [$$] The Roundup   [09:51AM  The Wall Street Journal]
▶ 3 Value Stocks for Smart Investors   [Jun-04-17 11:42AM  Motley Fool]
▶ Morgan Stanley shuffles wealth management unit   [Jun-02-17 12:12PM  Reuters]
▶ Best Mutual Funds: News, Performance Reports And Investing Ideas   [Jun-01-17 09:17PM  Investor's Business Daily]
▶ Wall Street banks have a big warning for investors   [03:07PM  Yahoo Finance Video]
▶ Morgan Stanley's Gorman on Turnaround Plan, U.S. Economy   [May-31-17 09:24PM  Bloomberg Video]
▶ Morgan Stanley's Gorman Says Bank Is on Track   [08:49PM  Bloomberg Video]
▶ 4 Wildly Different Oil Price Scenarios For 2020   [May-30-17 07:00PM  Oilprice.com]
Stock chart of MS Financial statements of MS Annual reports of MS
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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