Intrinsic value of Morgan Stanley - MS

Previous Close

$46.01

  Intrinsic Value

$251.07

stock screener

  Rating & Target

str. buy

+446%

  Value-price divergence*

+673%

Previous close

$46.01

 
Intrinsic value

$251.07

 
Up/down potential

+446%

 
Rating

str. buy

 
Value-price divergence*

+673%

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 85.8

 

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
  26.60
  24.44
  22.50
  20.75
  19.17
  17.75
  16.48
  15.33
  14.30
  13.37
  12.53
  11.78
  11.10
  10.49
  9.94
  9.45
  9.00
  8.60
  8.24
  7.92
  7.63
  7.36
  7.13
  6.91
  6.72
  6.55
  6.40
  6.26
  6.13
  6.02
Revenue, $m
  37,949
  48,043
  59,785
  73,235
  88,428
  105,381
  124,091
  144,540
  166,700
  190,535
  216,007
  243,075
  271,705
  301,866
  333,533
  366,691
  401,333
  437,463
  475,095
  514,252
  554,970
  597,292
  641,274
  686,978
  734,478
  783,857
  835,205
  888,621
  944,214
  1,002,098
  1,062,398
Variable operating expenses, $m
 
  37,107
  46,015
  56,218
  67,745
  80,607
  94,802
  110,316
  127,128
  145,211
  164,535
  184,414
  206,134
  229,016
  253,041
  278,197
  304,479
  331,890
  360,440
  390,147
  421,039
  453,147
  486,514
  521,189
  557,226
  594,688
  633,644
  674,169
  716,346
  760,261
  806,008
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
  37,107
  46,015
  56,218
  67,745
  80,607
  94,802
  110,316
  127,128
  145,211
  164,535
  184,414
  206,134
  229,016
  253,041
  278,197
  304,479
  331,890
  360,440
  390,147
  421,039
  453,147
  486,514
  521,189
  557,226
  594,688
  633,644
  674,169
  716,346
  760,261
  806,008
Operating income, $m
  8,848
  10,937
  13,770
  17,016
  20,683
  24,774
  29,289
  34,224
  39,572
  45,324
  51,471
  58,662
  65,571
  72,850
  80,492
  88,494
  96,854
  105,573
  114,655
  124,105
  133,932
  144,145
  154,759
  165,789
  177,253
  189,169
  201,561
  214,452
  227,868
  241,837
  256,390
EBITDA, $m
  10,584
  12,358
  15,379
  18,838
  22,746
  27,107
  31,920
  37,180
  42,881
  49,012
  55,564
  62,527
  69,891
  77,649
  85,795
  94,324
  103,235
  112,529
  122,209
  132,282
  142,756
  153,642
  164,956
  176,712
  188,931
  201,632
  214,841
  228,581
  242,881
  257,771
  273,282
Interest expense (income), $m
  2,834
  13,556
  19,894
  27,764
  36,778
  46,961
  58,323
  70,862
  84,568
  99,420
  115,394
  132,465
  150,607
  169,795
  190,009
  211,233
  233,456
  256,673
  280,888
  306,110
  332,353
  359,643
  388,008
  417,485
  448,116
  479,952
  513,046
  547,460
  583,260
  620,519
  659,314
Earnings before tax, $m
  8,848
  -2,620
  -6,124
  -10,748
  -16,095
  -22,186
  -29,033
  -36,638
  -44,996
  -54,095
  -63,923
  -73,804
  -85,036
  -96,946
  -109,517
  -122,739
  -136,602
  -151,100
  -166,233
  -182,004
  -198,422
  -215,498
  -233,249
  -251,696
  -270,864
  -290,783
  -311,485
  -333,008
  -355,392
  -378,682
  -402,924
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
  -2,620
  -6,124
  -10,748
  -16,095
  -22,186
  -29,033
  -36,638
  -44,996
  -54,095
  -63,923
  -73,804
  -85,036
  -96,946
  -109,517
  -122,739
  -136,602
  -151,100
  -166,233
  -182,004
  -198,422
  -215,498
  -233,249
  -251,696
  -270,864
  -290,783
  -311,485
  -333,008
  -355,392
  -378,682
  -402,924

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
  1,022,201
  1,272,027
  1,558,182
  1,881,448
  2,242,155
  2,640,240
  3,075,329
  3,546,814
  4,053,941
  4,595,883
  5,171,814
  5,780,966
  6,422,681
  7,096,448
  7,801,933
  8,539,001
  9,307,727
  10,108,403
  10,941,542
  11,807,876
  12,708,351
  13,644,124
  14,616,555
  15,627,201
  16,677,811
  17,770,318
  18,906,835
  20,089,653
  21,321,236
  22,604,217
Adjusted assets (=assets-cash), $m
  792,932
  1,022,201
  1,272,027
  1,558,182
  1,881,448
  2,242,155
  2,640,240
  3,075,329
  3,546,814
  4,053,941
  4,595,883
  5,171,814
  5,780,966
  6,422,681
  7,096,448
  7,801,933
  8,539,001
  9,307,727
  10,108,403
  10,941,542
  11,807,876
  12,708,351
  13,644,124
  14,616,555
  15,627,201
  16,677,811
  17,770,318
  18,906,835
  20,089,653
  21,321,236
  22,604,217
Revenue / Adjusted assets
  0.048
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
  0.047
Average production assets, $m
  6,039
  7,639
  9,506
  11,644
  14,060
  16,756
  19,731
  22,982
  26,505
  30,295
  34,345
  38,649
  43,201
  47,997
  53,032
  58,304
  63,812
  69,557
  75,540
  81,766
  88,240
  94,970
  101,963
  109,230
  116,782
  124,633
  132,798
  141,291
  150,130
  159,334
  168,921
Working capital, $m
  0
  24,022
  29,893
  36,617
  44,214
  52,691
  62,046
  72,270
  83,350
  95,268
  108,003
  121,538
  135,853
  150,933
  166,767
  183,345
  200,667
  218,732
  237,547
  257,126
  277,485
  298,646
  320,637
  343,489
  367,239
  391,929
  417,602
  444,311
  472,107
  501,049
  531,199
Total debt, $m
  387,325
  568,407
  793,250
  1,050,790
  1,341,729
  1,666,366
  2,024,642
  2,416,222
  2,840,559
  3,296,973
  3,784,721
  4,303,059
  4,851,296
  5,428,839
  6,035,229
  6,670,166
  7,333,527
  8,025,380
  8,745,989
  9,495,814
  10,275,514
  11,085,942
  11,928,138
  12,803,326
  13,712,907
  14,658,456
  15,641,712
  16,664,578
  17,729,114
  18,837,538
  19,992,221
Total liabilities, $m
  738,899
  919,981
  1,144,824
  1,402,364
  1,693,303
  2,017,940
  2,376,216
  2,767,796
  3,192,133
  3,648,547
  4,136,295
  4,654,633
  5,202,870
  5,780,413
  6,386,803
  7,021,740
  7,685,101
  8,376,954
  9,097,563
  9,847,388
  10,627,088
  11,437,516
  12,279,712
  13,154,900
  14,064,481
  15,010,030
  15,993,286
  17,016,152
  18,080,688
  19,189,112
  20,343,795
Total equity, $m
  76,050
  102,220
  127,203
  155,818
  188,145
  224,216
  264,024
  307,533
  354,681
  405,394
  459,588
  517,181
  578,097
  642,268
  709,645
  780,193
  853,900
  930,773
  1,010,840
  1,094,154
  1,180,788
  1,270,835
  1,364,412
  1,461,656
  1,562,720
  1,667,781
  1,777,032
  1,890,684
  2,008,965
  2,132,124
  2,260,422
Total liabilities and equity, $m
  814,949
  1,022,201
  1,272,027
  1,558,182
  1,881,448
  2,242,156
  2,640,240
  3,075,329
  3,546,814
  4,053,941
  4,595,883
  5,171,814
  5,780,967
  6,422,681
  7,096,448
  7,801,933
  8,539,001
  9,307,727
  10,108,403
  10,941,542
  11,807,876
  12,708,351
  13,644,124
  14,616,556
  15,627,201
  16,677,811
  17,770,318
  18,906,836
  20,089,653
  21,321,236
  22,604,217
Debt-to-equity ratio
  5.093
  5.560
  6.240
  6.740
  7.130
  7.430
  7.670
  7.860
  8.010
  8.130
  8.240
  8.320
  8.390
  8.450
  8.500
  8.550
  8.590
  8.620
  8.650
  8.680
  8.700
  8.720
  8.740
  8.760
  8.780
  8.790
  8.800
  8.810
  8.820
  8.840
  8.840
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
  -2,620
  -6,124
  -10,748
  -16,095
  -22,186
  -29,033
  -36,638
  -44,996
  -54,095
  -63,923
  -73,804
  -85,036
  -96,946
  -109,517
  -122,739
  -136,602
  -151,100
  -166,233
  -182,004
  -198,422
  -215,498
  -233,249
  -251,696
  -270,864
  -290,783
  -311,485
  -333,008
  -355,392
  -378,682
  -402,924
Depreciation, amort., depletion, $m
  1,736
  1,422
  1,608
  1,822
  2,064
  2,333
  2,631
  2,956
  3,308
  3,687
  4,092
  3,865
  4,320
  4,800
  5,303
  5,830
  6,381
  6,956
  7,554
  8,177
  8,824
  9,497
  10,196
  10,923
  11,678
  12,463
  13,280
  14,129
  15,013
  15,933
  16,892
Funds from operations, $m
  -5,921
  -1,198
  -4,516
  -8,926
  -14,031
  -19,853
  -26,403
  -33,682
  -41,687
  -50,408
  -59,830
  -69,939
  -80,716
  -92,146
  -104,214
  -116,909
  -130,220
  -144,144
  -158,679
  -173,828
  -189,598
  -206,001
  -223,052
  -240,773
  -259,186
  -278,319
  -298,205
  -318,879
  -340,379
  -362,748
  -386,032
Change in working capital, $m
  -8,368
  5,047
  5,871
  6,725
  7,597
  8,477
  9,355
  10,225
  11,080
  11,917
  12,736
  13,534
  14,315
  15,080
  15,834
  16,579
  17,321
  18,065
  18,816
  19,579
  20,359
  21,161
  21,991
  22,852
  23,750
  24,689
  25,674
  26,708
  27,796
  28,942
  30,150
Cash from operations, $m
  2,447
  -6,245
  -10,387
  -15,650
  -21,628
  -28,330
  -35,758
  -43,907
  -52,767
  -62,325
  -72,566
  -83,473
  -95,031
  -107,226
  -120,048
  -133,488
  -147,542
  -162,209
  -177,495
  -193,407
  -209,957
  -227,162
  -245,043
  -263,625
  -282,936
  -303,009
  -323,879
  -345,587
  -368,175
  -391,690
  -416,182
Maintenance CAPEX, $m
  0
  -604
  -764
  -951
  -1,164
  -1,406
  -1,676
  -1,973
  -2,298
  -2,651
  -3,030
  -3,435
  -3,865
  -4,320
  -4,800
  -5,303
  -5,830
  -6,381
  -6,956
  -7,554
  -8,177
  -8,824
  -9,497
  -10,196
  -10,923
  -11,678
  -12,463
  -13,280
  -14,129
  -15,013
  -15,933
New CAPEX, $m
  -1,276
  -1,600
  -1,867
  -2,138
  -2,416
  -2,696
  -2,975
  -3,251
  -3,523
  -3,790
  -4,050
  -4,304
  -4,552
  -4,796
  -5,035
  -5,272
  -5,508
  -5,745
  -5,983
  -6,226
  -6,474
  -6,729
  -6,993
  -7,267
  -7,553
  -7,851
  -8,164
  -8,493
  -8,839
  -9,204
  -9,588
Cash from investing activities, $m
  -19,508
  -2,204
  -2,631
  -3,089
  -3,580
  -4,102
  -4,651
  -5,224
  -5,821
  -6,441
  -7,080
  -7,739
  -8,417
  -9,116
  -9,835
  -10,575
  -11,338
  -12,126
  -12,939
  -13,780
  -14,651
  -15,553
  -16,490
  -17,463
  -18,476
  -19,529
  -20,627
  -21,773
  -22,968
  -24,217
  -25,521
Free cash flow, $m
  -17,061
  -8,449
  -13,017
  -18,739
  -25,208
  -32,431
  -40,408
  -49,131
  -58,589
  -68,766
  -79,646
  -91,212
  -103,448
  -116,342
  -129,883
  -144,063
  -158,880
  -174,335
  -190,434
  -207,187
  -224,607
  -242,715
  -261,533
  -281,088
  -301,411
  -322,538
  -344,507
  -367,360
  -391,144
  -415,907
  -441,703
Issuance/(repayment) of debt, $m
  12,030
  181,082
  224,843
  257,540
  290,940
  324,636
  358,277
  391,580
  424,337
  456,414
  487,748
  518,338
  548,237
  577,543
  606,390
  634,937
  663,361
  691,853
  720,608
  749,825
  779,700
  810,428
  842,196
  875,188
  909,582
  945,549
  983,256
  1,022,866
  1,064,536
  1,108,424
  1,154,683
Issuance/(repurchase) of shares, $m
  -3,933
  28,790
  31,106
  39,363
  48,422
  58,257
  68,842
  80,147
  92,144
  104,808
  118,117
  131,397
  145,951
  161,117
  176,894
  193,288
  210,308
  227,973
  246,301
  265,318
  285,055
  305,545
  326,826
  348,939
  371,928
  395,844
  420,736
  446,660
  473,674
  501,840
  531,222
Cash from financing (excl. dividends), $m  
  9,170
  209,872
  255,949
  296,903
  339,362
  382,893
  427,119
  471,727
  516,481
  561,222
  605,865
  649,735
  694,188
  738,660
  783,284
  828,225
  873,669
  919,826
  966,909
  1,015,143
  1,064,755
  1,115,973
  1,169,022
  1,224,127
  1,281,510
  1,341,393
  1,403,992
  1,469,526
  1,538,210
  1,610,264
  1,685,905
Total cash flow (excl. dividends), $m
  -8,956
  201,422
  242,932
  278,164
  314,153
  350,462
  386,711
  422,595
  457,892
  492,456
  526,219
  558,523
  590,740
  622,319
  653,402
  684,162
  714,790
  745,490
  776,475
  807,957
  840,148
  873,258
  907,489
  943,039
  980,099
  1,018,854
  1,059,485
  1,102,165
  1,147,067
  1,194,357
  1,244,202
Retained Cash Flow (-), $m
  -868
  -28,790
  -31,106
  -39,363
  -48,422
  -58,257
  -68,842
  -80,147
  -92,144
  -104,808
  -118,117
  -131,397
  -145,951
  -161,117
  -176,894
  -193,288
  -210,308
  -227,973
  -246,301
  -265,318
  -285,055
  -305,545
  -326,826
  -348,939
  -371,928
  -395,844
  -420,736
  -446,660
  -473,674
  -501,840
  -531,222
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
 
  172,633
  211,826
  238,800
  265,732
  292,205
  317,869
  342,448
  365,748
  387,648
  408,103
  427,126
  444,789
  461,201
  476,508
  490,874
  504,481
  517,518
  530,174
  542,638
  555,093
  567,712
  580,663
  594,100
  608,170
  623,011
  638,749
  655,506
  673,393
  692,517
  712,980
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
 
  153,043
  164,606
  160,709
  152,901
  141,801
  128,219
  113,062
  97,231
  81,550
  66,701
  53,192
  41,346
  31,313
  23,093
  16,575
  11,570
  7,848
  5,168
  3,301
  2,043
  1,223
  708
  395
  213
  110
  55
  26
  12
  5
  2
Current shareholders' claim on cash, %
  100
  74.9
  59.0
  46.3
  36.3
  28.5
  22.4
  17.6
  13.9
  11.1
  8.8
  7.0
  5.6
  4.5
  3.6
  2.9
  2.4
  1.9
  1.5
  1.2
  1.0
  0.8
  0.7
  0.5
  0.4
  0.4
  0.3
  0.2
  0.2
  0.2
  0.1

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 14.3
Price to Sales 2.2
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 34.8
Price to Free Cash Flow 72.8
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 26.6% 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 10 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 $85.8 billion.

RELATED COMPANIES Price Int.Val. Rating
GS Goldman Sachs 225.61 1,349.80  str.buy
SCHW Charles Schwab 40.74 107.58  str.buy
EVR Evercore Partn 76.65 3,896.12  str.buy
RJF Raymond James 79.92 453.93  str.buy

COMPANY NEWS

▶ Morgan Stanley Scoffs At China Slowdown Noise   [Aug-14-17 04:31PM  Forbes]
▶ US stock indexes edge higher in afternoon trading   [Aug-11-17 02:47PM  Associated Press]
▶ Investing in Asset Managers   [12:59PM  Forbes]
▶ Morgan Stanley MD on Deregulation Under Trump   [02:53PM  Bloomberg Video]
▶ Hans Redeker Says Pound Getting Cheaper for a Good Reason   [Aug-04-17 05:38AM  Bloomberg Video]
▶ What Morgan Stanley Shares Tell Us About U.S. Stocks   [Aug-01-17 05:19PM  Bloomberg Video]
▶ [$$] MUFG vs Nomura: which global strategy has worked better?   [Jul-31-17 12:07AM  Financial Times]
▶ [$$] Activist Investors Arent All That Democratic   [Jul-28-17 02:02AM  The Wall Street Journal]
▶ [$$] Wall Street Needs You to Borrow Against Your Stock   [02:01AM  The Wall Street Journal]
▶ [$$] Wall Street Needs You to Borrow Against Your Stock   [Jul-27-17 07:46PM  The Wall Street Journal]
▶ [$$] Activist Investors Aren't All That Democratic   [05:40PM  The Wall Street Journal]
▶ The Fed Just Gave A Green Light To Wall Street   [04:14PM  Investor's Business Daily]
▶ Morgan Stanley's Gorman Unfazed by Robos   [Jul-25-17 03:09PM  Barrons.com]
▶ Morgan Stanley Breaks Out As Bank Stocks Rally   [11:05AM  Investor's Business Daily]
▶ Morgan Stanley Overtakes Goldman in Market Value   [Jul-24-17 06:28PM  The Wall Street Journal]
▶ Morgan Stanley's Recruiting Pause Pays Off   [Jul-20-17 03:34PM  Barrons.com]
▶ Morgan Stanley posts 2Q profit   [Jul-19-17 10:06PM  Associated Press]
▶ Ethereum holds firm amid bitcoin slump   [05:14PM  Investing.com]
▶ James Gorman Is in No Mood for Target Practice   [02:21PM  The Wall Street Journal]
▶ [$$] Morgan Stanley Is the Winner This Earnings Season   [11:52AM  The Wall Street Journal]
▶ Morgan Stanley Is Facing a Major Challenge   [11:34AM  TheStreet.com]
▶ Stocks Up: Nasdaq Takes New High, Morgan Stanley Breaks Out   [09:43AM  Investor's Business Daily]
Stock chart of MS Financial statements 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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