Intrinsic value of Morgan Stanley - MS

Previous Close

$53.18

  Intrinsic Value

$133.54

stock screener

  Rating & Target

str. buy

+151%

Previous close

$53.18

 
Intrinsic value

$133.54

 
Up/down potential

+151%

 
Rating

str. buy

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 97.7

 

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
  11.60
  10.94
  10.35
  9.81
  9.33
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
Revenue, $m
  37,949
  42,351
  46,984
  51,845
  56,932
  62,244
  67,782
  73,548
  79,548
  85,785
  92,268
  99,005
  106,005
  113,282
  120,846
  128,713
  136,898
  145,417
  154,288
  163,531
  173,166
  183,213
  193,697
  204,641
  216,070
  228,011
  240,492
  253,542
  267,192
  281,475
  296,424
Variable operating expenses, $m
 
  32,788
  36,303
  39,991
  43,850
  47,880
  52,082
  56,457
  61,008
  65,740
  70,658
  75,112
  80,423
  85,943
  91,682
  97,651
  103,860
  110,323
  117,054
  124,066
  131,375
  138,998
  146,952
  155,255
  163,926
  172,985
  182,454
  192,355
  202,710
  213,546
  224,887
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
  32,788
  36,303
  39,991
  43,850
  47,880
  52,082
  56,457
  61,008
  65,740
  70,658
  75,112
  80,423
  85,943
  91,682
  97,651
  103,860
  110,323
  117,054
  124,066
  131,375
  138,998
  146,952
  155,255
  163,926
  172,985
  182,454
  192,355
  202,710
  213,546
  224,887
Operating income, $m
  8,848
  9,563
  10,681
  11,854
  13,082
  14,364
  15,700
  17,092
  18,540
  20,045
  21,609
  23,893
  25,582
  27,338
  29,164
  31,062
  33,038
  35,094
  37,235
  39,465
  41,790
  44,215
  46,745
  49,386
  52,144
  55,026
  58,038
  61,188
  64,482
  67,929
  71,536
EBITDA, $m
  10,584
  10,221
  11,339
  12,512
  13,739
  15,021
  16,358
  17,750
  19,197
  20,703
  22,267
  23,893
  25,582
  27,338
  29,164
  31,062
  33,038
  35,094
  37,235
  39,465
  41,790
  44,215
  46,745
  49,386
  52,144
  55,026
  58,038
  61,188
  64,482
  67,929
  71,536
Interest expense (income), $m
  2,834
  12,786
  15,488
  18,528
  21,718
  25,057
  28,542
  32,177
  35,961
  39,898
  43,991
  48,246
  52,667
  57,261
  62,036
  67,000
  72,163
  77,534
  83,125
  88,947
  95,012
  101,335
  107,929
  114,809
  121,991
  129,491
  137,327
  145,518
  154,082
  163,040
  172,413
Earnings before tax, $m
  8,848
  -3,223
  -4,807
  -6,674
  -8,637
  -10,693
  -12,842
  -15,085
  -17,421
  -19,853
  -22,382
  -24,353
  -27,084
  -29,923
  -32,872
  -35,938
  -39,125
  -42,440
  -45,890
  -49,481
  -53,222
  -57,120
  -61,184
  -65,422
  -69,846
  -74,465
  -79,289
  -84,330
  -89,600
  -95,111
  -100,877
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
  -3,223
  -4,807
  -6,674
  -8,637
  -10,693
  -12,842
  -15,085
  -17,421
  -19,853
  -22,382
  -24,353
  -27,084
  -29,923
  -32,872
  -35,938
  -39,125
  -42,440
  -45,890
  -49,481
  -53,222
  -57,120
  -61,184
  -65,422
  -69,846
  -74,465
  -79,289
  -84,330
  -89,600
  -95,111
  -100,877

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
  882,314
  978,839
  1,080,110
  1,186,084
  1,296,749
  1,412,124
  1,532,260
  1,657,243
  1,787,189
  1,922,246
  2,062,595
  2,208,444
  2,360,032
  2,517,626
  2,681,521
  2,852,035
  3,029,517
  3,214,339
  3,406,898
  3,607,617
  3,816,946
  4,035,358
  4,263,354
  4,501,460
  4,750,231
  5,010,250
  5,282,128
  5,566,506
  5,864,059
  6,175,491
Adjusted assets (=assets-cash), $m
  792,932
  882,314
  978,839
  1,080,110
  1,186,084
  1,296,749
  1,412,124
  1,532,260
  1,657,243
  1,787,189
  1,922,246
  2,062,595
  2,208,444
  2,360,032
  2,517,626
  2,681,521
  2,852,035
  3,029,517
  3,214,339
  3,406,898
  3,607,617
  3,816,946
  4,035,358
  4,263,354
  4,501,460
  4,750,231
  5,010,250
  5,282,128
  5,566,506
  5,864,059
  6,175,491
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
  -718
  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
Working capital, $m
  0
  21,176
  23,492
  25,923
  28,466
  31,122
  33,891
  36,774
  39,774
  42,893
  46,134
  49,502
  53,003
  56,641
  60,423
  64,356
  68,449
  72,708
  77,144
  81,766
  86,583
  91,607
  96,849
  102,320
  108,035
  114,006
  120,246
  126,771
  133,596
  140,737
  148,212
Total debt, $m
  387,325
  442,509
  529,381
  620,525
  715,902
  815,500
  919,337
  1,027,460
  1,139,945
  1,256,896
  1,378,448
  1,504,761
  1,636,025
  1,772,455
  1,914,290
  2,061,795
  2,215,258
  2,374,992
  2,541,331
  2,714,634
  2,895,282
  3,083,677
  3,280,248
  3,485,444
  3,699,740
  3,923,634
  4,157,651
  4,402,341
  4,658,282
  4,926,079
  5,206,368
Total liabilities, $m
  738,899
  794,083
  880,955
  972,099
  1,067,476
  1,167,074
  1,270,911
  1,379,034
  1,491,519
  1,608,470
  1,730,022
  1,856,335
  1,987,599
  2,124,029
  2,265,864
  2,413,369
  2,566,832
  2,726,566
  2,892,905
  3,066,208
  3,246,856
  3,435,251
  3,631,822
  3,837,018
  4,051,314
  4,275,208
  4,509,225
  4,753,915
  5,009,856
  5,277,653
  5,557,942
Total equity, $m
  76,050
  88,231
  97,884
  108,011
  118,608
  129,675
  141,212
  153,226
  165,724
  178,719
  192,225
  206,259
  220,844
  236,003
  251,763
  268,152
  285,204
  302,952
  321,434
  340,690
  360,762
  381,695
  403,536
  426,335
  450,146
  475,023
  501,025
  528,213
  556,651
  586,406
  617,549
Total liabilities and equity, $m
  814,949
  882,314
  978,839
  1,080,110
  1,186,084
  1,296,749
  1,412,123
  1,532,260
  1,657,243
  1,787,189
  1,922,247
  2,062,594
  2,208,443
  2,360,032
  2,517,627
  2,681,521
  2,852,036
  3,029,518
  3,214,339
  3,406,898
  3,607,618
  3,816,946
  4,035,358
  4,263,353
  4,501,460
  4,750,231
  5,010,250
  5,282,128
  5,566,507
  5,864,059
  6,175,491
Debt-to-equity ratio
  5.093
  5.020
  5.410
  5.750
  6.040
  6.290
  6.510
  6.710
  6.880
  7.030
  7.170
  7.300
  7.410
  7.510
  7.600
  7.690
  7.770
  7.840
  7.910
  7.970
  8.030
  8.080
  8.130
  8.180
  8.220
  8.260
  8.300
  8.330
  8.370
  8.400
  8.430
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
  -3,223
  -4,807
  -6,674
  -8,637
  -10,693
  -12,842
  -15,085
  -17,421
  -19,853
  -22,382
  -24,353
  -27,084
  -29,923
  -32,872
  -35,938
  -39,125
  -42,440
  -45,890
  -49,481
  -53,222
  -57,120
  -61,184
  -65,422
  -69,846
  -74,465
  -79,289
  -84,330
  -89,600
  -95,111
  -100,877
Depreciation, amort., depletion, $m
  1,736
  658
  658
  658
  658
  658
  658
  658
  658
  658
  658
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Funds from operations, $m
  -5,921
  -2,565
  -4,149
  -6,016
  -7,979
  -10,035
  -12,185
  -14,427
  -16,764
  -19,195
  -21,724
  -24,353
  -27,084
  -29,923
  -32,872
  -35,938
  -39,125
  -42,440
  -45,890
  -49,481
  -53,222
  -57,120
  -61,184
  -65,422
  -69,846
  -74,465
  -79,289
  -84,330
  -89,600
  -95,111
  -100,877
Change in working capital, $m
  -8,368
  2,201
  2,317
  2,430
  2,543
  2,656
  2,769
  2,883
  3,000
  3,119
  3,241
  3,368
  3,500
  3,638
  3,782
  3,933
  4,092
  4,260
  4,436
  4,621
  4,817
  5,024
  5,242
  5,472
  5,715
  5,971
  6,240
  6,525
  6,825
  7,141
  7,474
Cash from operations, $m
  2,447
  -4,766
  -6,466
  -8,447
  -10,522
  -12,691
  -14,954
  -17,311
  -19,763
  -22,314
  -24,966
  -27,721
  -30,585
  -33,561
  -36,654
  -39,871
  -43,217
  -46,700
  -50,326
  -54,103
  -58,039
  -62,144
  -66,425
  -70,894
  -75,561
  -80,435
  -85,529
  -90,855
  -96,425
  -102,252
  -108,351
Maintenance CAPEX, $m
  0
  144
  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
New CAPEX, $m
  -1,276
  -718
  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 investing activities, $m
  -19,508
  -574
  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
Free cash flow, $m
  -17,061
  -5,340
  -6,466
  -8,447
  -10,522
  -12,691
  -14,954
  -17,311
  -19,763
  -22,314
  -24,966
  -27,721
  -30,585
  -33,561
  -36,654
  -39,871
  -43,217
  -46,700
  -50,326
  -54,103
  -58,039
  -62,144
  -66,425
  -70,894
  -75,561
  -80,435
  -85,529
  -90,855
  -96,425
  -102,252
  -108,351
Issuance/(repayment) of debt, $m
  12,030
  77,201
  86,873
  91,144
  95,377
  99,598
  103,837
  108,123
  112,484
  116,951
  121,552
  126,314
  131,264
  136,430
  141,835
  147,505
  153,463
  159,734
  166,339
  173,303
  180,648
  188,396
  196,571
  205,196
  214,296
  223,894
  234,017
  244,690
  255,941
  267,797
  280,289
Issuance/(repurchase) of shares, $m
  -3,933
  15,404
  14,459
  16,801
  19,234
  21,759
  24,380
  27,099
  29,920
  32,848
  35,888
  38,388
  41,669
  45,081
  48,631
  52,327
  56,177
  60,189
  64,372
  68,737
  73,294
  78,053
  83,025
  88,222
  93,657
  99,342
  105,291
  111,518
  118,038
  124,866
  132,020
Cash from financing (excl. dividends), $m  
  9,170
  92,605
  101,332
  107,945
  114,611
  121,357
  128,217
  135,222
  142,404
  149,799
  157,440
  164,702
  172,933
  181,511
  190,466
  199,832
  209,640
  219,923
  230,711
  242,040
  253,942
  266,449
  279,596
  293,418
  307,953
  323,236
  339,308
  356,208
  373,979
  392,663
  412,309
Total cash flow (excl. dividends), $m
  -8,956
  87,265
  94,866
  99,498
  104,088
  108,666
  113,263
  117,911
  122,641
  127,485
  132,474
  136,980
  142,349
  147,950
  153,812
  159,961
  166,422
  173,222
  180,386
  187,938
  195,902
  204,305
  213,170
  222,524
  232,392
  242,801
  253,778
  265,353
  277,553
  290,411
  303,958
Retained Cash Flow (-), $m
  -868
  -15,404
  -14,459
  -16,801
  -19,234
  -21,759
  -24,380
  -27,099
  -29,920
  -32,848
  -35,888
  -38,388
  -41,669
  -45,081
  -48,631
  -52,327
  -56,177
  -60,189
  -64,372
  -68,737
  -73,294
  -78,053
  -83,025
  -88,222
  -93,657
  -99,342
  -105,291
  -111,518
  -118,038
  -124,866
  -132,020
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
 
  71,861
  80,407
  82,697
  84,854
  86,907
  88,884
  90,812
  92,721
  94,637
  96,586
  98,593
  100,680
  102,869
  105,181
  107,634
  110,246
  113,034
  116,014
  119,200
  122,608
  126,252
  130,145
  134,302
  138,735
  143,459
  148,487
  153,835
  159,516
  165,545
  171,938
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
 
  63,706
  62,483
  55,654
  48,825
  42,174
  35,853
  29,982
  24,649
  19,909
  15,786
  12,278
  9,359
  6,984
  5,097
  3,634
  2,528
  1,714
  1,131
  725
  451
  272
  159
  89
  49
  25
  13
  6
  3
  1
  1
Current shareholders' claim on cash, %
  100
  86.4
  76.6
  67.6
  59.3
  51.9
  45.3
  39.4
  34.2
  29.6
  25.6
  22.2
  19.2
  16.5
  14.2
  12.3
  10.5
  9.1
  7.8
  6.7
  5.7
  4.9
  4.2
  3.6
  3.0
  2.6
  2.2
  1.9
  1.6
  1.4
  1.2

Morgan Stanley is a financial holding company. The Company's segments include Institutional Securities, Wealth Management and Investment Management. The Company's Institutional Securities business segment provides investment banking, sales and trading, and other services to corporations, governments, financial institutions and high-to-ultra high net worth clients. The Company's Wealth Management business segment provides an array of financial services and solutions to individual investors and small-to-medium sized businesses and institutions covering brokerage and investment advisory services, market-making activities in fixed income securities, financial and wealth planning services, annuity and insurance products, credit and other lending products, banking and retirement plan services. The Company's Investment Management business segment provides a range of investment strategies and products.

FINANCIAL RATIOS  of  Morgan Stanley (MS)

Valuation Ratios
P/E Ratio 16.5
Price to Sales 2.6
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 40.3
Price to Free Cash Flow 84.1
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 80.6%
Gross Margin - 3 Yr. Avg. 80.8%
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 11.6% 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 0%.

Life of production assets of 3.4 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 1836.62 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 $97.7 billion.

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COMPANY NEWS

▶ After the Fed increases rates   [Dec-13-17 12:52PM  CNBC Videos]
▶ Bitcoin-friendly Overstock.com inspires Morgan Stanley to buy a stake   [02:50PM  American City Business Journals]
▶ Top 5 Things That Moved Markets This Past Week   [Dec-08-17 06:27PM  Investing.com]
▶ Morgan Stanley's China CEO on Deleveraging, Growth, IPOs   [Dec-07-17 09:14PM  Bloomberg Video]
▶ Morgan Stanley Announces Partnership with Justin Rose   [Dec-06-17 10:07AM  Business Wire]
▶ 88-year-old real estate brokerage sets terms for $615M IPO   [Dec-05-17 02:45PM  American City Business Journals]
▶ [$$] Morgan Stanley Launches Robo Advice Service   [12:17AM  The Wall Street Journal]
▶ Why Citigroup Inc Stock Will Blast Through the $75 Level   [Dec-04-17 04:19PM  InvestorPlace]
▶ Morgan Stanley managing IPO for NYC entertainment and leisure company   [01:15PM  American City Business Journals]
▶ Corbyn tells Morgan Stanley - 'We're a threat'   [Dec-01-17 06:14AM  Reuters]
▶ [$$] Wall Street Fights to Keep Brokers   [12:07AM  The Wall Street Journal]
▶ Singapore joins trend of lower property debt   [Nov-27-17 05:29PM  Singapore Business Review]
▶ JPMorgan flips on cryptocurrency, partners with new bitcoin product   [Nov-22-17 12:20PM  American City Business Journals]
▶ [$$] Morgan Stanley Backs Natural-Gas Company   [12:19PM  The Wall Street Journal]
▶ Can OPEC Control The Oil Bulls In Vienna?   [Nov-20-17 06:00PM  Oilprice.com]
▶ Is the bearish bond market justified?   [07:47AM  CNBC Videos]
▶ 5 Stocks That Are Standing on Shaky Ground   [12:19PM  InvestorPlace]
▶ Dont Back U.S. Shale To Keep Oil Prices Down   [Nov-13-17 06:00PM  Oilprice.com]
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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