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Morgan Stanley (MEX:MS) Earnings Power Value (EPV)

: MXN-1,951.41 (As of Mar23)
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As of Mar23, Morgan Stanley's earnings power value is MXN-1,951.41. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is N/A.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


Morgan Stanley Earnings Power Value (EPV) Historical Data

The historical data trend for Morgan Stanley's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

Morgan Stanley Annual Data
Trend Dec13 Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Dec20 Dec21 Dec22
Earnings Power Value (EPV)
Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only -1,159.74 -1,300.03 -763.37 -828.31 -1,743.69

Morgan Stanley Quarterly Data
Jun18 Sep18 Dec18 Mar19 Jun19 Sep19 Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21 Sep21 Dec21 Mar22 Jun22 Sep22 Dec22 Mar23
Earnings Power Value (EPV) Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only -801.14 -1,727.80 -1,894.83 -1,743.69 -1,882.45

Competitive Comparison

For the Capital Markets subindustry, Morgan Stanley's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.

   

Morgan Stanley Earnings Power Value (EPV) Distribution

For the Capital Markets industry and Financial Services sector, Morgan Stanley's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where Morgan Stanley's Earnings Power Value (EPV) falls in comparison to its industry or sector. The grey bar indicates the Earnings Power Value (EPV)'s extreme value range as defined by GuruFocus.



Morgan Stanley Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

Morgan Stanley's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 936,663
DDA 68,672
Operating Margin % 0.00
SGA * 25% 110,187
Tax Rate % 20.79
Maintenance Capex 43,270
Cash and Cash Equivalents 1,822,075
Short-Term Debt 100,345
Long-Term Debt 4,565,462
Shares Outstanding (Diluted) 1,663

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = 0.00%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = MXN936,663 Mil, Average Operating Margin = 0.00%, Average Adjusted SGA = 110,187,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 936,663 * 0.00% +110,187 = MXN Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = 20.79%, and "Normalized" EBIT = MXN Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = * ( 1 - 20.79% ) = MXN0 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 68,672 * 0.5 * 20.79% = MXN7138.244134688 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = 0 + 7138.244134688 = MXN7138.244134688 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
Morgan Stanley's Average Maintenance CAPEX = MXN43,270 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. Morgan Stanley's current cash and cash equivalent = MXN1,822,075 Mil.
Morgan Stanley's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 4,565,462 + 100,345 = MXN4665807.298 Mil.
Morgan Stanley's current Shares Outstanding (Diluted Average) = 1,663 Mil.

Morgan Stanley's Earnings Power Value (EPV) for Mar23 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( 7138.244134688 - 43,270)/ 9%+1,822,075-4665807.298 )/1,663
=-1,951.41

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( -1951.4100252911-1472.25 )/-1951.4100252911
= N/A

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


Morgan Stanley  (MEX:MS) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


Morgan Stanley Earnings Power Value (EPV) Related Terms

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Morgan Stanley (MEX:MS) Business Description

Morgan Stanley logo
Address
1585 Broadway, New York, NY, USA, 10036
Morgan Stanley is a global investment bank whose history, through its legacy firms, can be traced back to 1924. The company has institutional securities, wealth management, and investment management segments. The company had about $5 trillion of client assets as well as over 70,000 employees at the end of 2021. Approximately 50% of the company's net revenue is from its institutional securities business, with the remainder coming from wealth and investment management. The company derives about 30% of its total revenue outside the Americas.

Morgan Stanley (MEX:MS) Headlines