When it comes to Morgan Stanley (Stanley, 2017) their financial success comes from the great numbers that they manage. You have to understand that when numbers are being crunched up to visualize the revenue of a company/business everything has to line up correctly so that the math adds up and the numbers make sense regarding the gross percentage or even the EBIT percentage. This is how they benefit from making all this revenue add up correctly. The main reason is to progressively add, multiply and even divide to get percentages and the correct amount at the end of the day.
What these major companies/businesses acquire are those accountants that can read and define those books like clockwork making sure that all the numbers add up and give a precise amount. Morgan Stanley gets its reputation by making sure the analysis for every investment comes out with the correct percentage and ends on a high note. There saying goes a little like this: “depending on the types of relationships you establish and the ways you choose to do business with us, Morgan Stanley may be compensated for the services we provide through transaction commissions and markups, asset-based fees and other fees and charges.
” (2018, Morgan Stanley)
When you hear a quote like that it makes you want to invest or create a career and make sure that all investments of the company/business are through Morgan Stanley. Take the Gross Margin Percentage [2016: 26%, 2017: 27%], you have to basically use the equation of dividing the gross profit by the revenue, to turn it in to a % once that is completed you have to multiply the answer by 100.
[(GP / R = %)(% x 100)] In order to be meticulous with the answer the numbers have to be correct so that the amount comes out correct. Once all the calculations are made you have your Gross Margin Percentage in which that means you have attained the COGS and you have knowledge of how much Stanley is retaining from each dollar of sales, but also verify the service of costs and debt obligations. The knowledge of those sales is the major goal because it means that they have to either prepare for losses or gains of the sales in total. (Foerster, 2013, p. 69)
As for the EBIT Margin Percentage [2016: 30%, 2017: 28%] the calculations for that one is totally different you have to subtract COGS which offers you the company’s/businesses gross profit and then you subtract all the company’s operating expenses as well. [(COGS – GP) (GP – Exp)] To make it into the percentage that they will be looking for they will need to get answer from subtracting and multiply it by 100 to get %. With Morgan Stanley the overall strategic objective is to be aware of sales and shares that they invest. The momentum of Morgan Stanley is to basically be aware of what the investments on a quarterly basis are so that by the end of the year they have a rough estimate of how much they have attained. In a sense any investor has to be aware of EBIT in order to be aware of the profitability that each company/business must earn. (Foerster, 2013, p. 70)
Now in order for Morgan Stanley to the any Resource Management Ratios you have to be aware of each age whether it is inventory, accounts receivable or accounts payable. To get the age of inventory [2016: 94, 2017: 103] you have to divide the average cost of inventory by the 365 days we have in a year. You can never be so sure of knowing how well the market is going to do because investments enter or exit in the most inopportune time and we cannot change that one bit. This is why investor like Morgan Stanley have to be aware at all times to maintain the stability they have with those investors that trust them with their revenue to know exactly what they will invest in order to grow those shares they are fighting for. Whether it is by calculating formulas regarding the inventory/investments, Morgan Stanley has to be aware of changes that are occurring on a constant basis. (Foerster, 2013, p. 73)
Now the next step is to formulate the equation for the age of receivables [2016: 127, 2017: 153], and that is found by multiplying accounting receivable in the accounting period by 365 and then dividing the sales revenue in that same period. (Foerster, 2013, p. 74)
Lastly, to get formula for age of accounts payable the steps for that are as followed: you have to base it on the days that a company takes to pay their suppliers. If the number of days increases from one period to the next that indicates the slow process of paying suppliers and how worse the financial condition is becoming. (Foerster, 2013, p. 74)
In the end Morgan Stanley stands as one of the major investor companies/businesses that revenue thousands if not billions of dollars for people all over the world who are trying to become entrepreneurs and help others. They take the extra step to assure those owners that whatever revenue they are investing will double if not triple by continuously investing in a correct and safe way. Stanley has been around many centuries and they invest the happiness of their investors by providing them with a safe notion that the funds being invested will come out if not even with a profit to incorporate in their businesses/companies.
The Current Ratio [Current Assets / Current Liabilities] lets the financial manager understand if the company is able to meet its current obligations. In 2016, Morgan Stanley’s current ratio was 1.1 to 1 and again in 2017 1.1 to 1. Ideally the ratio should be 2 to 1. This indicates the company has a smaller margin of error in liabilities. The company’s liabilities increased from 2016 to 2017 from $737,000 to $773,000 while its assets increased from $814,000 to $851,000. This shows us that assets barely increased enough to cover the same ratio of liabilities. (Breitner, 2013, p. 12)
The financial manager also must address various leverage ratios to understand the relationship between the company’s assets and equity. A raise in these ratios indicates a raise in debts which can negatively impact the company’s ability to manage their finances appropriately and still obtain a yearly profit. Measuring the Debt-to-Assets, Debt-to-Equity and the Interest Coverage helps the manager get an understanding of how much debt is impacting the overall financial health of the organization. (Breitner, 2013, p. 148)
The company’s debt-to-assets ratio [Total Liabilities / Total Assets] in 2016 was 0.9 to 1 and stayed closely the same in 2017. This recognizes how close the company’s liabilities are to their overall assets. In this organization this may be viewed as an acceptable risk since it is founded on banking, loans and lending services. However, the ratio is tight and could indicate the business could face financial difficulties very easily if something were to suddenly go wrong. As a financial manager this would be a higher risk scenario as there is less room for error.
The company’s debt-to-equity [Total Liabilities/ Equity] in 2016 was 9.6 to 1 and 9.9 to 1 in 2017. Equity is impacted by net income and is a balancing metric that tells us how the business is earning. The net income stayed fairly similar from 2016 to 2017 at $6,200. This tells us that the overall income helped balance out the liabilities and overall financial health of the organization. This measure also tells shareholders how their investment is doing and the ratio of risk involved. (Foerster, 2013, p. 51)
Interest Coverage [EBIT / Interest Expenses (earnings + taxes)] is an interesting measure to help an organization determine their ability to meet their financial obligations. Foerster remarks, “If a firm’s interest coverage ratio is less than one-to-one, then lenders know that the firm is in danger of defaulting on its existing loan obligations, which could have serious consequences for the future.” (Foerster, 2013, p. 77) The company’s interest coverage in 2016 was 3.2 to 1 and decreased to 1.9 to 1 in 2017. This indicates, as many of the other measures show us, that the company’s debt increased out of proportion to their income and assets.
The DuPont ROE focuses on Profits, Asset Turnover and Leverage, indicating a full understanding of net income, equity and liabilities. The ROE for 2016 was 17.68 percent and 16.38 percent in 2017 indicating a decrease in 2017 likely due to the increase in debt and a smaller proportioned increase in assets and income. The ROE might tell a financial manager that the company must focus on reducing its liabilities and/or increasing its income and/or assets. (Foerster, 2013, p. 67)
Altogether, these measures allow us to understand how a complex business working with very large numbers and many moving parts is functioning overall. We can see that the company over the last two years, while maintaining overall profitability has continued to indulge debt and liabilities without sufficiently increasing income and assets. As a financial advisor the primary goal would be to prevent this trend for 2018 and 2019 by reigning in spending and focusing on bringing in more income and increasing our overall assets. This is required to balance out the ratios more evenly over time.