Arabian Pipes Company: DCF Valuation Methodology

Outline

The following report is about the twenty eight week co-op experience that I had the pleasure of being a part of. It contains an Introduction of Morgan Stanley with reference to the Investment Management department. This is followed by a theoretical presentation of various valuation techniques and analysis of the Discounted Cash Flow methodology also detailing the reasons this methodology was adopted. Then it contains the details of the project on the Arabian Pipes Company with technical details of the work that was performed. The report then follows with the evaluation of my overall experience during my tenure, the findings and recommendations I make through my experience and my conclusions about the overall experience.

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Executive Summary

Morgan Stanley is one of the companies that can be defined as the leading providers of financial services in the world today. With a prestigious history stretching back seven decades and a name known well and recognized for its excellence, Morgan Stanley serves as one of the global leaders in the industry. I had the pleasure of working at the Investment Management department of Morgan Stanley which was a valuable experience for me. Amidst the tremendous experience of working at the firm, my project involving the DCF Analysis of the Arabian Pipe Company stands out. I was required to engage in a number of important tasks for this, making considerable use of the theoretical understanding I had received during my studies. In depth work into the accounts and financial statements of the company allowed me to get into a position to perform the stock valuation as per requirement. Other methods of stock valuation such as Price Earnings ration and the P/BV ratio were considered, but eventually the benefits of a DCF analysis outweighed whatever others we could get through the simple procedures of using the ratios. Hence I was able to obtain a great deal of experience in this project with a prestigious company. My overall experience in this project and the many others I participated in may well be the building blocks for my professional career. I have learned a great deal from the work I was able to perform and with great assistance from my peers and supervisors. In general, the idea that I have got is that Morgan Stanley is a great employer that takes care of its employees. The people at the grass roots are taken along as the company develops and grows and its successes become the employees’ successes. In addition, the quality that is put into the work performed at the firm is truly something to be proud. The painstaking attention to detail and the meticulous presentation of data to facilitate the customers should be the envy of any firm in the industry.

The firm did face some problems like any company does. Morale and motivational levels have been seen to dip by a wave of executive departures. In addition, as one of the individuals in the higher level management exclaimed once, people nowadays spend more time reading about the bitter aspects that surround the company and don’t concentrate enough on the exceptional work that is being accomplished by the company. This may point to the need for an effort for improved public relations but otherwise, the firm duly lives up to its name as being one of the leading in the business. My sincere thanks to all the people I had the pleasure of working with at Morgan Stanley Investment Management, individuals and experiences with those individuals, the memory of which will forever occupy a special place in my heart.

Introduction

Morgan Stanley is one of the world’s leading providers of financial services, having been in operation for nearly seven decades. The firm has been operating in three prime business areas, namely: Institutional Securities, Global Wealth Management Group, and Asset Management. By the operations of these business segments, it has provided products and services to a variety of customers which range from corporations and financial institutions to governments and individuals.

The company before its official inception could be said to be a part of the broader JP Morgan & Co. When JP Morgan decided to halt its investment banking business, the founding members of Morgan Stanley quit and formed their own company as we know today. The new firm entered the market in the 1930s with a resounding entrance, at once capturing considerable market share and gained notice as being the lead underwriter for distribution of debentures for the United States Steel Corporation. The firm also has the unique stature and reputation of being the being the lead syndicate when the US rail was financed in the year 1939, alost six decades ago (Company History, 2008).

As the operations of Morgan Stanley progressed, it slowly emerged as one of the leading companies in the world. This claim was set by a number of noteworthy endeavors that the company was able to undertake that set the tone for its success. In 1952, the firm co-managed the famous World Bank’s US$50 million triple-A-rated bonds offering. It can even claim to have been involved in partly managing the largest internet IPO in the history of the United States, the Google IPO. Morgan Stanley can further take the credit for having developed the world’s first financial analysis computer model which started a completely new trend in the field (Company History, 2008).

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Morgan Stanley splits its businesses into three core business units:

Morgan Stanley

Institutional Securities

This segment of Morgan Stanley provides institutions with services such as in raising capital and financial advisory services such as advice on mergers, acquisitions, restructurings, lending etc. It has been reported to be the most profitable business segment for Morgan Stanley during the recent years and that trend is speculated to continue. This business unit also includes the Equities and the Fixed Income divisions of Morgan Stanley (Company History, 2008).

Global Wealth Management Group

This segment of Morgan Stanley provides a range of advice to its clients dealing primarily with brokerage and investment. The clientele mainly includes high net worth individuals and hedge funds. As of the first quarter of 2008, this department has reported an annual increase of 12 percent in its income before tax which shows its level of performance. (Company History, 2008).

Asset Management

This business segment provides global asset management products and services in equity, fixed income investments, alternative investments and private equity to institutional and retail clients through third-party distribution channels and Morgan Stanley’s own institutional distribution channel. These activities are conducted mainly under the Morgan Stanley brand name. However it is also done to a great extent under the Van Kampen brand name. The segment also provides asset management products and services to worldwide institutional investors, which includes pension plans, corporations, non profit organizations, charitable foundations, agencies representing the governemnt, banks and insurance companies. As of the first quarter of 2008, Asset Management reported a loss before tax worth US$161 million (Company Profile, 2007).

Morgan Stanley Investment Management

Morgan Stanley Investment Management was the department I had the pleasure of working in for my stint at the company. This department strives to provide outstanding long-term investment performance and the best service to a client base that is very diverse, includes governments, corporations, institutions and individuals situated all over the world. The global ‘community of boutiques’ structure leverages the breadth, depth and access of the Morgan Stanley franchise to provide its clients with an abundance of investment management solutions.

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The Report

The following report is about the DCF Methodology applied in the valuation of the Arabian Pipes Company. The process actually began with a consideration of a range of other methodologies which could have provided significant idea about the stock value. Their pros and cons were deliberated and the context in which they were to be applied, more specifically the company, were taken into account. In the end the chosen methodology emerged as the best possible one for the valuation to be performed. A table illustrating this analysis is attached in the “conceptual framework” section. The report follows with detailed technical aspects of this project and the procedures performed, based on the data obtained from the company’s financial statements and various other sources. This is followed by evaluation of my overall experience at Morgan Stanley Investment Management and an afterthought on what I have been able to learn from the projects I performed and from the people around me. I conclude with a summary of my findings and recommendations and a breif interlude into the conclusions I derived from my project and the twenty eight week work I was able to perform with one of the premier financial firms in the world. Some of the work in this report, especially the theoretical literature, required the use of external sources which have all been duely mentioned in the list of references used.

Conceptual framework

There are several methods used to value companies and their stocks. They give an estimate of the stocks’ fair value, by making use of particular economic criteria and performance of the companies. This valuation that is done has to be perfected with use of market criteria, as the eventual purpose of the work performed is to determine prospective market prices. A number of methodologies are applied for valuation of stock. Some of the few that were considered are mentioned here. It does need to be pointed out however that in addition to the pros and cons that have been considered here, these methodologies do have some specific advantages when they are used for some specific industries or stages in a company’s growth. A generalized picture of them however is presented below.

P/E Ratio

The Price Earnings ratio analyses the relationship between the price of the stock and the net income of the company, as represented in its income statement. It is one of the most widely used methods of stock analysis, although it is far from the only one. It involves comparing the market price of a share with the firm’s Earnings per Share. The market price of a share is therefore directly related in this method with the proportion of the company’s total profits that are attributed to the owner of that share. It is calculated simply by taking the price of the share and dividing it by the company’s Earnings per Share figure (Stowe and Robinson, 2002, p 184).

P/E = Stock Price / EPS

The Price Earnings ratio provides investors with a rough idea of what the market is willing to pay for the income of the company. The higher the figure of the Price Earnings ratio is, the more the market may be willing to shell out for the income of that company. Some investors interpret a high Price Earnings ratio to signal an overpriced stock which may actually be the case. It can also be possible however that it is an indication that the market has high hopes for a stock’s future and has increased the price.

Conversely, a low Price Earnings ratio may point towards a situation of distrust in the market and it could also mean that this is a sleeper that the market has been disregarded so far. Such stocks were said to have generated great levels of profits for investors who utilized them, before the rest of the market discovered their true worth.

Interpreting what the best level of P/E is a subjective thing. It depends upon and varies by the whims of the investor. Part of the answer depends on the readiness of the investor to pay for the earnings of a company. The more one is willing to pay; indicating existence of a belief that the company has good long term prospects over and above its current position, the greater in value the correct Price Earnings ratio is for that particular stock in the decision-making process of an investor. Another investor may not see the same value and disagree with the choice of a particular P/E being the best.

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One of the prime reasons for the attractiveness of the Price Earnings ratio is its inherent simplicity. It is very easy to calculate and can be explained to a layman very easily. What’s more, this ratio is easily available for investors and thus is a measure that can easily be calculated. As Stowe reports, “the downside however is that like most measures that rely on comparing the company’s market value with some financial aspect of its performance, valuation ratios requires quite a bit of context.” A particular Price Earnings ratio figure does not mean a whole lot unless the P/E of the whole market is also known, as well as the Price Earnings ratios of the main competitors of the company, the firm’s own historical figures for the ratio, and similar information. A ratio that appears to be touching the skies for one company might actually be quite reasonable for another which results in problems of comparison (Stowe and Robinson, 2002, p 183).

P/BV Ratio

Another ratio that is commonly utilized in the valuation of stocks is the price to book value ratio. This is a valuation ratio that is arrived at by dividing the market price of a share with the particular firm’s book value for each share.

Price/Book Value = Market Value of Equity/Book Value of Equity

Book value here can be said to be equal to the shareholder’s equity which is share capital plus surplus and reserves. It can also be calculated by taking total assets and subtracting current liabilities and debt from it. In the case of finance and banking companies, book value is usually calculated by taking share capital plus reserves minus the amount of miscellaneous assets that have not as yet been written off. This formula then provides a much better picture in the case of banks.

P/BV is a good metric for the valuation of stocks of companies in the capital-intensive industries such as manufacturing, vehicles and banking institutions, all of which usually possess large amounts of tangible assets in their balance sheets. If a company has a P/BV ratio of less than one, this is an indication that either the investors believe that the company’s assets are over valued or that the company is not earning a good return on its assets. A high Price to Book Value ratio indicates on the other hand that the markets believe the company’s assets are undervalued or that the is expected to earn a relatively greater return on its assets (Gropelli, 2006, p 471).

Book value is also linked with the ‘Return on Equity’ of a firm. In fact as Gropelli reports, book value itself be referred to as equity (equity capital plus reserves and surplus). As such, for a firm that is earning a considerable return on equity, investors would very easily assign the stock a high Price to Book Value multiple. This ratio is again popular because it is easy to calculate and can be explained with relative ease to laymen. Capital-intensive industries like manufacturing industries and banks can achieve a better stock valuation by this method as they have large amounts of tangible assets in the long term asset portion of their balance sheets (Gropelli, 2006, p 472).

This measure does its share of disadvantages though. The P/BV ratio indicates the intrinsic value of a firm and is a measure of the price level that investors may be willing to dish out for a nil growth of the firm. However, since companies in the services sectors, particularly in the software sector show sizeable high growth, the Price Earnings ratio is a significantly better measure of their stock valuations.

Price/Sales Ratio

Price/Sales ratio is a method of valuation that is said to be good for assessing valuations based on revenue. Whether or not a company makes money during a financial year, there is always revenue. Even companies that experience losses have revenue which is why the Price to Sales ratio is so useful. Firms that are relatively new in a high-growth industry are in many cases valued using their revenue and not their net income from the Income Statement.

The price/sales ratio takes the current market capitalization of a company and divides revenue of the preceding months in the year. Market capitalization is the current market value of a company, which is calculated by multiplying the current price of the share with the number of shares outstanding. The next step in calculating the Price to Sales ratio is to add the revenue from the previous quarters in the year and divide this number into the market capitalization (Motley, 2008)

The Price/Sales ratio is a valuable tool to use when a company has not made money in the previous year. Unless the corporation is going out of business, the Price to Sales ratio can tell an investor whether or not the firm’s sales are being valued at a discount to the competing companies. In general, the lower is the value of this ratio, the better a signal it provides regarding the stock value of the company (Motley, 2008).

Enterprise Value to EBITDA

The enterprise value to EBITDA multiple relates total market value of the firm, net of cash, to earnings before the interest, tax, depreciation and amortization of the company. This measure unlike the other measures discussed before is a multiple. This method is so useful because there are far fewer firms with negative EBITDAs than there are with negative earnings per share and this thus allows us to cover a wider range of companies in this valuation technique. Furthermore, this method is beneficial since it omits differentiation which may actually vary by method across different companies and effect results with other comparative valuation methods. Therefore this multiple is particularly useful for firms in sectors requiring large investments in infrastructure (Damodaran, 2002, p 501).

It does have its share of drawbacks as well though, like almost every heuristic measures. To begin with, it does not accurately reflect the possible synergies that may be generated in the takeover of a company. Also, there is a strong reliance on the assumption that the market valuations are accurate. As an example, considering the case of an overvalued market, we might end up overvaluing the firm under consideration if we follow the Enterprise Value to EBITDA multiple. Another deep assumption is that the firm being valued by the method matches the average or median firm in the industry.

Finally, if this valuation method is to be utilized for companies in the market, it requires use of uniform accounting practices. While fervent steps are being made towards that with countries becoming signatory to the International Financial Reporting Standards requirements, there is still some way before we reach a level of considerable uniformity among most of the companies.

EV/Revenue

This measure of valuation is calculated by taking the value of the firm and dividing it by total revenues of the firm. The value of the firm in this case includes the firm’s total debts and its equity. This multiple is used very alike the Price to Sales ratio and performs similar functions. Therefore the indications it gives are about the same that are provided by the Price to Sales ratio. What differentiates it from that multiple however and may cause it to be preferred is because it values the entire firm. P/S ratio only values the equity portion of the company and excludes debt. Another factor is that this method is based on valuation by revenues. In P/S, revenues divide only the equity portion of the company whereas by the Enterprise Value to Revenue ratio, revenues divide both equity and debt of the company. This is a better representation because the firm earns by utilizing assets gotten from both equity and debt, not just one (Jean-Jacques, 63).

One of the core advantages of using this value multiple is that unlike other measures previously studied, it is not influenced by the accounting decisions of the management, such as those regarding depreciation schedules. Since the decisions don’t affect the multiples that much, they can be said to be better represent the actual value of the firm as opposed to just fluctuations in the stock price which take place on almost a daily basis.

The disadvantage is this method’s overarching emphasis on future top-line growth. This misleads investors to invest in a company which shows high sales growth figures. That does not give a true representation as a company’s as the company may actually still be losing money by for example selling most of its good on credit without being able to recover the amounts due. The real value of a firm is based on cash flow and earnings, not just revenues (Jean-Jacques, 64).

The PEG Ratio

The PEG ratio is calculated by taking a firm’s Price to Earnings ratio and dividing it by the probable growth rate of the firm. The growth rate here actually means the rate of growth of income of the company. This can be a good measure for identification of undervalues companies. When the ratio is less than 1, it is an indicator that investing in the company may be cheap. Its advantages are that it is very easy to use. The variables involved are very easily available allowing the ratio to be calculated very easily.

It however comes with a fair list of disadvantages. To begin with, there are too many variables to choose from for the numerator and the denominator of the ratio. One can choose from a current calendar year P/E to a quarterly P/E to a forward P/E where as choices for the denominator range from growth rate of a particular fiscal year to a compound growth rate over some time frame. There are also factors to consider when determining value via the growth rate. Considering two companies with the same apparent level of growth rate, a company that pays dividends will have a more desirable level of growth rate for the investor compared to one that reinvests all of its retained earnings back into the company. Also, the results one gets from comparative use of PEG ratios within a particular industry can be misleading. As an example, a company that gives a very optimistic level of expected growth rate but in actuality is very risky may appear favorable to the investors but would not give the correct signal at all.

The best way to use this ratio therefore is to couple it with some other measure. If it has to be used alone however, it is best that the companies being compared by the PEG ratio have similar risk, earnings growth prospects and retained earnings characteristics.

Discounted Cash Flow

The discounted cash flow (or DCF) approach is another choice of a valuation method. Its hallmark is the use of time value of money concept. In this process, all future cash flows are estimated and discounted to get their present values. As Damodaran tells us, the discount rate that is used for calculation of present values is generally the appropriate cost of capital and may incorporate adjustments for the uncertainty (riskiness) of the future cash flows. Discounted cash flow analysis uses future free cash flow projections and discounts them (often using the WACC) to get at a present value, which is used to evaluate the potential for investment. This method for valuation is used to estimate the attractiveness of an investment opportunity. If the value that is calculated using the DCF analysis is greater than the current cost of the investment, this opportunity for an investment may be a favorable one (Damodaran, 2002, p 12).

Formula

DCF Valuation
DCF Valuation

The advantage of this method is that now the investor is required to think about the stock as a business and analyze its cash flow using the cash flow statement rather than relying just on its earnings. This takes care of the obvious disadvantage of overvaluing a company based on sales made on credit which may ultimately not be collected. The first and foremost reason for the operations of a business is making money and this is represented by liquid cash, not by the net earnings figure. Cash is the basic need of any business, for both the maintenance and growth of its current operations. That is the reason it is necessary to consider the possibility of its future cash growth rather than the growth in income.

The disadvantage of this method is that DCF analysis is not at all appropriate for new start up companies, growth firms or capital intensive companies where the determination of cash flow is a problem because of various complications. The error of prediction and assumptions must also be dealt with in the DCF which may well lead to it being at the same level of importance to investors as P/E ratio or the P/BV ratio. However, this can be curtailed to some extent by employing the margin of safety. Using margin of safety, a stock in the market should be bought when it is worth more than its price on the market. This measure safeguards an investor from poor decision making and dips in the market. As fair value is difficult to get completely accurately, employing the margin of safety provides a little room for error to the investor.

The reason DCF is so useful and the reason I chose to use it for the Arabian Pipes Company project is it produces the closest thing to an intrinsic stock value. The alternatives to DCF, the relative valuation measures such as Price Earnings ratio, P/BV ratio and the Price to sales ratio, while relatively simple to calculate, they aren’t very useful if an entire sector or market is over or undervalued. A carefully designed DCF, in contrast, actually helps investors stay away from companies that appear inexpensive against relatively expensive competitors in the same industry. Unlike standard valuation tools such as some of those discussed above, DCF methodology banks on free cash flows as was used for the DCF valuation for Arabian Pipes Company. Free cash flow is, for the most part, a trustworthy measure that cuts through much of the unpredictability and speculation that surrounds reported earnings. Regardless of whether a cash pay out is taken as an expense or reported on the balance sheet, free cash flow keeps track of the money that still remains out there for the investors. There is also the slight advantage of you being able to plug in the company’s current stock price into the model and by working backwards, calculating how rapidly a firm would have to increase its cash flows to achieve the desired stock price. This is a good alternative instead of trying to come up with a fair value stock price. DCF analysis can also help investors identify where the company’s value comes from and whether or not the existing share price is justified and that makes it a very trustworthy measure of stock valuation for a company.

measure of stock valuation for a company

Technical part

During the short stint I enjoyed at Morgan Stanley Investment Management, I was exposed to real life situations in the field, being engaged in projects and applying the theoretical framework that I had slowly inculcated through my years of study. This experience may well prove to be the foundation of my career to follow, providing the basis for any level of technical knowhow I may be able to achieve in the future. I am very proud of what I have been able to do at Morgan Stanley.

One of the projects I undertook was that regarding the Arabian Pipes Company. The company is one of the key supplements to the burgeoning oil industry of the Middle East. It is one of the largest pipes producing one’s in the region with a customer base spreading throughout the oil producing region. With a production capacity of steel pipes ranging to almost 460 thousand tones per year, that service clients extending as far as Asia and Africa, it is indeed at stalwart in the region. Since its inception in 1991, the Arabian Pipes Company has established itself well in the market which is apparent from some of the figures in its financial statement.

Evaluation of co-op training experience

My work at Morgan Stanley Investment Management has been one of the most fruitful experiences I have ever attained during my professional career. The amount of knowledge I attained at the firm over the twenty eight week period is priceless. The experience of working with real projects and applying the theoretical know-how you have attained is something you can’t learn in classes. It was challenging in the respect that there was so much to learn, and so little time to learn it in, and the expectations for my Co-op experience were high.

Having worked on such areas as Ratio Analysis, Stock valuation, applying the basics of finance and that too for a prestigious company in the oil business is something I could not have hoped for when I started my tenure at Morgan Stanley. The technical application in this project alone was something I am sure would pay me great dividends in the future. The work I performed with the Arabian Pipe Company is sure to remain etched in my memory and forever remind me of the steep learning curve I was forced to encounter at Morgan Stanley and how it helped me develop.

In addition to the project I have analyzed above, I had a chance to work on several smaller ones as well which added a lot to my level of understanding. One of the most helpful aspects of the co-op experience was being subject to so many different areas of the business and working within them. Even during the project I entailed, I was made to work with so many areas of my chosen field that the concepts I developed will form the baseline of whatever I pursue further in the field and I can definitely credit Morgan Stanley Investment Management for making me the professional I am in five to ten years time.

Professional practice which includes practicum and internship provides for the application of theory and development of counseling skills under supervision. My co-op experience provided me with the opportunity to counsel clients who represented not only some of the people I may work with later in my professional life; they also represented the ethnic and demographic diversity of the community I work in. This provided me with the opportunity to interact with such diverse people and build a certain sense of how to go about in a professional organization with diverse people (Scott and Boylan, 2008, p 393). Interaction within a team or in general within the fabric of an organization is one of the crucial skills needed for success. I have been exposed to the theoretical literature about the importance of cohesion of a group and the various methodologies that are in use to get the optimum out of a group. In practice however, I have been able to take in first hand the importance of cohesiveness within a group and the ultimate advantages it holds for an organization. These come out not only through the work it performs and the performance level but also manifests itself with the development of a certain level of camaraderie which may swell through the ranks of an organization and help develop a culture that may produce a healthy spirit and determination within the employees of the firm. Morgan Stanley has shown me undoubtedly how well it takes care of its own.

Summary of findings and recommendations

I was able to learn a lot at Morgan Stanley. Since I was placed in the Investment Management department, I have grasped a lot about what investment management entails and to what extent it is important in the business. As my experience at Morgan Stanley taught me, Investment Management, also known as Asset Management is simply the managing of your client’s money. If the people involved in investment management were to be grouped by the work they perform, they would fall into the categories of hedge and mutual funds and proprietary trading desk, and others involving the insurance and government side of things. Investment Management can be said to be the other side of the finance business. It is the area involved with buying. Unlike in Investment Banking, where products such as stocks and bonds are created for others to buy, investment management mainly involves buying stocks and bonds for the clients in an attempt to produce the optimum level of growth. Commissions are taken for carrying out the trades of stocks or bonds in investment banking whereas in investment management, the firm gets paid based on the amount of money it manages for its client. Also, investment management can be taken as a more stable career. The economy always has a steady flow of money which makes sure that people almost always have money to invest which in turn fuels the field of investment management. It is however very tough to break into Investment Management straight out of just getting an undergraduate degree based on the level of work required which is why the trend of seeing so many people from top business schools here appeared so noticeable. From what I was able to gauge, investment management and asset management requires quantitative analysis skills, which are necessary for the evaluation of companies. It also requires quickly immersing into and getting to know the nit bits of a given industry so as to be in a position to deal with it. Investment Management firms in general, which applies a lot to Morgan Stanley Investment Management as well, are split into three segments of Marketing and Sales, Portfolio Management, and Investment Research. The Portfolio Management department is mainly responsible for the execution of the plan of the firm. Portfolio managers, associate portfolio managers, and portfolio managers assistant among a large number of other positions are responsible for handling such parts for the firm. Portfolio Managers are responsible for guiding the investment strategy of the firm and choosing investments and with the people involved in it typically having seven to ten years of experience in asset management; it is an understandably complex task. Research in investment management consists of analyzing companies, stocks or bonds. It main focus is the companies’ ability to repay bonds, or the growth potential of stocks. Research plays a very important role in informing Portfolio managers in choosing suitable investments for clients. Senior research analysts are responsible for writing reports, attending industry conferences, and essentially just getting to know the details of a company or industry to provide necessary information to the firm. Associates and assistants all provide supporting research information to the senior analyst. The marketing department is responsible for identification of new clients and maintaining the relations with current clients. It also has the important job of expanding interest in new investment products that the firm decides to offer by time. This can be said to be a brief structure of what I got about Investment Management at Morgan Stanley. My opinion thus of investment management is that it is an exciting field in which an individual can be responsible for millions and billions of dollars and charts the way this amount of money is to be invested, producing gains for the clients. The hours put in can be said to be less hectic than those in investment banking or other segments but it is a rewarding field. There is also significantly less pressure to show continuous performance in Asset Management because in this segment, you get paid for handling the money, even if the investments incur losses. The risks and rewards in Investment Banking can be said to be much higher while Asset Management provides a steadier job. However, opportunities to jump straight into Asset Management do appear to be rare as I have gauged from the nature of work I performed and from the position of some of my colleagues.

My personal recommendations based on my limited experience are based on what I was able to observe. These may echo only the few instances I was witness to and may not extend to whole length and breadth of the organization. I have found investment management to be a value driven, decision making process. Therefore I believe that here, it may be fairly useful to try and promote a trend of decision making among the people and the managers here that takes regard of the operations and maintenance of infrastructure; planning for future needs; budgeting for both the current and upcoming requirements and allocating resources appropriately. The business units should not emphasize a close-minded criterion at the expense of overarching corporate objectives that define the direction of the whole company. They should be more open and flexible and deal with a variety of concerns that may be of importance to the company. The asset management system must also go side by side with the firm’s other enterprise systems and complement the others in a way. Having observes the requirements of the work performed, I have come to realize that it is vital that the key pieces of information be available at the right time, for the right analysis as I found out working on my projects at Morgan Stanley. This is crucial if the firm wants to deliver both customer satisfaction and financial returns efficiently. However as one of the industry leaders pointed out, an asset management system can not just be relied on to convert asset data into reliable asset decisions based on the quantitative data available. It can be said to be more of a process for effectively and efficiently acquiring and maintaining crucial goods and services for the lowest life cycle cost that is possible. Such effective use of the resources and provision of in depth analysis that goes into the core are what have been able to put this firm at a level of excellence. Precision and being on track supplement every part of the work done here. These are the few nit bits I believe if properly worked out can indeed provide the metrics, the tracking, and the process needed to boost corporate performance for the clients of Morgan Stanley Investment Management.

Conclusions

When I first got the news that I was going to be a part of Morgan Stanley twenty eight weeks ago, I jumped at the chance to be a part of such an institution. More than six months later as I finish my co-op experience with the with the DCF Analysis project, I can say that it has been a wonderful experience that I’ve been lucky enough to take part in. It started out slow, with sometimes involving mere administrative work, but it turned into much more. Luckily the co-op experience didn’t stick just to ordinary administrative tasks. The highlights of the time I spent there was no doubt when I got to actually crunch in the numbers and perform some analysis on my own. I got a chance to completely step into the shoes of the experienced in the field and for those days it was challenging and exhilarating. The preparation in the co-op experience was good, but nothing like actually being in the moment. The tenure at Morgan Stanley Investment Management was in the end an extremely fruitful one. The increase in my knowledge simply from the project on the Arabian Pipes Company was invaluable. With the net income in the millions and showing a steady increase leading up to the year 2008 and in the forecasts, the company looks very profitable. It also doesn’t appear to face any sort of liquidity problems at all, as is apparent through the ratio analysis and the cash flow statement, which illustrates the level of success of the company in the Middle East. (Technical part of conclusion if any………)

The work on this project was very enjoyable. I also was very much involved in the work I performed on the other projects at the company. My base into Investment Management has been built by Morgan Stanley and I hope to develop on it in the future. I was also able to probe into the inner workings of one of the leading companies in the world in the financial sector and interact with diverse people with a variety of skills which has set the tone for my career to follow. This has indeed been an amazing experience.

References

Company History. 2008. Web.

Company Profile. 2008. Web.

Damodaran, Aswath (2005). Valuation. Web.

Damodaran, A (2002). Investment Valuation. John Wiley and Sons.

Gropelli, A (2006). Finance. Educational Series.

Jean-Jacques, J (2002). The 5 Keys to Value Investing. McGraw-Hill Professional.

Motley, F (2008). How to Value Stocks: Revenue-Based Valuations. Motley Fool, Web.

Scott, J, & Boylan, J (2008). Practicum and Internship.CRC Press.

Stowe, John, & Robinson , Thomas (2002). Analysis of Equity Investments: Valuation.Baltimore: United Book Press.

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Paperroni. (2022, March 1). Arabian Pipes Company: DCF Valuation Methodology. Retrieved from https://paperroni.com/arabian-pipes-company-dcf-valuation-methodology/

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"Arabian Pipes Company: DCF Valuation Methodology." Paperroni, 1 Mar. 2022, paperroni.com/arabian-pipes-company-dcf-valuation-methodology/.

1. Paperroni. "Arabian Pipes Company: DCF Valuation Methodology." March 1, 2022. https://paperroni.com/arabian-pipes-company-dcf-valuation-methodology/.


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Paperroni. "Arabian Pipes Company: DCF Valuation Methodology." March 1, 2022. https://paperroni.com/arabian-pipes-company-dcf-valuation-methodology/.

References

Paperroni. 2022. "Arabian Pipes Company: DCF Valuation Methodology." March 1, 2022. https://paperroni.com/arabian-pipes-company-dcf-valuation-methodology/.

References

Paperroni. (2022) 'Arabian Pipes Company: DCF Valuation Methodology'. 1 March.

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