MORGAN STANLEY 10-K Analysis & Summary – 2/21/2025

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Morgan Stanley Direct Lending Fund

10-K

Annual report

Filing date:

02/21/2025

TLDR:

Morgan Stanley’s 2024 10-K filing reveals strong financial performance with improvements across all business segments. Investors should monitor risk factors like market volatility and cybersecurity.

ELI5:

Morgan Stanley, a big bank, had a really good year making more money than last year. They face some risks like market swings and computer security, so keep an eye on those.

Accession #:

0000895421-25-000304

Published on

March 16, 2025

Analyst Summary

Net revenues increased by 14% year-over-year to $61.8 billion.
Net income increased by 47% year-over-year to $13.4 billion.
ROE improved to 14.0% from 9.4% in 2023.
ROTCE improved to 18.8% from 12.8% in 2023.
Expense efficiency ratio improved to 71% from 77% in the prior year.
Institutional Securities net revenues increased by 22%.
Wealth Management net revenues increased by 8%.
Investment Management net revenues increased by 9%.
Operating Profit Margin (2024) = 28.5%
Net Profit Margin (2024) = 21.9%
ROA (2024) = 1.11%
ROE (2024) = 12.7%
Basic EPS (2024) = $8.04
Diluted EPS (2024) = $7.95
Current Ratio = 1.18
Quick Ratio = 0.75
Cash Ratio = 0.13
Debt-to-Equity Ratio = 2.74
Debt-to-Assets Ratio = 0.24
Interest Coverage Ratio = 1.39
Asset Turnover = 0.051
P/E Ratio = 16.5
P/B Ratio = 2.23
P/S Ratio = 3.43
EV/EBITDA = 6.57
Revenue Growth = 14.1%
Net Income Growth = 46.6%
EPS Growth = 53.5%
Expense Efficiency Ratio = 71%
ROTCE = 18.8%
CET1 Capital Ratio = 15.9% (Standardized) and 15.7% (Advanced)
Tier 1 Leverage Ratio = 6.9%
SLR = 5.6%
Wealth Management – Total Client Assets = $6,194 billion
Wealth Management – Net New Assets = $251.7 billion
Investment Management – Total AUM = $1,540 billion

Opportunities and Risks

Market Risk: Fluctuations in global financial markets could adversely affect the firm’s results.
Credit Risk: The risk of loss arising from borrowers or counterparties failing to meet their obligations, especially regarding commercial real estate exposures.
Operational Risk: Failures in internal processes, systems, or human error, including cybersecurity threats, could disrupt business operations.
Liquidity Risk: Inability to access funding in debt capital markets or difficulty in liquidating assets.
Legal, Regulatory and Compliance Risk: Extensive regulation and potential litigation could impact the firm’s business and profitability.
Climate Change Risk: Physical and transition risks associated with climate change could increase costs and risks and adversely affect operations, businesses and clients.

Potential Implications

Stock Price

Positive outlook may lead to increased investor confidence.
Investors should monitor risk factors, particularly those related to market volatility, credit risk, and cybersecurity.

Morgan Stanley 2024 10-K Filing Analysis

Executive Summary

This report analyzes Morgan Stanley’s 2024 10-K filing, focusing on financial performance, key business segments, risk factors, and management’s discussion. The firm demonstrated strong overall performance, driven by improvements across its Institutional Securities, Wealth Management, and Investment Management segments. Key metrics such as ROE and ROTCE showed significant improvement. However, investors should carefully consider the identified risk factors, particularly those related to market volatility, credit risk, and cybersecurity. Overall, the filing suggests a positive outlook, but requires careful monitoring of the evolving economic and regulatory landscape.

Company Overview

Morgan Stanley is a global financial services firm operating in three main segments: Institutional Securities, Wealth Management, and Investment Management. The firm advises, originates, trades, manages, and distributes capital for governments, institutions, and individuals. The 2024 10-K provides an overview of the firm’s performance and strategic direction.

Detailed Analysis

Financial Performance

Morgan Stanley reported net revenues of $61.8 billion and net income of $13.4 billion for 2024. This represents a 14% increase in net revenues and a 47% increase in net income compared to 2023. Key profitability metrics also improved, with ROE reaching 14.0% and ROTCE reaching 18.8%. The expense efficiency ratio improved to 71% from 77% in the prior year.

Key Ratios and Trends

Net Revenue Growth: 14% year-over-year
ROE: 14.0% (vs. 9.4% in 2023)
ROTCE: 18.8% (vs. 12.8% in 2023)
Expense Efficiency Ratio: 71% (vs. 77% in 2023)
CET1 Capital Ratio: 15.9%

Business Segment Performance

Each business segment contributed to the overall positive results.

Institutional Securities: Net revenues increased by 22%, driven by strong performance in Equity and Investment Banking.
Wealth Management: Net revenues increased by 8%, reflecting higher asset management and transactional revenues.
Investment Management: Net revenues increased by 9%, primarily due to higher asset management revenues on increased AUM.

Management’s Discussion and Analysis (MD&A)

Management highlighted the improved economic environment and client confidence in 2024. However, they also acknowledged ongoing risks related to inflation, geopolitical instability, and policy changes. The MD&A emphasizes the firm’s commitment to expense discipline and strategic initiatives.

Risk Factors

The 10-K outlines several key risk factors that could impact future performance:

Market Risk: Fluctuations in global financial markets, including equity, fixed income, and commodity prices, could adversely affect the firm’s results.
Credit Risk: The risk of loss arising from borrowers or counterparties failing to meet their obligations. Specific concerns are noted regarding commercial real estate exposures.
Operational Risk: Failures in internal processes, systems, or human error, including cybersecurity threats, could disrupt business operations and damage the firm’s reputation.
Liquidity Risk: Inability to access funding in debt capital markets or difficulty in liquidating assets.
Legal, Regulatory and Compliance Risk: Extensive regulation and potential litigation could impact the firm’s business and profitability.
Climate Change Risk: Physical and transition risks associated with climate change could increase costs and risks and adversely affect operations, businesses and clients.

Uncommon Metrics

The filing includes several uncommon metrics that provide additional insights into the business:

Fee-based asset flows: Provides insight into the growth and stickiness of assets in the Wealth Management business.
Employee engagement: Indicates employee satisfaction and commitment to the firm’s values.
U.S. ethnic diversity representation: Reflects the firm’s commitment to diversity and inclusion.

Conclusion & Actionable Insights

Morgan Stanley’s 2024 10-K filing presents a picture of strong financial performance and strategic execution. The firm’s diversified business model and focus on expense management have contributed to improved profitability. However, investors should carefully monitor the identified risk factors, particularly those related to market volatility, credit risk, and cybersecurity. The evolving regulatory landscape and potential economic headwinds also warrant close attention.

Overall Assessment: The filing suggests a positive outlook for Morgan Stanley, but requires careful monitoring of the evolving economic and regulatory landscape.

Recommendations:

Monitor Risk Management: Assess the effectiveness of the firm’s risk management processes, particularly in mitigating market and credit risks.
Evaluate Cybersecurity Measures: Review the firm’s cybersecurity strategy and investments to ensure they are adequate to address evolving threats.
Track Regulatory Developments: Stay informed about changes in regulations and their potential impact on the firm’s business and capital requirements.
Analyze Segment Performance: Continue to track the performance of each business segment to identify growth opportunities and potential challenges.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Ratio/Metric: Gross Profit is not explicitly listed. Unable to calculate.

Operating Profit Margin

Ratio/Metric: Operating Income is equivalent to Income before provision for income taxes. Operating Profit Margin (2024) = $17,596 / $61,761 = 28.5%
Trend: Operating Profit Margin (2023) = $11,813 / $54,143 = 21.8%. Percentage Change = (28.5% – 21.8%) / 21.8% = 30.7%
Industry: Compared to other investment banks, an operating margin of 28.5% is generally strong.

Net Profit Margin

Ratio/Metric: Net Profit Margin (2024) = $13,529 / $61,761 = 21.9%
Trend: Net Profit Margin (2023) = $9,230 / $54,143 = 17.1%. Percentage Change = (21.9% – 17.1%) / 17.1% = 28.1%
Industry: A net profit margin of 21.9% is considered healthy within the financial services industry.

Return on Assets (ROA)

Ratio/Metric: ROA (2024) = $13,529 / $1,215,071 = 1.11%
Trend: ROA (2023) = $9,230 / $1,193,693 = 0.77%. Percentage Change = (1.11% – 0.77%) / 0.77% = 44.2%
Industry: An ROA of 1.11% is typical for a large financial institution.

Return on Equity (ROE)

Ratio/Metric: ROE (2024) = $13,390 / $105,428 = 12.7%
Trend: ROE (2023) = $9,087 / $99,982 = 9.1%. Percentage Change = (12.7% – 9.1%) / 9.1% = 39.6%
Industry: An ROE of 12.7% is a good return.

Earnings Per Share (EPS) – Basic and Diluted

Ratio/Metric: Basic EPS (2024) = $12,800 / 1,591 = $8.04. Diluted EPS (2024) = $12,800 / 1,611 = $7.95
Trend: Basic EPS (2023) = $8,530 / 1,628 = $5.24. Diluted EPS (2023) = $8,530 / 1,646 = $5.18. Percentage Change (Basic) = ($8.04 – $5.24) / $5.24 = 53.4%. Percentage Change (Diluted) = ($7.95 – $5.18) / $5.18 = 53.5%
Industry: EPS is a key metric for investors.

Liquidity

Current Ratio

Ratio/Metric: Current Assets = Cash and cash equivalents + Trading assets at fair value + Investment securities + Securities purchased under agreements to resell + Securities borrowed + Customer and other receivables + Loans Held for sale = 105,386 + 331,884 + 159,679 + 118,565 + 123,859 + 86,158 + 12,319 = 937,849. Current Liabilities = Deposits + Trading liabilities at fair value + Securities sold under agreements to repurchase + Securities loaned + Other secured financings + Customer and other payables = 376,007 + 153,764 + 50,067 + 15,226 + 21,602 + 175,938 = 792,604. Current Ratio = 937,849 / 792,604 = 1.18
Trend: Current Assets (2023) = 89,232 + 367,074 + 154,807 + 110,740 + 121,091 + 80,105 + 15,255 = 938,304. Current Liabilities (2023) = 351,804 + 151,513 + 62,651 + 15,057 + 12,655 + 208,148 = 801,828. Current Ratio (2023) = 938,304 / 801,828 = 1.17. Percentage Change = (1.18 – 1.17) / 1.17 = 0.85%
Industry: A current ratio above 1 indicates that the company has more current assets than current liabilities.

Quick Ratio (Acid-Test Ratio)

Ratio/Metric: Quick Assets = Cash and cash equivalents + Trading assets at fair value + Investment securities = 105,386 + 331,884 + 159,679 = 596,949. Current Liabilities = 792,604. Quick Ratio = 596,949 / 792,604 = 0.75
Trend: Quick Assets (2023) = 89,232 + 367,074 + 154,807 = 611,113. Current Liabilities (2023) = 801,828. Quick Ratio (2023) = 611,113 / 801,828 = 0.76. Percentage Change = (0.75 – 0.76) / 0.76 = -1.3%
Industry: A quick ratio of less than 1 indicates that the company may have difficulty meeting its current liabilities.

Cash Ratio

Ratio/Metric: Cash Ratio = $105,386 / $792,604 = 0.13
Trend: Cash Ratio (2023) = $89,232 / $801,828 = 0.11. Percentage Change = (0.13 – 0.11) / 0.11 = 18.2%
Industry: The cash ratio is a conservative measure of liquidity.

Solvency/Leverage

Debt-to-Equity Ratio

Ratio/Metric: Total Debt = Borrowings = $288,819. Total Equity = $105,428. Debt-to-Equity Ratio = $288,819 / $105,428 = 2.74
Trend: Total Debt (2023) = $263,732. Total Equity (2023) = $99,982. Debt-to-Equity Ratio (2023) = $263,732 / $99,982 = 2.64. Percentage Change = (2.74 – 2.64) / 2.64 = 3.8%
Industry: A debt-to-equity ratio of 2.74 is relatively high.

Debt-to-Assets Ratio

Ratio/Metric: Total Debt = $288,819. Total Assets = $1,215,071. Debt-to-Assets Ratio = $288,819 / $1,215,071 = 0.24
Trend: Total Debt (2023) = $263,732. Total Assets (2023) = $1,193,693. Debt-to-Assets Ratio (2023) = $263,732 / $1,193,693 = 0.22. Percentage Change = (0.24 – 0.22) / 0.22 = 9.1%
Industry: A debt-to-assets ratio of 0.24 indicates that 24% of the company’s assets are financed by debt.

Interest Coverage Ratio (Times Interest Earned)

Ratio/Metric: EBIT = Earnings before provision for income taxes + Interest Expense = $17,596 + $45,524 = $63,120. Interest Coverage Ratio = $63,120 / $45,524 = 1.39
Trend: EBIT (2023) = $11,813 + $37,619 = $49,432. Interest Coverage Ratio (2023) = $49,432 / $37,619 = 1.31. Percentage Change = (1.39 – 1.31) / 1.31 = 6.1%
Industry: An interest coverage ratio of 1.39 is low.

Activity/Efficiency

Asset Turnover

Ratio/Metric: Asset Turnover = $61,761 / $1,215,071 = 0.051
Trend: Asset Turnover (2023) = $54,143 / $1,193,693 = 0.045. Percentage Change = (0.051 – 0.045) / 0.045 = 13.3%
Industry: The asset turnover ratio is low.

Valuation

Price-to-Earnings Ratio (P/E)

Ratio/Metric: Market Cap = 1,607 * $131.69 = $211,625.83 million. P/E Ratio = $211,625.83 / $12,800 = 16.5
Industry: A P/E ratio of 16.5 is in line with the industry average.

Price-to-Book Ratio (P/B)

Ratio/Metric: Book Value per Share = $58.98. P/B Ratio = $131.69 / $58.98 = 2.23
Industry: A P/B ratio of 2.23 is typical for financial institutions.

Price-to-Sales Ratio (P/S)

Ratio/Metric: Market Cap = $211,625.83 million. Total Revenue = $61,761 million. P/S Ratio = $211,625.83 / $61,761 = 3.43
Industry: A P/S ratio of 3.43 is typical for financial institutions.

Enterprise Value to EBITDA (EV/EBITDA)

Ratio/Metric: Market Cap = $211,625.83 million. Total Debt = $288,819 million. Cash and cash equivalents = $105,386 million. Enterprise Value = $211,625.83 + $288,819 – $105,386 = $395,058.83 million. EBITDA = Net Income + Interest + Taxes + Depreciation and Amortization = $13,529 + $45,524 – $4,067 + $5,161 = $60,147 million. EV/EBITDA = $395,058.83 / $60,147 = 6.57
Industry: An EV/EBITDA ratio of 6.57 is typical for financial institutions.

Growth Rates

Revenue Growth

Ratio/Metric: Revenue Growth = ($61,761 – $54,143) / $54,143 = 14.1%
Industry: A revenue growth of 14.1% is strong.

Net Income Growth

Ratio/Metric: Net Income Growth = ($13,529 – $9,230) / $9,230 = 46.6%
Industry: A net income growth of 46.6% is strong.

EPS Growth

Ratio/Metric: EPS Growth = ($7.95 – $5.18) / $5.18 = 53.5%
Industry: An EPS growth of 53.5% is strong.

Other Relevant Metrics

Expense Efficiency Ratio

Ratio/Metric: Expense Efficiency Ratio = 71%
Trend: Expense Efficiency Ratio (2023) = 77%. Percentage Change = (71% – 77%) / 77% = -7.8%
Industry: A lower expense efficiency ratio is generally better.

Return on Tangible Common Equity (ROTCE)

Ratio/Metric: ROTCE = 18.8%
Trend: ROTCE (2023) = 12.8%. Percentage Change = (18.8% – 12.8%) / 12.8% = 46.9%
Industry: A higher ROTCE is generally better.

Common Equity Tier 1 (CET1) Capital Ratio

Ratio/Metric: CET1 Capital Ratio = 15.9% (Standardized) and 15.7% (Advanced)
Trend: CET1 Capital Ratio (2023) = 15.2% (Standardized) and 15.5% (Advanced). Percentage Change (Standardized) = (15.9% – 15.2%) / 15.2% = 4.6%. Percentage Change (Advanced) = (15.7% – 15.5%) / 15.5% = 1.3%
Industry: A higher CET1 capital ratio is generally better.

Tier 1 Leverage Ratio

Ratio/Metric: Tier 1 Leverage Ratio = 6.9%
Trend: Tier 1 Leverage Ratio (2023) = 6.7%. Percentage Change = (6.9% – 6.7%) / 6.7% = 3.0%
Industry: A higher Tier 1 leverage ratio is generally better.

Supplemental Leverage Ratio (SLR)

Ratio/Metric: SLR = 5.6%
Trend: SLR (2023) = 5.5%. Percentage Change = (5.6% – 5.5%) / 5.5% = 1.8%
Industry: A higher SLR is generally better.

Wealth Management – Total Client Assets

Ratio/Metric: Total Client Assets = $6,194 billion
Trend: Total Client Assets (2023) = $5,129 billion. Percentage Change = ($6,194 – $5,129) / $5,129 = 20.8%
Industry: A higher Total Client Assets is generally better.

Wealth Management – Net New Assets

Ratio/Metric: Net New Assets = $251.7 billion
Trend: Net New Assets (2023) = $282.3 billion. Percentage Change = ($251.7 – $282.3) / $282.3 = -10.8%
Industry: A higher Net New Assets is generally better.

Investment Management – Total AUM

Ratio/Metric: Total AUM = $1,540 billion
Trend: Total AUM (2023) = $1,379 billion. Percentage Change = ($1,540 – $1,379) / $1,379 = 11.7%
Industry: A higher Total AUM is generally better.

Commentary

Morgan Stanley demonstrated strong financial performance in 2024, marked by significant growth in net revenues, earnings, and EPS. Profitability metrics such as operating and net profit margins improved substantially, indicating enhanced operational efficiency. The company also exhibited solid capital ratios, exceeding regulatory requirements. However, the relatively high debt-to-equity ratio and low-interest coverage ratio warrant monitoring, as they could pose risks in a changing economic environment.