Previewing Morningstar's (Nasdaq: MORN) earnings release in last week's Foolish Forecast, I spoke a little about the potential for Morningstar to enter the market for rating corporate debt, adding Fitch and Moody's (NYSE: MCO) to a list of competitors that already includes Standard & Poor's owner McGraw-Hill (NYSE: MHP).

Today, I want to step back a bit further and talk about something we discussed in the Foolish Forecast for last quarter's earnings release. Specifically, the firm's investment consulting business -- because as the company confirmed on Thursday, that's the one that drove Morningstar's business last year.

As you may recall from fellow Fool Rick Munarriz's December 2005 piece on the Ibbotson acquisition, it's purchases like that one that are helping Morningstar evolve from the name in mutual funds research, into a potpourri provider of financial data on -- at last count -- 265,000 different investment vehicles. It's also, as we are beginning to learn, turning the company into as much a resource for the individual investor as an advisor to institutional investors -- including Nationwide Financial (NYSE: NFS) MetLife (NYSE: MET), and Prudential (NYSE: PRU) -- and an investment manager in its own right. And perhaps most important to its shareholders, it's making Morningstar more profitable than ever.

Top line, bottom line
At first glance, that might not be obvious. Morningstar grew its annual revenues 38% in fiscal 2007, and its profits likewise grew 38% (to $1.53 per share.) But in between top and bottom (and before items such as share dilution began chipping away at the results) Morningstar grew its operating profit much faster than a mere expansion of sales could account for. By expanding operating margins earned on those revenues by 230 basis points, to 26.9%, Morningstar posted a 51% improvement in operating profit last year.

What accounts for the growth in both revenues and profit margins? CEO Joe Mansueto says it straight out: "Our Institutional segment continued to drive revenue and operating margin increases." Within that segment, Morningstar's investment consulting businesses, Morningstar Associates and Ibbotson Associates, contributed 24% of the year's revenue growth, or nearly two dollars out of every three added to the revenue stream.

The other bottom line
It's also helping Morningstar churn out more and more cash profit from its business. Free cash flow totaled $101 million for the year. That was up just 8% in comparison with a fiscal 2006 in which cash profits were inflated by "a $13.0 million cash tax benefit related to the Ibbotson acquisition." Still, it's enough to get me rethinking my conclusion of last week. With the company now valued at about 28 times free cash flow, and expected to grow its profits at perhaps 26% per year long term, Morningstar is beginning to look fairly valued once again, and considerably cheaper than rivals such as TheStreet.com (Nasdaq: TSCM).

While I wouldn't mind seeing Morningstar's stock drop a bit further, to build up a bit of a margin of safety, I think we're once again at a point where the market is offering you a "good price" on a "great company."

Put on your shades and gaze at Morningstar's recent performance in:

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Fool contributor Rich Smith owns shares of Moody's. The Motley Fool has a disclosure policy.