The Goldman Sachs Group, Inc. Latest Earnings Report
The Goldman Sachs Group is a multinational investment bank based in New York City. The company offers financial services in investment banking, portfolio management as well as underwriting of securities.
Equity investing is typically a long – term venture with the intention of making capital gains. With this in mind, typical financial analysts use a combination of long – term performance stock performance, the financial health of a company as well as relevant industry news to deduce their investment recommendation of a particular company.
In this regard, we will assess Goldman Sachs with these metrics in mind
Assessing a company’s financial health may be deemed as the bare minimum benchmark when assessing one’s financial decision. It involves assessing a company’s financial ratios. Financial ratios may be broken down into four main categories: Liquidity ratios, profitability ratios, leverage ratios and efficiency ratios.
Profitability ratios measure the company’s earning capacity. This basically measures the management’s ability to convert the company’s sales into profits per unit. These are the typical margins that measure a return after deducting expenses. Perhaps the most important of these would be the profit margin, the return on equity (ROE) as well as the return on assets (ROA).
Examining Goldman Sach’s latest earnings we observe an improvement in net earnings margin (defined as a ratio of net earnings to net revenues) from 24% in September 2017 to 26% in September 2018. This may be attributed to increased revenues in investment banking as well as market making revenues. Furthermore, a slight increase in interest revenues also contributed to this increase in net earnings. Next, we observe perhaps the most relevant ratio for an investor: the return on equity ratio. This rose from 7.1% in 2017 to 8.7% in 2018. Thisis promising especially considering the threat of trade wars due to the Trump administration which rocked financial markets and generally led to a down turn in almost all international markets.
Leverage ratios measure the solvency of a company. This involves measuring a company’s debt relative to its equity or assets. High debt levels may not be ideal for a company as it implies high interest costs (from paying back the debt) and may increase the company’s cost of debt. This is because the higher debt levels make the company riskier to loan to. Consequently, lenders must charge higher interest rates to the company in order to compensate for the risk.
Typically, the most relevant leverage ratios would be debt – to – assets, debt – to – capital as well as the interest coverage ratios. Looking at the latest report, Goldman yield a debt – to – asset ratio of 0.90 in 2018 compared to 0.91 in 2017. This fall in the ratio may be disregarded in general since it is quite minute. However, as a whole, the ratio is healthy since it means that the company can pay off almost all its obligations. The interest expenses are rather immaterial in the company’s income statement so there is no need to examine the interest coverage ratio.
Efficiency ratios measure the turnover of assets within the company. They measure the management’s ability to convert assets purchased into revenue. Generally higher turnover ratios indicate higher efficiency in the company in converting its assets into sales.
The most relevant efficiency ratios in this case would be asset turnover (since this is a business that relies primarily on turning financial assets into profits). Goldman Sachs yielded an asset turnover of 8.6 times in 2018 as compared to 6.5 times in 2017. This is promising as it means that the company is generating more cash per asset utilised.
All in all, Goldman Sachs remains a healthy company that investors, both local or involved in international share trading should consider adding to their portfolio.
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