Financial Management of Goldman Sachs Group - Assignment Example

Goldman Sachs Group, Inc. Financial Management Feb 2, The Goldman Sachs Group, Inc. (GS) Introduction Goldman Sachs Group, Inc. (GS) was founded in 1869. It’s headquarter is in New York. It is renowned as a leading global investment banking, securities and investment management firm. It provides financial services all over the world the clients are substantial and diversified including corporations, financial institutions, the government and high net worth individuals. The company assigns people, capital and ideas to help the clients, the shareholders and the communities they serve. It works as an Adviser: that advise the individuals and companies to buy and sell the businesses, also when and how to raise the capital and mitigate the risks. These Advisory services provide the clients to grow. A Financer: as a financer it provides their clients i.e. the local, state and national governments to finance and expand the infrastructure. It also works for the clients to transact, support, manage, innovate and invest (The Goldman Sachs Group, Inc. (GS), 2015). Goldman Sachs, Inc. is an investment brokerage company. The investments that are to be done in the company require the financial analysis of the company. Year Ended Dec 31 2013 2012 2011 2010 Revenue 40,874 41,664 36,793 45,967 Operating Income 11,737 11,207 6,169 12,892 Net Income 8,040 7,475 4,442 8,354 EPS (Diluted) 15.46 14.13 4.51 13.18 Cash & Equivalents 61,133 72,669 56,008 39,788 Total Assets 911,507 938,555 923,225 911,332 Long Term Obligations 160,965 167,305 173,545 174,399 Shareholder’s Equity 78,467 75,716 70,379 77,356 Theory: 1. Rate of Return: a. Rate of Return of the Firm (Actual)(Rs): The profit on the investments is known as the rate of return, it can be of two types. Firstly are the Dividends that paid to the shareholders out of the profits of the organization in the form of returns of the investments made by the shareholders. The dividend rate is announced by the Board of Directors of the organization. Secondly, the return is in the form of Capital Gain/Loss. Mostly, the capital gain is reinvested by the shareholders to get new shares of the company. The total return can be calculated by adding the Dividends and the Capital Gain. Rs = DY + CG (1) Where Rs denotes the rate of return from investment in the company’s shares, DY denotes the dividend yield that provides investors the idea about the actual percentage of returns paid out to the shareholders in the form of dividends, and CG is the capital gain that shareholders can achieve from their holding in the company’s shares. The dividend yield can be calculated using the following formula. DY = D1 / P0 (2) CG = (P1-P0)/P0 (3) Where, D1 is the dividend expected in period 1 that is determined by applying an estimated growth rate of dividends to the dividend paid in period 0, P0 refers to the price of the company’s shares in period 0 and P1 is the stock price in period 1. Rate of return of the Market (Historical) (Rm): The rate of return of the market denoted by Rm is calculated using the following formula. Rm = (DJIAt – DJIAt-1) / DJIAt-1 (4) It implies that Rm is measured as the percentage change between two periods of investment in the values of the Dow Jones Industrial Average (DJIA) 2. Risk- Beta Coefficient (ßs): It helps in measuring the risk of change in the value of the company’s stock in relation to the change in the value of the market index. It is mainly used to compare the risk of one stock with other stocks. The measure can help investors make their investment decisions based on their risk assessment and acceptance of risk. The value of beta equal to 1 represents that the price of the stock is to prevail in the market at large. Beta value greater than 1 indicates that the security prices are more volatile in the current market and they change in higher proportion to the changes in the market value. The value less than 1 means that it is less volatile i.e. investors can expect lesser risk involved in their investment. Rs,t = Read More