Goldman Sachs Inc detailed analysis

Goldman Sachs Inc. is a global leader in the provision of investment banking, investment banking, and securities. The company stock has been performing well in the stock market, thus presenting an excellent investment opportunity. Specifically, the company’s shares are volatile and therefore offer a unique opportunity to earn a profit during the market movements. For instance, the average share price was 208.79 in 2015 while it dropped down to $148.58 in 2016 then rose again to $248 in 2017. These movements offered great opportunities for investors to buy the share at a low price and then sell at a high price, making profits. Further, financial ratios show the overall performance of the company profitability, liquidity, and efficiency, thereby enabling one to predict the future movement of Goldman Sachs stock. The Beta also proves the stock movement and how suitable and the opportunities it offers.

Financial ratios

 

Net Profit Margin

Analyzing financial ratios helps gain insight into the company’s profitability, liquidity, and operation efficiency. First, profitability ratios demonstrate how efficiently a company is able to generate profit. Certainly, the company’s efficiency is of utmost importance since its share profitability depends on it. The company net profit is $3685, $9,860 and $7,897 while the revenues are 29,798, 32,849, and 32,184 for 2017, 2018, 1nd 2019 respectively.

Net profit ratios= net income/revenues

Therefore;

2017= 3,685/29,798= 12.3%

2018= 9,860/32,849= 30%

2019= 7,897/32,184= 24.5%

This ratio reveals that Goldman Sachs generated 12.3%, 30%, and 24.5% income from its revenue. The company recorded a low net profit margin is 2017, but it was significant to a healthy percent in 2018. Still, it maintained a healthy ratio of 24.5% despite the slight decrease in 2019. The increase shows that Gold sac management has improved its efficiency within three years by increasing the revenues and controlling cost.

Gross profit margin

The gross profit margin ratio reveals the amount of cash left after deducting the cost of goods sold from sales. Goldman Sach’s revenues 29,798, 32,849, and 32,184while the gross profit is 20,941, 23,461, and 24898 in 2017, 2018, and 2019.

Therefore,

2017= 20,941/29,798= 70.3%

2018= 23,461/32,849= 71.4%

2019= 24898/32,184= 77.4%

Goldman Sach management is efficient and is able to control the cost of sales. Still, the company is able to generate sufficient revenue to cover its cost of sales.

Debt Ratio

Equally, the leverage ratio shows how much of the company asset is financed by debt revealing the company debt load. This ratio evaluates risk. A high leverage ratio is risky since the company may not be able to pay all its obligation to incase of solvency. However, an average leverage ratio is beneficial as it shows that the company uses less equity to finance operation, thereby increasing return on equity. Goldman Sac has a total assets916,776, 931,796, and 992,968, and total liability of834,553, 841,611, 902,703 in 2017, 2018, and 2019 respectively.

Debt ratio= Debt/Total assets

Therefore;

2017= 834,553/916,776= 91%

2018= 841,611/931,796= 90%

2019= 902,703/992,968= 91%

Goldman Sac has an average debt ratio of 90% for the last three years. This means that the company may not be able to pay all its debt to incase of solvency. Despite the leverage ratio revealing that it is a risky investment, a high debt ratio also shows that the company is using less equity to finance its assets; hence the is more return on equity.

Debt to Equity ratio

Also, the debt to equity ratio shows the percentage the company is financing is activities with debt compared to shareholding funds. It reveals the extent that the shareholders’ funds can cover the debt in the event of solvency. Goldman Sac’s total debt is 834,553, 841,611, and 902,668 while the shareholding funds is 82,243, 90,185, 90,265 for 2017, 2018, and 2019 respectively

Debt to equity ratio= total debt/total shareholding funds

2017= 834,553/82,243= 10.15

2018= 841,611/90,185= 9.33

2019= 902,668/90,265= 10

Goldman Sachs’s debt to equity ratio is relatively high. The ratio is typically high in financial institutions since they borrow funds to lend to their customer. Therefore, Goldman Sac cant is considered to be a high risk considering that it is a financial institution.

Quick Ratio

Additionally, liquidity ratios reveal the ability of the company to pay its short term obligations on a timely basis. The ratio reveals the health of the business. A company with low liquidity has doubtable credibility, thereby failing to acquire financing. Also, a very high liquidity ratio shows that the company is not using it is using its current assets aptly to generate income.

Quick ratio= Cash+ Marketable securities+ Receivables/Current liabilities

Therefore;

2017= 446,397/303,875= 1.47

2018= 477,545/270,221= 1.77

2019= 429,913/342,037= 1.25

Goldman Sach has maintained a healthy quick ratio for the last three years. This means that the company has sufficient quick assets to meet its current liability in a short period.

Price of Investment

Beta measures the volatility of the company stock as compared to the market movements.  The high the Beta, the riskier the investment, but it presents a big opportunity to gain from an investment. Goldman Sachs beta is 1.31, 1.272, 1.46, 1.32, and 1.47 in 2019, 2018, 2017, 2016, and 2015 respectively. This shows that Goldman Sachs’s moves with the market pace. In 2015, the company Beta was so high, but it has adjusted to a not very risky beta of average 1.3 in the past four years. The risk is high, and so is the return. Therefore, investing in Goldman Sachs’s share allows one to earn with the market movements. On the other hand, the price of an investment is 1.129, 1.367, 1.61, 1.693, and 1.569 for 2019, 2018, 2017, 2016, and 2015 respectively, which also shows that the company stocks are volatile thus have high returns despite being risky.

Appropriate investor

Goldman Sachs is suited for the Aggressive investor due to its volatility nature. The company stock offers high returns but with relatively high risk. The aggressive investor will be able to take advantage of the risky market movements and earn profit from the investment. Overall, the company is presenting an excellent investment opportunity with both high risk and high returns.


 

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