A brief look at Goldman Sach’s 10-K and Stock Intrinsic Value


Goldman Sach’s does not need much introduction. Goldman is one of the leading investment banking, securities and investment management firm. The clients to the firm are large corporations, financial institutions, government and high net worth individuals.

Primary Products and Services for Goldman:

    • Merger and Acquisitions Advisory
    • Equity and Debt Underwriting
    • Financial restructuring advisory
    • Commodities and commodity derivatives
    • Currencies and currency derivatives
    • Mortgage related Securities
    • Securities, futures and options
    • Equity securities and derivatives
    • Investment Advisory
    • Financial Planning
    • Management of Merchant Banking Funds
    • Prime bokerage
    • Financing services
    • Securities Lending

Earnings per share and Net Income Analysis

After experiencing a huge decline in the Net Income aspect of the cash flow statement in 2008, Goldman Sachs saw a 476% increase in it. From a figure of $2,322 million in November 2008, the banks’ Net Income in December 2009 was $13,385 million which signifies big achievements and that after the economic turmoil, the bank is back to being the top firm on wall street.

Earnings per share reported as of December 2009 were $23.74 compared to $4.67 the year before and $26.34 the year before that. Even though the EPS is not back up to where it was 2 years prior, it has shown a significant growth given that it dropped by 83% going from 2007 in to 2008.

According to David Ellis’ article on CNNmoney.com, the shares for Goldman plunged 21% since the first revelation of fraudulent activities carried out inside of the bank. 9% decline was as recent as April 30.

The Analysts at Wall Street still hold a Buy position on the stock.

Let us take a look at the intrinsic value of the stock and analyze the fair purchase price.

Intrinsic Value Calculation

    • Calculate growth rate (g) in Earnings per Share from 1999 ): Growth rate calculation revealed an 18.1% average growth rate over the years. To maintain somewhat of a conservative approach, I will be using an average of 10% for calculation.
    • Calculate average Price to Earnings: P/E ratio is calculated by dividing the stock price with the EPS for a particular period. After obtaining numbers from the 10K for 2000-2009 the average obtained was a number of 12.87.
    • Calculating future share value: Calculating the value of the stock 10 years from now. This is done by:
      EPS (2009)x({1+g)^10}xAvg. P/E Ratio=$23.74 (1.1^10)x12.87= $792.48 approx.
    • Now we divide the number obtained in the previous step by a discount rate of 12% discounted for 10 years.
    • The intrinsic value obtained after the above calculation is: $792.48/(1.12^10)=$255.16. Comparing this figure to the stock price of $142.49 on the New York Stock Exchange as I write, it can be concluded that Goldman Sachs is a viable investment.

But, given the fact the Goldman’s legal troubles are going up everyday and the bank is facing some very serious charges, it won’t be a surprise that the stock price falls even though the fair value is higher than the current stock price.

(Please Note, these are my personal calculations and conclusions, I do not assume any responsibility for the changes in stock price or any losses incurred upon taking my advice.)

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