Intrinsic value of Goldman Sachs Group - GS

Previous Close

$225.81

  Intrinsic Value

$1,533

stock screener

  Rating & Target

str. buy

+579%

  Value-price divergence*

+632%

Previous close

$225.81

 
Intrinsic value

$1,533

 
Up/down potential

+579%

 
Rating

str. buy

 
Value-price divergence*

+632%

Our model is not good at valuating stocks of financial companies, such as GS.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of GS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 89.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -3.92
  16.80
  15.62
  14.56
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
Revenue, $m
  37,850
  44,209
  51,114
  58,555
  66,520
  74,996
  83,972
  93,436
  103,381
  113,802
  124,694
  136,059
  147,901
  160,225
  173,042
  186,365
  200,211
  214,599
  229,552
  245,096
  261,257
  278,068
  295,562
  313,774
  332,745
  352,514
  373,126
  394,627
  417,066
  440,495
  464,968
Variable operating expenses, $m
 
  34,289
  39,587
  45,297
  51,409
  57,912
  64,799
  72,061
  79,693
  87,688
  96,046
  104,400
  113,486
  122,943
  132,777
  143,001
  153,625
  164,665
  176,139
  188,065
  200,466
  213,366
  226,789
  240,764
  255,320
  270,489
  286,305
  302,803
  320,021
  337,998
  356,776
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  27,546
  34,289
  39,587
  45,297
  51,409
  57,912
  64,799
  72,061
  79,693
  87,688
  96,046
  104,400
  113,486
  122,943
  132,777
  143,001
  153,625
  164,665
  176,139
  188,065
  200,466
  213,366
  226,789
  240,764
  255,320
  270,489
  286,305
  302,803
  320,021
  337,998
  356,776
Operating income, $m
  10,304
  9,920
  11,527
  13,258
  15,112
  17,084
  19,172
  21,375
  23,689
  26,113
  28,648
  31,659
  34,414
  37,282
  40,264
  43,364
  46,586
  49,934
  53,414
  57,030
  60,791
  64,702
  68,773
  73,011
  77,425
  82,025
  86,821
  91,824
  97,045
  102,497
  108,191
EBITDA, $m
  11,302
  11,168
  12,912
  14,792
  16,804
  18,946
  21,213
  23,604
  26,116
  28,749
  31,500
  34,371
  37,363
  40,476
  43,714
  47,079
  50,577
  54,212
  57,989
  61,916
  65,999
  70,246
  74,665
  79,266
  84,058
  89,052
  94,259
  99,691
  105,359
  111,278
  117,460
Interest expense (income), $m
  7,140
  13,780
  17,735
  21,915
  26,419
  31,240
  36,370
  41,803
  47,532
  53,552
  59,859
  66,452
  73,332
  80,499
  87,959
  95,717
  103,781
  112,162
  120,871
  129,922
  139,331
  149,113
  159,289
  169,877
  180,901
  192,384
  204,350
  216,826
  229,841
  243,423
  257,604
Earnings before tax, $m
  10,304
  -3,860
  -6,208
  -8,656
  -11,307
  -14,156
  -17,198
  -20,429
  -23,843
  -27,438
  -31,211
  -34,793
  -38,917
  -43,217
  -47,694
  -52,352
  -57,195
  -62,228
  -67,458
  -72,892
  -78,540
  -84,411
  -90,516
  -96,867
  -103,476
  -110,359
  -117,529
  -125,002
  -132,796
  -140,926
  -149,413
Tax expense, $m
  2,906
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  7,398
  -3,860
  -6,208
  -8,656
  -11,307
  -14,156
  -17,198
  -20,429
  -23,843
  -27,438
  -31,211
  -34,793
  -38,917
  -43,217
  -47,694
  -52,352
  -57,195
  -62,228
  -67,458
  -72,892
  -78,540
  -84,411
  -90,516
  -96,867
  -103,476
  -110,359
  -117,529
  -125,002
  -132,796
  -140,926
  -149,413

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  121,711
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  860,165
  866,839
  1,002,240
  1,148,146
  1,304,319
  1,470,515
  1,646,503
  1,832,080
  2,027,085
  2,231,405
  2,444,985
  2,667,831
  2,900,012
  3,141,660
  3,392,974
  3,654,215
  3,925,705
  4,207,828
  4,501,026
  4,805,796
  5,122,690
  5,452,315
  5,795,328
  6,152,438
  6,524,404
  6,912,034
  7,316,189
  7,737,778
  8,177,761
  8,637,151
  9,117,013
Adjusted assets (=assets-cash), $m
  738,454
  866,839
  1,002,240
  1,148,146
  1,304,319
  1,470,515
  1,646,503
  1,832,080
  2,027,085
  2,231,405
  2,444,985
  2,667,831
  2,900,012
  3,141,660
  3,392,974
  3,654,215
  3,925,705
  4,207,828
  4,501,026
  4,805,796
  5,122,690
  5,452,315
  5,795,328
  6,152,438
  6,524,404
  6,912,034
  7,316,189
  7,737,778
  8,177,761
  8,637,151
  9,117,013
Revenue / Adjusted assets
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
Average production assets, $m
  11,473
  13,395
  15,488
  17,742
  20,156
  22,724
  25,443
  28,311
  31,325
  34,482
  37,782
  41,226
  44,814
  48,548
  52,432
  56,469
  60,664
  65,024
  69,554
  74,264
  79,161
  84,255
  89,555
  95,074
  100,822
  106,812
  113,057
  119,572
  126,371
  133,470
  140,885
Working capital, $m
  0
  22,104
  25,557
  29,278
  33,260
  37,498
  41,986
  46,718
  51,691
  56,901
  62,347
  68,030
  73,950
  80,112
  86,521
  93,182
  100,105
  107,300
  114,776
  122,548
  130,629
  139,034
  147,781
  156,887
  166,372
  176,257
  186,563
  197,313
  208,533
  220,247
  232,484
Total debt, $m
  515,432
  506,712
  626,135
  754,824
  892,569
  1,039,154
  1,194,375
  1,358,055
  1,530,049
  1,710,259
  1,898,637
  2,095,187
  2,299,970
  2,513,104
  2,734,763
  2,965,177
  3,204,632
  3,453,465
  3,712,065
  3,980,872
  4,260,373
  4,551,102
  4,853,639
  5,168,610
  5,496,684
  5,838,574
  6,195,039
  6,566,880
  6,954,945
  7,360,127
  7,783,366
Total liabilities, $m
  773,272
  764,552
  883,975
  1,012,664
  1,150,409
  1,296,994
  1,452,215
  1,615,895
  1,787,889
  1,968,099
  2,156,477
  2,353,027
  2,557,810
  2,770,944
  2,992,603
  3,223,017
  3,462,472
  3,711,305
  3,969,905
  4,238,712
  4,518,213
  4,808,942
  5,111,479
  5,426,450
  5,754,524
  6,096,414
  6,452,879
  6,824,720
  7,212,785
  7,617,967
  8,041,206
Total equity, $m
  86,893
  102,287
  118,264
  135,481
  153,910
  173,521
  194,287
  216,185
  239,196
  263,306
  288,508
  314,804
  342,201
  370,716
  400,371
  431,197
  463,233
  496,524
  531,121
  567,084
  604,477
  643,373
  683,849
  725,988
  769,880
  815,620
  863,310
  913,058
  964,976
  1,019,184
  1,075,808
Total liabilities and equity, $m
  860,165
  866,839
  1,002,239
  1,148,145
  1,304,319
  1,470,515
  1,646,502
  1,832,080
  2,027,085
  2,231,405
  2,444,985
  2,667,831
  2,900,011
  3,141,660
  3,392,974
  3,654,214
  3,925,705
  4,207,829
  4,501,026
  4,805,796
  5,122,690
  5,452,315
  5,795,328
  6,152,438
  6,524,404
  6,912,034
  7,316,189
  7,737,778
  8,177,761
  8,637,151
  9,117,014
Debt-to-equity ratio
  5.932
  4.950
  5.290
  5.570
  5.800
  5.990
  6.150
  6.280
  6.400
  6.500
  6.580
  6.660
  6.720
  6.780
  6.830
  6.880
  6.920
  6.960
  6.990
  7.020
  7.050
  7.070
  7.100
  7.120
  7.140
  7.160
  7.180
  7.190
  7.210
  7.220
  7.230
Adjusted equity ratio
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7,398
  -3,860
  -6,208
  -8,656
  -11,307
  -14,156
  -17,198
  -20,429
  -23,843
  -27,438
  -31,211
  -34,793
  -38,917
  -43,217
  -47,694
  -52,352
  -57,195
  -62,228
  -67,458
  -72,892
  -78,540
  -84,411
  -90,516
  -96,867
  -103,476
  -110,359
  -117,529
  -125,002
  -132,796
  -140,926
  -149,413
Depreciation, amort., depletion, $m
  998
  1,248
  1,386
  1,534
  1,693
  1,862
  2,041
  2,229
  2,427
  2,635
  2,852
  2,712
  2,948
  3,194
  3,449
  3,715
  3,991
  4,278
  4,576
  4,886
  5,208
  5,543
  5,892
  6,255
  6,633
  7,027
  7,438
  7,867
  8,314
  8,781
  9,269
Funds from operations, $m
  79
  -2,612
  -4,822
  -7,122
  -9,615
  -12,294
  -15,157
  -18,199
  -21,416
  -24,803
  -28,359
  -32,081
  -35,969
  -40,023
  -44,245
  -48,637
  -53,204
  -57,950
  -62,882
  -68,006
  -73,332
  -78,868
  -84,624
  -90,612
  -96,843
  -103,332
  -110,091
  -117,136
  -124,482
  -132,145
  -140,144
Change in working capital, $m
  -5,491
  3,179
  3,453
  3,721
  3,982
  4,238
  4,488
  4,732
  4,973
  5,210
  5,446
  5,683
  5,921
  6,162
  6,409
  6,662
  6,923
  7,194
  7,477
  7,772
  8,081
  8,405
  8,747
  9,106
  9,485
  9,885
  10,306
  10,751
  11,220
  11,714
  12,236
Cash from operations, $m
  5,570
  -4,766
  -8,275
  -10,843
  -13,597
  -16,532
  -19,645
  -22,932
  -26,388
  -30,013
  -33,805
  -37,764
  -41,890
  -46,185
  -50,653
  -55,299
  -60,127
  -65,144
  -70,358
  -75,778
  -81,413
  -87,273
  -93,371
  -99,718
  -106,329
  -113,217
  -120,397
  -127,886
  -135,701
  -143,860
  -152,381
Maintenance CAPEX, $m
  0
  -755
  -881
  -1,019
  -1,167
  -1,326
  -1,495
  -1,674
  -1,863
  -2,061
  -2,269
  -2,486
  -2,712
  -2,948
  -3,194
  -3,449
  -3,715
  -3,991
  -4,278
  -4,576
  -4,886
  -5,208
  -5,543
  -5,892
  -6,255
  -6,633
  -7,027
  -7,438
  -7,867
  -8,314
  -8,781
New CAPEX, $m
  -2,876
  -1,922
  -2,092
  -2,255
  -2,413
  -2,568
  -2,720
  -2,868
  -3,013
  -3,157
  -3,300
  -3,444
  -3,588
  -3,734
  -3,884
  -4,037
  -4,195
  -4,360
  -4,531
  -4,710
  -4,897
  -5,094
  -5,301
  -5,518
  -5,748
  -5,990
  -6,245
  -6,515
  -6,799
  -7,099
  -7,415
Cash from investing activities, $m
  9,270
  -2,677
  -2,973
  -3,274
  -3,580
  -3,894
  -4,215
  -4,542
  -4,876
  -5,218
  -5,569
  -5,930
  -6,300
  -6,682
  -7,078
  -7,486
  -7,910
  -8,351
  -8,809
  -9,286
  -9,783
  -10,302
  -10,844
  -11,410
  -12,003
  -12,623
  -13,272
  -13,953
  -14,666
  -15,413
  -16,196
Free cash flow, $m
  14,840
  -7,443
  -11,249
  -14,117
  -17,178
  -20,427
  -23,860
  -27,473
  -31,264
  -35,232
  -39,374
  -43,693
  -48,190
  -52,868
  -57,731
  -62,785
  -68,037
  -73,495
  -79,167
  -85,063
  -91,195
  -97,575
  -104,214
  -111,128
  -118,331
  -125,840
  -133,670
  -141,839
  -150,367
  -159,273
  -168,577
Issuance/(repayment) of debt, $m
  18,761
  112,991
  119,423
  128,689
  137,745
  146,585
  155,221
  163,679
  171,994
  180,210
  188,378
  196,550
  204,783
  213,134
  221,659
  230,414
  239,455
  248,833
  258,600
  268,807
  279,501
  290,729
  302,537
  314,971
  328,074
  341,890
  356,465
  371,841
  388,065
  405,182
  423,239
Issuance/(repurchase) of shares, $m
  -5,940
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  15,138
  112,991
  119,423
  128,689
  137,745
  146,585
  155,221
  163,679
  171,994
  180,210
  188,378
  196,550
  204,783
  213,134
  221,659
  230,414
  239,455
  248,833
  258,600
  268,807
  279,501
  290,729
  302,537
  314,971
  328,074
  341,890
  356,465
  371,841
  388,065
  405,182
  423,239
Total cash flow (excl. dividends), $m
  29,978
  105,549
  108,174
  114,572
  120,567
  126,158
  131,362
  136,206
  140,730
  144,979
  149,004
  152,857
  156,593
  160,266
  163,928
  167,629
  171,417
  175,338
  179,433
  183,743
  188,306
  193,154
  198,323
  203,843
  209,742
  216,051
  222,795
  230,002
  237,698
  245,909
  254,662
Retained Cash Flow (-), $m
  -165
  -15,394
  -15,977
  -17,217
  -18,428
  -19,611
  -20,767
  -21,898
  -23,011
  -24,110
  -25,202
  -26,296
  -27,397
  -28,515
  -29,655
  -30,826
  -32,036
  -33,291
  -34,597
  -35,963
  -37,394
  -38,896
  -40,476
  -42,139
  -43,892
  -45,740
  -47,690
  -49,747
  -51,918
  -54,208
  -56,624
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  90,154
  92,197
  97,356
  102,139
  106,547
  110,595
  114,308
  117,719
  120,869
  123,801
  126,561
  129,196
  131,752
  134,273
  136,803
  139,381
  142,047
  144,836
  147,781
  150,912
  154,259
  157,848
  161,704
  165,850
  170,310
  175,105
  180,255
  185,780
  191,701
  198,038
Discount rate, %
 
  11.20
  11.76
  12.35
  12.97
  13.61
  14.29
  15.01
  15.76
  16.55
  17.37
  18.24
  19.16
  20.11
  21.12
  22.18
  23.28
  24.45
  25.67
  26.95
  28.30
  29.72
  31.20
  32.76
  34.40
  36.12
  37.93
  39.82
  41.81
  43.91
  46.10
PV of cash for distribution, $m
 
  81,074
  73,815
  68,654
  62,720
  56,284
  49,612
  42,949
  36,508
  30,464
  24,944
  20,033
  15,771
  12,164
  9,183
  6,782
  4,894
  3,448
  2,370
  1,586
  1,033
  654
  401
  239
  137
  76
  41
  21
  10
  5
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

The Goldman Sachs Group, Inc. operates as an investment banking, securities, and investment management company worldwide. It operates through four segments: Investment Banking, Institutional Client Services, Investing & Lending, and Investment Management. The Investment Banking segment provides financial advisory services, including strategic advisory assignments related to mergers and acquisitions, divestitures, corporate defense activities, restructurings, spin-offs, and risk management; and underwriting services, such as debt and equity underwriting of public offerings and private placements of various securities and other financial instruments, as well as derivative transactions with public and private sector clients. The Institutional Client Services segment is involved in client execution activities related to making markets in cash and derivative instruments for interest rate products, credit products, mortgages, currencies, commodities, and equities; and provision of securities services comprising financing, securities lending, and other prime brokerage services, as well as markets in and clears client transactions on primary stock, options, and futures exchanges. The Investing & Lending segment invests in and originates longer-term loans to provide financing to clients; and makes investments in debt securities and loans, public and private equity securities, and infrastructure and real estate entities, as well as provides unsecured loans to individuals through its online platform. The Investment Management segment offers investment management products and services; and wealth advisory services consisting of portfolio management and financial counseling, and brokerage and other transaction services. The company serves corporations, financial institutions, governments, and individuals. The Goldman Sachs Group, Inc. was founded in 1869 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  Goldman Sachs Group (GS)

Valuation Ratios
P/E Ratio 12
Price to Sales 2.3
Price to Book 1
Price to Tangible Book
Price to Cash Flow 15.9
Price to Free Cash Flow 32.9
Growth Rates
Sales Growth Rate -3.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 56.9%
Cap. Spend. - 3 Yr. Gr. Rate 32.4%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 307.4%
Total Debt to Equity 593.2%
Interest Coverage 2
Management Effectiveness
Return On Assets 1.5%
Ret/ On Assets - 3 Yr. Avg. 1.3%
Return On Total Capital 1.2%
Ret/ On T. Cap. - 3 Yr. Avg. 1.3%
Return On Equity 8.5%
Return On Equity - 3 Yr. Avg. 8.7%
Asset Turnover 0
Profitability Ratios
Gross Margin 72.2%
Gross Margin - 3 Yr. Avg. 75.7%
EBITDA Margin 48.7%
EBITDA Margin - 3 Yr. Avg. 45.3%
Operating Margin 27.2%
Oper. Margin - 3 Yr. Avg. 26.8%
Pre-Tax Margin 27.2%
Pre-Tax Margin - 3 Yr. Avg. 26.8%
Net Profit Margin 19.5%
Net Profit Margin - 3 Yr. Avg. 18.7%
Effective Tax Rate 28.2%
Eff/ Tax Rate - 3 Yr. Avg. 30.1%
Payout Ratio 23.1%

GS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GS stock intrinsic value calculation we used $37850 million for the last fiscal year's total revenue generated by Goldman Sachs Group. The default revenue input number comes from 2016 income statement of Goldman Sachs Group. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our GS stock valuation model: a) initial revenue growth rate of 16.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 11.2%, whose default value for GS is calculated based on our internal credit rating of Goldman Sachs Group, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Goldman Sachs Group.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of GS stock the variable cost ratio is equal to 77.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for GS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Goldman Sachs Group.

Corporate tax rate of 27% is the nominal tax rate for Goldman Sachs Group. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the GS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for GS are equal to 30.3%.

Life of production assets of 15.2 years is the average useful life of capital assets used in Goldman Sachs Group operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for GS is equal to 50%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $86893 million for Goldman Sachs Group - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 395.22 million for Goldman Sachs Group is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Goldman Sachs Group at the current share price and the inputted number of shares is $89.2 billion.

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Stock chart of GS Financial statements of GS
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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