Intrinsic value of Goldman Sachs Group - GS

Previous Close

$225.61

  Intrinsic Value

$1,325

stock screener

  Rating & Target

str. buy

+487%

  Value-price divergence*

+253%

Previous close

$225.61

 
Intrinsic value

$1,325

 
Up/down potential

+487%

 
Rating

str. buy

 
Value-price divergence*

+253%

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 89.3

 

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
  30.40
  27.86
  25.57
  23.52
  21.66
  20.00
  18.50
  17.15
  15.93
  14.84
  13.86
  12.97
  12.17
  11.46
  10.81
  10.23
  9.71
  9.24
  8.81
  8.43
  8.09
  7.78
  7.50
  7.25
  7.03
  6.82
  6.64
  6.48
  6.33
  6.20
Revenue, $m
  37,850
  49,356
  63,107
  79,246
  97,882
  119,088
  142,904
  169,339
  198,379
  229,988
  264,120
  300,717
  339,722
  381,079
  424,737
  470,654
  518,800
  569,158
  621,726
  676,515
  733,553
  792,883
  854,563
  918,667
  985,281
  1,054,508
  1,126,462
  1,201,271
  1,279,078
  1,360,034
  1,444,307
Variable operating expenses, $m
 
  38,238
  48,790
  61,173
  75,473
  91,745
  110,019
  130,303
  152,585
  176,840
  203,029
  230,745
  260,674
  292,408
  325,907
  361,140
  398,083
  436,723
  477,059
  519,100
  562,866
  608,391
  655,719
  704,906
  756,020
  809,139
  864,350
  921,753
  981,455
  1,043,574
  1,108,238
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
  38,238
  48,790
  61,173
  75,473
  91,745
  110,019
  130,303
  152,585
  176,840
  203,029
  230,745
  260,674
  292,408
  325,907
  361,140
  398,083
  436,723
  477,059
  519,100
  562,866
  608,391
  655,719
  704,906
  756,020
  809,139
  864,350
  921,753
  981,455
  1,043,574
  1,108,238
Operating income, $m
  10,304
  11,118
  14,318
  18,073
  22,409
  27,344
  32,885
  39,036
  45,793
  53,148
  61,090
  69,973
  79,049
  88,672
  98,830
  109,514
  120,717
  132,435
  144,667
  157,415
  170,687
  184,492
  198,845
  213,761
  229,261
  245,369
  262,111
  279,519
  297,623
  316,460
  336,069
EBITDA, $m
  11,302
  12,468
  15,942
  20,019
  24,727
  30,084
  36,100
  42,778
  50,114
  58,100
  66,722
  75,967
  85,821
  96,268
  107,297
  118,897
  131,059
  143,781
  157,060
  170,901
  185,310
  200,298
  215,880
  232,073
  248,902
  266,390
  284,567
  303,465
  323,120
  343,572
  364,861
Interest expense (income), $m
  7,140
  18,040
  26,271
  36,104
  47,646
  60,972
  76,137
  93,168
  112,072
  132,839
  155,443
  179,851
  206,022
  233,916
  263,491
  294,711
  327,547
  361,977
  397,989
  435,580
  474,761
  515,549
  557,977
  602,086
  647,927
  695,564
  745,068
  796,524
  850,021
  905,661
  963,555
Earnings before tax, $m
  10,304
  -6,922
  -11,954
  -18,032
  -25,236
  -33,629
  -43,252
  -54,132
  -66,279
  -79,691
  -94,353
  -109,879
  -126,974
  -145,244
  -164,660
  -185,196
  -206,829
  -229,542
  -253,322
  -278,165
  -304,073
  -331,057
  -359,133
  -388,325
  -418,666
  -450,195
  -482,957
  -517,005
  -552,398
  -589,201
  -627,485
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
  -6,922
  -11,954
  -18,032
  -25,236
  -33,629
  -43,252
  -54,132
  -66,279
  -79,691
  -94,353
  -109,879
  -126,974
  -145,244
  -164,660
  -185,196
  -206,829
  -229,542
  -253,322
  -278,165
  -304,073
  -331,057
  -359,133
  -388,325
  -418,666
  -450,195
  -482,957
  -517,005
  -552,398
  -589,201
  -627,485

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
  1,121,736
  1,434,252
  1,801,048
  2,224,593
  2,706,550
  3,247,818
  3,848,618
  4,508,608
  5,227,004
  6,002,716
  6,834,478
  7,720,964
  8,660,892
  9,653,113
  10,696,683
  11,790,914
  12,935,419
  14,130,135
  15,375,340
  16,671,660
  18,020,072
  19,421,897
  20,878,795
  22,392,755
  23,966,085
  25,601,402
  27,301,620
  29,069,947
  30,909,872
  32,825,163
Adjusted assets (=assets-cash), $m
  738,454
  1,121,736
  1,434,252
  1,801,048
  2,224,593
  2,706,550
  3,247,818
  3,848,618
  4,508,608
  5,227,004
  6,002,716
  6,834,478
  7,720,964
  8,660,892
  9,653,113
  10,696,683
  11,790,914
  12,935,419
  14,130,135
  15,375,340
  16,671,660
  18,020,072
  19,421,897
  20,878,795
  22,392,755
  23,966,085
  25,601,402
  27,301,620
  29,069,947
  30,909,872
  32,825,163
Revenue / Adjusted assets
  0.051
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
Average production assets, $m
  11,473
  14,955
  19,121
  24,012
  29,658
  36,084
  43,300
  51,310
  60,109
  69,686
  80,028
  91,117
  102,936
  115,467
  128,695
  142,608
  157,196
  172,455
  188,383
  204,984
  222,267
  240,244
  258,933
  278,356
  298,540
  319,516
  341,318
  363,985
  387,561
  412,090
  437,625
Working capital, $m
  0
  24,678
  31,554
  39,623
  48,941
  59,544
  71,452
  84,670
  99,189
  114,994
  132,060
  150,359
  169,861
  190,540
  212,368
  235,327
  259,400
  284,579
  310,863
  338,257
  366,777
  396,442
  427,282
  459,333
  492,641
  527,254
  563,231
  600,636
  639,539
  680,017
  722,154
Total debt, $m
  515,432
  750,601
  1,031,553
  1,361,302
  1,742,069
  2,175,348
  2,661,948
  3,202,068
  3,795,399
  4,441,236
  5,138,602
  5,886,356
  6,683,307
  7,528,302
  8,420,309
  9,358,478
  10,342,192
  11,371,102
  12,445,152
  13,564,591
  14,729,982
  15,942,204
  17,202,445
  18,512,197
  19,873,247
  21,287,671
  22,757,820
  24,286,317
  25,876,043
  27,530,135
  29,251,982
Total liabilities, $m
  773,272
  1,008,441
  1,289,393
  1,619,142
  1,999,909
  2,433,188
  2,919,788
  3,459,908
  4,053,239
  4,699,076
  5,396,442
  6,144,196
  6,941,147
  7,786,142
  8,678,149
  9,616,318
  10,600,032
  11,628,942
  12,702,992
  13,822,431
  14,987,822
  16,200,044
  17,460,285
  18,770,037
  20,131,087
  21,545,511
  23,015,660
  24,544,157
  26,133,883
  27,787,975
  29,509,822
Total equity, $m
  86,893
  113,295
  144,859
  181,906
  224,684
  273,362
  328,030
  388,710
  455,369
  527,927
  606,274
  690,282
  779,817
  874,750
  974,964
  1,080,365
  1,190,882
  1,306,477
  1,427,144
  1,552,909
  1,683,838
  1,820,027
  1,961,612
  2,108,758
  2,261,668
  2,420,575
  2,585,742
  2,757,464
  2,936,065
  3,121,897
  3,315,341
Total liabilities and equity, $m
  860,165
  1,121,736
  1,434,252
  1,801,048
  2,224,593
  2,706,550
  3,247,818
  3,848,618
  4,508,608
  5,227,003
  6,002,716
  6,834,478
  7,720,964
  8,660,892
  9,653,113
  10,696,683
  11,790,914
  12,935,419
  14,130,136
  15,375,340
  16,671,660
  18,020,071
  19,421,897
  20,878,795
  22,392,755
  23,966,086
  25,601,402
  27,301,621
  29,069,948
  30,909,872
  32,825,163
Debt-to-equity ratio
  5.932
  6.630
  7.120
  7.480
  7.750
  7.960
  8.110
  8.240
  8.330
  8.410
  8.480
  8.530
  8.570
  8.610
  8.640
  8.660
  8.680
  8.700
  8.720
  8.730
  8.750
  8.760
  8.770
  8.780
  8.790
  8.790
  8.800
  8.810
  8.810
  8.820
  8.820
Adjusted equity ratio
  0.118
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7,398
  -6,922
  -11,954
  -18,032
  -25,236
  -33,629
  -43,252
  -54,132
  -66,279
  -79,691
  -94,353
  -109,879
  -126,974
  -145,244
  -164,660
  -185,196
  -206,829
  -229,542
  -253,322
  -278,165
  -304,073
  -331,057
  -359,133
  -388,325
  -418,666
  -450,195
  -482,957
  -517,005
  -552,398
  -589,201
  -627,485
Depreciation, amort., depletion, $m
  998
  1,350
  1,625
  1,946
  2,318
  2,741
  3,215
  3,742
  4,321
  4,951
  5,632
  5,995
  6,772
  7,597
  8,467
  9,382
  10,342
  11,346
  12,394
  13,486
  14,623
  15,805
  17,035
  18,313
  19,641
  21,021
  22,455
  23,946
  25,497
  27,111
  28,791
Funds from operations, $m
  79
  -5,572
  -10,329
  -16,085
  -22,919
  -30,888
  -40,037
  -50,390
  -61,958
  -74,739
  -88,721
  -103,884
  -120,202
  -137,648
  -156,194
  -175,814
  -196,488
  -218,196
  -240,928
  -264,679
  -289,451
  -315,251
  -342,097
  -370,012
  -399,025
  -429,174
  -460,502
  -493,059
  -526,901
  -562,090
  -598,694
Change in working capital, $m
  -5,491
  5,753
  6,875
  8,070
  9,318
  10,603
  11,908
  13,218
  14,520
  15,805
  17,066
  18,299
  19,503
  20,678
  21,829
  22,959
  24,073
  25,179
  26,284
  27,395
  28,519
  29,665
  30,840
  32,052
  33,307
  34,613
  35,977
  37,405
  38,903
  40,478
  42,136
Cash from operations, $m
  5,570
  -11,325
  -17,204
  -24,155
  -32,237
  -41,491
  -51,945
  -63,607
  -76,478
  -90,544
  -105,787
  -122,183
  -139,705
  -158,326
  -178,022
  -198,773
  -220,561
  -243,375
  -267,212
  -292,074
  -317,970
  -344,916
  -372,938
  -402,064
  -432,332
  -463,787
  -496,479
  -530,464
  -565,804
  -602,568
  -640,831
Maintenance CAPEX, $m
  0
  -755
  -984
  -1,258
  -1,580
  -1,951
  -2,374
  -2,849
  -3,376
  -3,955
  -4,585
  -5,265
  -5,995
  -6,772
  -7,597
  -8,467
  -9,382
  -10,342
  -11,346
  -12,394
  -13,486
  -14,623
  -15,805
  -17,035
  -18,313
  -19,641
  -21,021
  -22,455
  -23,946
  -25,497
  -27,111
New CAPEX, $m
  -2,876
  -3,482
  -4,166
  -4,890
  -5,647
  -6,425
  -7,216
  -8,010
  -8,799
  -9,578
  -10,342
  -11,089
  -11,819
  -12,531
  -13,228
  -13,913
  -14,588
  -15,259
  -15,928
  -16,601
  -17,283
  -17,977
  -18,689
  -19,423
  -20,184
  -20,976
  -21,802
  -22,667
  -23,575
  -24,530
  -25,535
Cash from investing activities, $m
  9,270
  -4,237
  -5,150
  -6,148
  -7,227
  -8,376
  -9,590
  -10,859
  -12,175
  -13,533
  -14,927
  -16,354
  -17,814
  -19,303
  -20,825
  -22,380
  -23,970
  -25,601
  -27,274
  -28,995
  -30,769
  -32,600
  -34,494
  -36,458
  -38,497
  -40,617
  -42,823
  -45,122
  -47,521
  -50,027
  -52,646
Free cash flow, $m
  14,840
  -15,562
  -22,355
  -30,303
  -39,463
  -49,868
  -61,535
  -74,466
  -88,652
  -104,076
  -120,714
  -138,537
  -157,518
  -177,629
  -198,847
  -221,152
  -244,531
  -268,976
  -294,486
  -321,068
  -348,738
  -377,516
  -407,432
  -438,522
  -470,829
  -504,404
  -539,302
  -575,586
  -613,326
  -652,595
  -693,476
Issuance/(repayment) of debt, $m
  18,761
  235,169
  280,952
  329,749
  380,767
  433,279
  486,600
  540,120
  593,331
  645,838
  697,365
  747,754
  796,951
  844,995
  892,007
  938,169
  983,714
  1,028,910
  1,074,050
  1,119,439
  1,165,392
  1,212,222
  1,260,241
  1,309,752
  1,361,050
  1,414,424
  1,470,150
  1,528,496
  1,589,726
  1,654,093
  1,721,847
Issuance/(repurchase) of shares, $m
  -5,940
  33,325
  43,518
  55,078
  68,014
  82,307
  97,920
  114,813
  132,938
  152,249
  172,700
  193,887
  216,509
  240,177
  264,875
  290,597
  317,347
  345,137
  373,988
  403,931
  435,002
  467,246
  500,717
  535,472
  571,576
  609,101
  648,124
  688,727
  730,999
  775,034
  820,930
Cash from financing (excl. dividends), $m  
  15,138
  268,494
  324,470
  384,827
  448,781
  515,586
  584,520
  654,933
  726,269
  798,087
  870,065
  941,641
  1,013,460
  1,085,172
  1,156,882
  1,228,766
  1,301,061
  1,374,047
  1,448,038
  1,523,370
  1,600,394
  1,679,468
  1,760,958
  1,845,224
  1,932,626
  2,023,525
  2,118,274
  2,217,223
  2,320,725
  2,429,127
  2,542,777
Total cash flow (excl. dividends), $m
  29,978
  252,932
  302,115
  354,524
  409,319
  465,718
  522,985
  580,467
  637,616
  694,010
  749,352
  803,104
  855,942
  907,543
  958,034
  1,007,614
  1,056,530
  1,105,071
  1,153,552
  1,202,301
  1,251,655
  1,301,952
  1,353,525
  1,406,701
  1,461,797
  1,519,121
  1,578,972
  1,641,638
  1,707,399
  1,776,531
  1,849,300
Retained Cash Flow (-), $m
  -165
  -33,325
  -43,518
  -55,078
  -68,014
  -82,307
  -97,920
  -114,813
  -132,938
  -152,249
  -172,700
  -193,887
  -216,509
  -240,177
  -264,875
  -290,597
  -317,347
  -345,137
  -373,988
  -403,931
  -435,002
  -467,246
  -500,717
  -535,472
  -571,576
  -609,101
  -648,124
  -688,727
  -730,999
  -775,034
  -820,930
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
 
  219,607
  258,597
  299,446
  341,304
  383,411
  425,065
  465,654
  504,678
  541,761
  576,652
  609,217
  639,433
  667,366
  693,160
  717,017
  739,183
  759,935
  779,564
  798,371
  816,654
  834,706
  852,808
  871,229
  890,221
  910,020
  930,848
  952,910
  976,400
  1,001,497
  1,028,370
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
 
  197,489
  207,038
  211,166
  209,585
  202,540
  190,681
  174,960
  156,517
  136,547
  116,188
  96,431
  78,057
  61,612
  47,408
  35,545
  25,956
  18,449
  12,754
  8,569
  5,590
  3,537
  2,168
  1,286
  738
  408
  218
  112
  55
  26
  12
Current shareholders' claim on cash, %
  100
  72.8
  53.0
  38.7
  28.4
  20.9
  15.5
  11.6
  8.7
  6.5
  5.0
  3.8
  2.9
  2.2
  1.7
  1.3
  1.0
  0.8
  0.6
  0.5
  0.4
  0.3
  0.2
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0

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 30.4% 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 395.631 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 $89.3 billion.

Articles on GS

Why Goldman Sachs stock is set to move much higher

Repatriation of money hoarded by American companies overseas will cause a wave of acquisitions. Goldman Sachs, as no other firm, is set to benefit from this.  [June 03, 2017]  read article

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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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