Intrinsic value of Goldman Sachs Group - GS

Previous Close

$250.13

  Intrinsic Value

$554.00

stock screener

  Rating & Target

str. buy

+121%

Previous close

$250.13

 
Intrinsic value

$554.00

 
Up/down potential

+121%

 
Rating

str. buy

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 96.8

 

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
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
Revenue, $m
  37,850
  41,976
  46,303
  50,831
  55,559
  60,488
  65,620
  70,958
  76,508
  82,277
  88,271
  94,501
  100,976
  107,707
  114,708
  121,991
  129,573
  137,468
  145,694
  154,269
  163,212
  172,543
  182,284
  192,458
  203,087
  214,197
  225,814
  237,966
  250,680
  263,988
  277,921
Variable operating expenses, $m
 
  32,575
  35,896
  39,370
  42,998
  46,780
  50,717
  54,814
  59,073
  63,499
  68,099
  72,512
  77,480
  82,645
  88,017
  93,606
  99,423
  105,481
  111,793
  118,373
  125,235
  132,395
  139,869
  147,675
  155,831
  164,356
  173,270
  182,594
  192,351
  202,562
  213,253
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
  32,575
  35,896
  39,370
  42,998
  46,780
  50,717
  54,814
  59,073
  63,499
  68,099
  72,512
  77,480
  82,645
  88,017
  93,606
  99,423
  105,481
  111,793
  118,373
  125,235
  132,395
  139,869
  147,675
  155,831
  164,356
  173,270
  182,594
  192,351
  202,562
  213,253
Operating income, $m
  10,304
  9,401
  10,408
  11,461
  12,561
  13,708
  14,902
  16,144
  17,436
  18,778
  20,173
  21,989
  23,496
  25,062
  26,691
  28,386
  30,150
  31,987
  33,901
  35,896
  37,977
  40,148
  42,415
  44,782
  47,255
  49,841
  52,544
  55,371
  58,330
  61,426
  64,668
EBITDA, $m
  11,302
  10,604
  11,697
  12,841
  14,035
  15,280
  16,577
  17,925
  19,328
  20,785
  22,299
  23,873
  25,508
  27,209
  28,977
  30,817
  32,733
  34,727
  36,805
  38,971
  41,231
  43,588
  46,049
  48,619
  51,304
  54,110
  57,045
  60,115
  63,327
  66,689
  70,208
Interest expense (income), $m
  7,140
  13,780
  16,383
  19,003
  21,744
  24,605
  27,589
  30,695
  33,926
  37,286
  40,777
  44,406
  48,176
  52,096
  56,170
  60,407
  64,816
  69,405
  74,184
  79,163
  84,354
  89,767
  95,415
  101,311
  107,469
  113,903
  120,628
  127,660
  135,015
  142,711
  150,766
Earnings before tax, $m
  10,304
  -4,380
  -5,976
  -7,542
  -9,182
  -10,897
  -12,686
  -14,550
  -16,490
  -18,508
  -20,604
  -22,417
  -24,681
  -27,034
  -29,479
  -32,022
  -34,666
  -37,418
  -40,283
  -43,267
  -46,377
  -49,618
  -53,000
  -56,529
  -60,214
  -64,062
  -68,084
  -72,288
  -76,685
  -81,285
  -86,098
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
  -4,380
  -5,976
  -7,542
  -9,182
  -10,897
  -12,686
  -14,550
  -16,490
  -18,508
  -20,604
  -22,417
  -24,681
  -27,034
  -29,479
  -32,022
  -34,666
  -37,418
  -40,283
  -43,267
  -46,377
  -49,618
  -53,000
  -56,529
  -60,214
  -64,062
  -68,084
  -72,288
  -76,685
  -81,285
  -86,098

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
  823,052
  907,909
  996,693
  1,089,396
  1,186,037
  1,286,659
  1,391,335
  1,500,164
  1,613,273
  1,730,813
  1,852,960
  1,979,915
  2,111,903
  2,249,170
  2,391,986
  2,540,642
  2,695,451
  2,856,745
  3,024,881
  3,200,233
  3,383,200
  3,574,201
  3,773,678
  3,982,095
  4,199,940
  4,427,727
  4,665,991
  4,915,299
  5,176,241
  5,449,438
Adjusted assets (=assets-cash), $m
  738,454
  823,052
  907,909
  996,693
  1,089,396
  1,186,037
  1,286,659
  1,391,335
  1,500,164
  1,613,273
  1,730,813
  1,852,960
  1,979,915
  2,111,903
  2,249,170
  2,391,986
  2,540,642
  2,695,451
  2,856,745
  3,024,881
  3,200,233
  3,383,200
  3,574,201
  3,773,678
  3,982,095
  4,199,940
  4,427,727
  4,665,991
  4,915,299
  5,176,241
  5,449,438
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
  12,719
  14,030
  15,402
  16,834
  18,328
  19,883
  21,500
  23,182
  24,930
  26,746
  28,634
  30,596
  32,635
  34,756
  36,963
  39,261
  41,653
  44,145
  46,743
  49,453
  52,281
  55,232
  58,315
  61,535
  64,902
  68,422
  72,104
  75,956
  79,988
  84,210
Working capital, $m
  0
  20,988
  23,152
  25,416
  27,780
  30,244
  32,810
  35,479
  38,254
  41,138
  44,136
  47,250
  50,488
  53,854
  57,354
  60,996
  64,786
  68,734
  72,847
  77,134
  81,606
  86,272
  91,142
  96,229
  101,543
  107,098
  112,907
  118,983
  125,340
  131,994
  138,961
Total debt, $m
  515,432
  468,092
  542,935
  621,243
  703,008
  788,244
  876,993
  969,317
  1,065,305
  1,165,067
  1,268,737
  1,376,470
  1,488,445
  1,604,858
  1,725,928
  1,851,892
  1,983,007
  2,119,548
  2,261,809
  2,410,105
  2,564,766
  2,726,143
  2,894,605
  3,070,544
  3,254,368
  3,446,507
  3,647,415
  3,857,564
  4,077,454
  4,307,605
  4,548,565
Total liabilities, $m
  773,272
  725,932
  800,775
  879,083
  960,848
  1,046,084
  1,134,833
  1,227,157
  1,323,145
  1,422,907
  1,526,577
  1,634,310
  1,746,285
  1,862,698
  1,983,768
  2,109,732
  2,240,847
  2,377,388
  2,519,649
  2,667,945
  2,822,606
  2,983,983
  3,152,445
  3,328,384
  3,512,208
  3,704,347
  3,905,255
  4,115,404
  4,335,294
  4,565,445
  4,806,405
Total equity, $m
  86,893
  97,120
  107,133
  117,610
  128,549
  139,952
  151,826
  164,178
  177,019
  190,366
  204,236
  218,649
  233,630
  249,205
  265,402
  282,254
  299,796
  318,063
  337,096
  356,936
  377,628
  399,218
  421,756
  445,294
  469,887
  495,593
  522,472
  550,587
  580,005
  610,796
  643,034
Total liabilities and equity, $m
  860,165
  823,052
  907,908
  996,693
  1,089,397
  1,186,036
  1,286,659
  1,391,335
  1,500,164
  1,613,273
  1,730,813
  1,852,959
  1,979,915
  2,111,903
  2,249,170
  2,391,986
  2,540,643
  2,695,451
  2,856,745
  3,024,881
  3,200,234
  3,383,201
  3,574,201
  3,773,678
  3,982,095
  4,199,940
  4,427,727
  4,665,991
  4,915,299
  5,176,241
  5,449,439
Debt-to-equity ratio
  5.932
  4.820
  5.070
  5.280
  5.470
  5.630
  5.780
  5.900
  6.020
  6.120
  6.210
  6.300
  6.370
  6.440
  6.500
  6.560
  6.610
  6.660
  6.710
  6.750
  6.790
  6.830
  6.860
  6.900
  6.930
  6.950
  6.980
  7.010
  7.030
  7.050
  7.070
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
  -4,380
  -5,976
  -7,542
  -9,182
  -10,897
  -12,686
  -14,550
  -16,490
  -18,508
  -20,604
  -22,417
  -24,681
  -27,034
  -29,479
  -32,022
  -34,666
  -37,418
  -40,283
  -43,267
  -46,377
  -49,618
  -53,000
  -56,529
  -60,214
  -64,062
  -68,084
  -72,288
  -76,685
  -81,285
  -86,098
Depreciation, amort., depletion, $m
  998
  1,203
  1,290
  1,380
  1,474
  1,572
  1,675
  1,781
  1,892
  2,007
  2,126
  1,884
  2,013
  2,147
  2,287
  2,432
  2,583
  2,740
  2,904
  3,075
  3,254
  3,440
  3,634
  3,836
  4,048
  4,270
  4,501
  4,744
  4,997
  5,262
  5,540
Funds from operations, $m
  79
  -3,176
  -4,686
  -6,162
  -7,708
  -9,325
  -11,012
  -12,769
  -14,599
  -16,501
  -18,478
  -20,533
  -22,668
  -24,887
  -27,193
  -29,590
  -32,084
  -34,678
  -37,379
  -40,192
  -43,123
  -46,179
  -49,366
  -52,693
  -56,165
  -59,792
  -63,583
  -67,545
  -71,688
  -76,022
  -80,558
Change in working capital, $m
  -5,491
  2,063
  2,164
  2,264
  2,364
  2,464
  2,566
  2,669
  2,775
  2,884
  2,997
  3,115
  3,237
  3,366
  3,500
  3,642
  3,791
  3,948
  4,113
  4,287
  4,471
  4,666
  4,871
  5,087
  5,315
  5,555
  5,809
  6,076
  6,357
  6,654
  6,967
Cash from operations, $m
  5,570
  -5,239
  -6,850
  -8,426
  -10,072
  -11,789
  -13,578
  -15,439
  -17,374
  -19,385
  -21,475
  -23,648
  -25,905
  -28,252
  -30,693
  -33,232
  -35,874
  -38,626
  -41,492
  -44,479
  -47,595
  -50,845
  -54,237
  -57,779
  -61,480
  -65,348
  -69,391
  -73,620
  -78,045
  -82,676
  -87,524
Maintenance CAPEX, $m
  0
  -755
  -837
  -923
  -1,013
  -1,108
  -1,206
  -1,308
  -1,414
  -1,525
  -1,640
  -1,760
  -1,884
  -2,013
  -2,147
  -2,287
  -2,432
  -2,583
  -2,740
  -2,904
  -3,075
  -3,254
  -3,440
  -3,634
  -3,836
  -4,048
  -4,270
  -4,501
  -4,744
  -4,997
  -5,262
New CAPEX, $m
  -2,876
  -1,246
  -1,311
  -1,372
  -1,433
  -1,493
  -1,555
  -1,618
  -1,682
  -1,748
  -1,816
  -1,888
  -1,962
  -2,040
  -2,121
  -2,207
  -2,297
  -2,392
  -2,492
  -2,598
  -2,710
  -2,827
  -2,952
  -3,083
  -3,221
  -3,366
  -3,520
  -3,682
  -3,853
  -4,032
  -4,222
Cash from investing activities, $m
  9,270
  -2,001
  -2,148
  -2,295
  -2,446
  -2,601
  -2,761
  -2,926
  -3,096
  -3,273
  -3,456
  -3,648
  -3,846
  -4,053
  -4,268
  -4,494
  -4,729
  -4,975
  -5,232
  -5,502
  -5,785
  -6,081
  -6,392
  -6,717
  -7,057
  -7,414
  -7,790
  -8,183
  -8,597
  -9,029
  -9,484
Free cash flow, $m
  14,840
  -7,240
  -8,998
  -10,721
  -12,518
  -14,390
  -16,338
  -18,364
  -20,470
  -22,658
  -24,932
  -27,295
  -29,751
  -32,305
  -34,961
  -37,725
  -40,603
  -43,601
  -46,725
  -49,982
  -53,380
  -56,926
  -60,628
  -64,495
  -68,537
  -72,762
  -77,181
  -81,804
  -86,642
  -91,706
  -97,008
Issuance/(repayment) of debt, $m
  18,761
  74,371
  74,844
  78,308
  81,764
  85,237
  88,749
  92,324
  95,988
  99,762
  103,670
  107,734
  111,974
  116,413
  121,070
  125,964
  131,115
  136,541
  142,262
  148,295
  154,661
  161,377
  168,463
  175,938
  183,824
  192,140
  200,907
  210,150
  219,889
  230,151
  240,960
Issuance/(repurchase) of shares, $m
  -5,940
  14,607
  15,989
  18,018
  20,121
  22,301
  24,560
  26,902
  29,332
  31,854
  34,474
  36,830
  39,662
  42,608
  45,677
  48,874
  52,208
  55,686
  59,316
  63,107
  67,068
  71,209
  75,538
  80,067
  84,807
  89,768
  94,963
  100,404
  106,103
  112,076
  118,335
Cash from financing (excl. dividends), $m  
  15,138
  88,978
  90,833
  96,326
  101,885
  107,538
  113,309
  119,226
  125,320
  131,616
  138,144
  144,564
  151,636
  159,021
  166,747
  174,838
  183,323
  192,227
  201,578
  211,402
  221,729
  232,586
  244,001
  256,005
  268,631
  281,908
  295,870
  310,554
  325,992
  342,227
  359,295
Total cash flow (excl. dividends), $m
  29,978
  81,738
  81,834
  85,605
  89,368
  93,147
  96,970
  100,862
  104,850
  108,958
  113,212
  117,269
  121,885
  126,717
  131,785
  137,113
  142,719
  148,626
  154,853
  161,421
  168,349
  175,660
  183,373
  191,510
  200,094
  209,145
  218,689
  228,750
  239,351
  250,521
  262,286
Retained Cash Flow (-), $m
  -165
  -14,607
  -15,989
  -18,018
  -20,121
  -22,301
  -24,560
  -26,902
  -29,332
  -31,854
  -34,474
  -36,830
  -39,662
  -42,608
  -45,677
  -48,874
  -52,208
  -55,686
  -59,316
  -63,107
  -67,068
  -71,209
  -75,538
  -80,067
  -84,807
  -89,768
  -94,963
  -100,404
  -106,103
  -112,076
  -118,335
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
 
  67,131
  65,846
  67,587
  69,246
  70,847
  72,410
  73,960
  75,518
  77,104
  78,738
  80,439
  82,223
  84,108
  86,109
  88,239
  90,511
  92,940
  95,537
  98,314
  101,281
  104,451
  107,835
  111,443
  115,287
  119,377
  123,726
  128,346
  133,248
  138,445
  143,951
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
 
  60,370
  52,717
  47,661
  42,522
  37,425
  32,483
  27,789
  23,420
  19,433
  15,865
  12,732
  10,037
  7,765
  5,889
  4,374
  3,178
  2,256
  1,563
  1,055
  693
  443
  274
  165
  96
  54
  29
  15
  8
  4
  2
Current shareholders' claim on cash, %
  100
  86.9
  75.7
  65.8
  57.0
  49.3
  42.6
  36.8
  31.7
  27.3
  23.5
  20.2
  17.4
  14.9
  12.8
  11.0
  9.4
  8.1
  6.9
  5.9
  5.1
  4.3
  3.7
  3.2
  2.7
  2.3
  2.0
  1.7
  1.4
  1.2
  1.0

The Goldman Sachs Group, Inc. is an investment banking, securities and investment management company that provides a range of financial services to corporations, financial institutions, governments and individuals. The Company operates in four business segments: Investment Banking, Institutional Client Services, Investing & Lending, and Investment Management. The Investment Banking segment consists of financial advisory and underwriting. The Institutional Client Services segment makes markets and facilitates client transactions in fixed income, equity, currency and commodity products. The investing and lending activities, which are typically longer-term, include its investing and relationship lending activities across various asset classes, primarily debt securities and loans, public and private equity securities, infrastructure and real estate. The Investment Management segment provides investment and wealth advisory services. As of December 2016, it had offices in over 30 countries.

FINANCIAL RATIOS  of  Goldman Sachs Group (GS)

Valuation Ratios
P/E Ratio 13.3
Price to Sales 2.6
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 17.6
Price to Free Cash Flow 36.5
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 10.9% 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 386.875 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 $96.8 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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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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