Goldman Sachs Current Financial Leverage

GS -  USA Stock  

USD 313.95  2.66  0.84%

Goldman Sachs' financial leverage is the degree to which the firm utilizes its fixed-income securities and uses equity to finance projects. Companies with high leverage are usually considered to be at financial risk. Goldman Sachs' financial risk is the risk to Goldman Sachs stockholders that is caused by an increase in debt. In other words, with a high degree of financial leverage come high-interest payments, which usually reduce Earnings Per Share (EPS).
Please check the analysis of Goldman Sachs Fundamentals Over Time.
  
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As of 05/25/2022, Issuance Repayment of Debt Securities is likely to grow to about 42.2 B, while Long Term Debt is likely to drop slightly above 227.3 B.

Goldman Current Financial Burden

Goldman Sachs' liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Goldman Sachs' cash, liquid assets, total liabilities, and shareholder equity can be utilized to evaluate how much leverage the company is using to sustain its current operations. For traders, higher-leverage indicators usually imply a higher risk to shareholders. In addition, it helps Goldman Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Goldman Sachs' stakeholders.

Asset vs Debt

Equity vs Debt

For most companies, including Goldman Sachs, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Goldman Sachs Group the most critical issue when dealing with liquidity needs is whether the current assets are properly aligned with its current liabilities. If not, management will need to obtain alternative financing to ensure that there are always enough cash equivalents on the balance sheet in reserve to pay for obligations.
Given that Goldman Sachs' debt-to-equity ratio measures a company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Goldman Sachs is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of Goldman Sachs to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Goldman Sachs is said to be less leveraged. If creditors hold a majority of Goldman Sachs' assets, the company is said to be highly leveraged.

Goldman Sachs Quarterly Debt to Equity Ratio

12.793

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Given the importance of Goldman Sachs' capital structure, the first step in the capital decision process is for the management of Goldman Sachs to decide how much external capital it will need to raise to operate in a sustainable way. Once the amount of financing is determined, management needs to examine the financial markets to determine the terms in which the company can boost capital. This move is crucial to the process because the market environment may reduce the ability of Goldman Sachs Group to issue bonds at a reasonable cost.

Goldman Sachs Financial Leverage Rating

Goldman Sachs Group bond ratings play a critical role in determining how much Goldman Sachs have to pay to access credit markets, i.e., the amount of interest on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for Goldman Sachs' borrowing costs.
Overall Bond Rating
Not Rated
Average S&P Rating
N/A
Piotroski F Score
4  Poor
Beneish M Score

Goldman Sachs Group Debt to Cash Allocation

As Goldman Sachs Group follows its natural business cycle, the capital allocation decisions will not magically go away. Goldman Sachs' decision-makers have to determine if most of the cash flows will be poured back into or reinvested in the business, reserved for other projects beyond operational needs, or paid back to stakeholders and investors. Many companies eventually find out that there is only so much market out there to be conquered, and adding the next product or service is only half as profitable per unit as their current endeavors. Eventually, the company will reach a point where cash flows are strong, and extra cash is available but not fully utilized. In this case, the company may start buying back its stock from the public or issue more dividends.
The company reports 543 B of total liabilities with total debt to equity ratio (D/E) of 4.72, which implies that the company may not be able to produce enough cash to satisfy its debt commitments. Goldman Sachs Group has a current ratio of 2.45, indicating that it is in good position to pay out its debt commitments in time. Debt can assist Goldman Sachs until it has trouble settling it off, either with new capital or with free cash flow. So, Goldman Sachs' shareholders could walk away with nothing if the company can't fulfill its legal obligations to repay debt. However, a more frequent occurrence is when companies like Goldman Sachs Group sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Goldman to invest in growth at high rates of return. When we think about Goldman Sachs' use of debt, we should always consider it together with cash and equity.

Goldman Sachs Long Term Debt Over Time

Goldman Sachs Assets Financed by Debt

The debt-to-assets ratio shows the degree to which Goldman Sachs uses debt to finance its assets. It includes both long-term and short-term borrowings maturing within one year. It also includes both tangible and intangible assets, such as goodwill.

Goldman Sachs Debt Ratio

    
  33.99   
It seems slightly above 66% of Goldman Sachs' assets are financed through equity. Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the Goldman Sachs' operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Goldman Sachs, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a Goldman Sachs debt ratio should be compared their industry average or other competing firms.

Goldman Sachs Group Historical Liabilities

While analyzing the current debt level is an essential aspect of forecasting the current year budgeting needs of Goldman Sachs, understanding its historical liability is critical in projecting Goldman Sachs' future earnings, especially during periods of low and high inflation and deflation. Many analysts look at the trend in assets and liabilities and evaluate how Goldman Sachs uses its financing power over time.
In order to fund their growth, businesses such as Goldman Sachs widely use Financial Leverage. For most companies, financial capital is raised by issuing debt securities and by selling common stock. The debt and equity that make up Goldman Sachs' capital structure have many risks and return implications. Leverage is an investment strategy of using borrowed money to increase the potential return of an investment. Please note, the concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.

Understaning Goldman Sachs Use of Financial Leverage

Goldman Sachs financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Goldman Sachs's total debt position, including all of outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Goldman Sachs assets, the company is considered highly leveraged. Understanding the composition and structure of overall Goldman Sachs debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business and if it is worth investing in it.
Last ReportedProjected for 2022
Long Term Debt238.6 B227.3 B
Total Debt459.3 B455.5 B
Issuance Repayment of Debt Securities39.1 B42.2 B
Debt to Equity Ratio 12.32  10.85 
The Goldman Sachs Group, Inc., a financial institution, provides a range of financial services for corporations, financial institutions, governments, and individuals worldwide. The company was founded in 1869 and is headquartered in New York, New York. Goldman Sachs operates under Capital Markets classification in the United States and is traded on New York Stock Exchange. It employs 45100 people.
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Please check the analysis of Goldman Sachs Fundamentals Over Time. Note that the Goldman Sachs Group information on this page should be used as a complementary analysis to other Goldman Sachs' statistical models used to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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Is Goldman Sachs' industry expected to grow? Or is there an opportunity to expand the business' product line in the future? Factors like these will boost the valuation of Goldman Sachs. If investors know Goldman will grow in the future, the company's valuation will be higher. The financial industry is built on trying to define current growth potential and future valuation accurately. All the valuation information about Goldman Sachs listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
The market value of Goldman Sachs Group is measured differently than its book value, which is the value of Goldman that is recorded on the company's balance sheet. Investors also form their own opinion of Goldman Sachs' value that differs from its market value or its book value, called intrinsic value, which is Goldman Sachs' true underlying value. Investors use various methods to calculate intrinsic value and buy a stock when its market value falls below its intrinsic value. Because Goldman Sachs' market value can be influenced by many factors that don't directly affect Goldman Sachs' underlying business (such as a pandemic or basic market pessimism), market value can vary widely from intrinsic value.
Please note, there is a significant difference between Goldman Sachs' value and its price as these two are different measures arrived at by different means. Investors typically determine Goldman Sachs value by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Goldman Sachs' price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.

What is Financial Leverage?

Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the debt provider will limit how much risk it is ready to take and indicate a limit on the extent of the leverage it will allow. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan. The concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.

Leverage and Capital Costs

The debt to equity ratio plays a role in the working average cost of capital (WACC). The overall interest on debt represents the break-even point that must be obtained to profitability in a given venture. Thus, WACC is essentially the average interest an organization owes on the capital it has borrowed for leverage. Let's say equity represents 60% of borrowed capital, and debt is 40%. This results in a financial leverage calculation of 40/60, or 0.6667. The organization owes 10% on all equity and 5% on all debt. That means that the weighted average cost of capital is (.4)(5) + (.6)(10) - or 8%. For every $10,000 borrowed, this organization will owe $800 in interest. Profit must be higher than 8% on the project to offset the cost of interest and justify this leverage.

Benefits of Financial Leverage

Leverage provides the following benefits for companies:
  • Leverage is an essential tool a company's management can use to make the best financing and investment decisions.
  • It provides a variety of financing sources by which the firm can achieve its target earnings.
  • Leverage is also an essential technique in investing as it helps companies set a threshold for the expansion of business operations. For example, it can be used to recommend restrictions on business expansion once the projected return on additional investment is lower than the cost of debt.
By borrowing funds, the firm incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use in the stock market. For example, suppose a company can afford a new factory but will be left with negligible free cash. In that case, it may be better to finance the factory and spend the cash on hand on inputs, labor, or even hold a significant portion as a reserve against unforeseen circumstances.

The Risk of Financial Leverage

The most obvious and apparent risk of leverage is that if price changes unexpectedly, the leveraged position can lead to severe losses. For example, imagine a hedge fund seeded by $50 worth of investor money. The hedge fund borrows another $50 and buys an asset worth $100, leading to a leverage ratio of 2:1. For the investor, this is neither good nor bad -- until the asset price changes. If the asset price goes up 10 percent, the investor earns $10 on $50 of capital, a net gain of 20 percent, and is very pleased with the increased gains from the leverage. However, if the asset price crashes unexpectedly, say by 30 percent, the investor loses $30 on $50 of capital, suffering a 60 percent loss. In other words, the effect of leverage is to increase the volatility of returns and increase the effects of a price change on the asset to the bottom line while increasing the chance for profit as well.