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GuruFocus has detected 2 Warning Signs with Goldman Sachs Group Inc $GS.
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Goldman Sachs Group Inc (NYSE:GS)
Owner Earnings per Share (TTM)
23.47 (As of Mar. 2017)

In 1986 Berkshire Hathaway Shareholder Letter, Warren Buffett defined owner earnings as follows:

"These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges...less (c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume (If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in (c))...Our owner-earnings equation does not yield the deceptively precise figures provided by GAAP, since (c) must be a guess - and one sometimes very difficult to make. Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes - both for investors in buying stocks and for managers in buying entire businesses...All of this points up the absurdity of the 'cash flow' numbers that are often set forth in Wall Street reports. These numbers routinely include (a) plus (b) - but do not subtract (c)."

Goldman Sachs Group Inc's owner earnings per share for the trailing twelve months (TTM) ended in Mar. 2017 was $23.47. It's Price to Owner Earnings (TTM) ratio for today is 9.66.

GS' s Price-to-Owner-Earnings Range Over the Past 10 Years
Min: 1.79   Max: 78.41
Current: 57.05

1.79
78.41

During the past 13 years, the highest Price to Owner Earnings (TTM) ratio of Goldman Sachs Group Inc was 78.41. The lowest was 1.79. And the median was 11.38.

GS's Price-to-Owner-Earnings is ranked lower than
90% of the 224 Companies
in the Global Capital Markets industry.

( Industry Median: 16.44 vs. GS: 57.05 )

Goldman Sachs Group Inc's diluted earnings per share for the three months ended in Dec. 2016 was $5.05. Its diluted earnings per share for the trailing twelve months (TTM) ended in Dec. 2016 was $18.80. It's P/E (TTM) ratio for today is 12.06.

Goldman Sachs Group Inc's earnings per share without non-recurring items for the three months ended in Dec. 2016 was $5.05. Its earnings per share without non-recurring items for the trailing twelve months (TTM) ended in Dec. 2016 was $18.80. It's Price to Earnings without Non-Recurring Items ratio for today is 12.06.


Definition

In 1986 Berkshire Hathaway Shareholder Letter, Warren Buffett defined owner earnings as follows:

"These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges...less (c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. (If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in (c))...Our owner-earnings equation does not yield the deceptively precise figures provided by GAAP, since (c) must be a guess - and one sometimes very difficult to make. Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes - both for investors in buying stocks and for managers in buying entire businesses...All of this points up the absurdity of the 'cash flow' numbers that are often set forth in Wall Street reports. These numbers routinely include (a) plus (b) - but do not subtract (c)."

To make it simple, then you will have:

Owner Earning Per Share = (Net Income + Depreciation, Depletion & Amortization + Change In Deferred Tax - 5Y Average of Maintenance Capital Expenditure + Change In Working Capital) / Shares Outstanding (Diluted Average)

Goldman Sachs Group Inc's "Owner Earnings Per Share (TTM)" Calculation:

TTM / Last QuarterAverage of Last 20 Quarters
Net Income 8,518
Depreciation, Depletion & Amortization 1,016
Change In Deferred Tax 0
5Y Average of Maintenance Capital Expenditure 1,155.70
Change In Working Capital 1,480
Shares Outstanding (Diluted Average) 420

1. Start with "Net Income" from income statement. Goldman Sachs Group Inc's net income for the trailing twelve months (TTM) ended in Mar. 2017 was $8,518 Mil.

2. "Depreciation, Depletion & Amortization" is from cashflow statement. Goldman Sachs Group Inc's Depreciation, Depletion & Amortization for the trailing twelve months (TTM) ended in Mar. 2017 was $1,016 Mil. This needs to be added back because company does not actually need to pay cash for it. It is a non-cash item.

3. Other non-cash charges usually include "Employee Stock Compensation" and "Change In Deferred Tax":
However, to be conservative, GuruFocus will not add Employee Stock Compensation back to net income. Goldman Sachs Group Inc's Change In Deferred Tax for the trailing twelve months (TTM) ended in Mar. 2017 was $0 Mil.

4. Average maintenance capital expenditure over a business/industry cycle: 5-Year Average Maintenance Capital Expenditure = $1155.70097689 Mil

It is usually best to take a long-term average of maintenance capital expenditure. Ideally this would be as long as 10 years and include at least one economic downturn. However, since many companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year maintenance capital expenditure.

The following shows how to get maintenance capital expenditure.

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Growth Capital Expenditure = Percentage of Net PPE as of corresponding Revenue * Revenue Increase
Third, calculate Capital Expenditure (positive) - Growth Capital Expenditure.
If [Capital Expenditure (positive) - Growth Capital Expenditure] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - Growth Capital Expenditure] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - Growth Capital Expenditure.
Fourth, get the average of the 5 years maintenance capital expenditure.

Goldman Sachs Group Inc's 5-Year Average Maintenance Capital Expenditure = $1155.70097689 Mil

5. "Change in Working Capital" is from cashflow statement. Goldman Sachs Group Inc's Change in Working Capital for the trailing twelve months (TTM) ended in Mar. 2017 was $1,480 Mil.
Note: GuruFocus' Change in Working Capital is provided by Morningstar. It is calculated by adding the items under "Change in operating assets and liabilities" (may refer to a different name for different company) section in Cash Flow Statement from original financial report. And sometimes it includes non-current parts of assets and liabilities.

6. Goldman Sachs Group Inc's average diluted shares outstanding for the three months ended in Mar. 2017 was 420.100 Mil.

Goldman Sachs Group Inc's Onwer Earnings Per Share for Mar. 2017 is calculated as:

Owner Earnings Per Share(TTM)
=( Net Income+DDA+Change In Deferred Tax
=( 8518+1016+0
-5Y Avg of Maintenance CAPEX+Change In Working Capital )/Shares Outstanding
-1155.70097689+1480 )/420.100
=23.47

Price to Owner Earnings (TTM)=Current Price/Owner Earnings Per Share (TTM)
=226.70/23.47
=9.66

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.


Be Aware

Assumption: Companies usually do not report maintenance capital expenditures and growth capital expenditures separately. Here we use estimated numbers and average them over 5 years. The method to estimate maintenance capital expenditures can be found in above part 4.

Note: GuruFocus' Change In Working Capital is provided by Morningstar. It is calculated by adding the items under "Change in operating assets and liabilities" (may refer to a different name for different company) section in Cash Flow Statement from original financial report. And it includes non-current parts of assets and liabilities.


Related Terms

Net Income, Depreciation, Depletion & Amortization, Employee Stock Compensation, Change In Working Capital, Cash Flow for Capital Expenditures, Revenue, Net Property, Plant and Equipment (Net PPE), Shares Outstanding (Diluted Average), Price to Owner Earnings (TTM)


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Goldman Sachs Group Inc Annual Data

Nov07Nov08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
Owner Earnings
Per Share (TTM)
-177.871.2882.94-22.3829.8121.543.25-22.817.243.97

Goldman Sachs Group Inc Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
Owner Earnings
Per Share (TTM)
-22.81-0.05-18.303.257.24-16.2723.2911.583.970.00
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