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Management’s Discussion and Analysis
32 GOLDMAN SACHS 2003 ANNUAL REPORT
Goldman Sachs is a leading global investment banking,
securities and investment management firm that provides
a wide range of services worldwide to a substantial and
diversified client base that includes corporations, financial
institutions, governments and high-net-worth individuals.
Our activities are divided into three segments:
•investment banking – We provide a broad range
of investment banking services to a diverse group
of corporations, financial institutions, govern-
ments and individuals.
•trading and principal investments – We facil-
itate customer transactions with a diverse group
of corporations, financial institutions, govern-
ments and individuals and take proprietary posi-
tions through market making in, and trading of,
fixed income and equity products, currencies,
commodities and derivatives on such products. In
addition, we engage in floor-based and electronic
market making as a specialist on U.S. equities and
options exchanges and we clear customer transac-
tions on major stock, options and futures
exchanges worldwide. In connection with our
merchant banking and other investment activities,
we make principal investments directly and
through funds that we raise and manage.
•asset management and securities services –
We offer a broad array of investment strategies,
advice and planning across all major asset classes
to a diverse client base of institutions and individ-
uals, and provide prime brokerage, financing ser-
vices and securities lending services to mutual
funds, pension funds, hedge funds, foundations,
endowments and high-net-worth individuals.
Unless specifically stated otherwise, all references to 2003,
2002 and 2001 refer to our fiscal years ended, or the dates,
as the context requires, November 28, 2003, November
29, 2002 and November 30, 2001, respectively.
When we use the terms “Goldman Sachs,” “we,” “us”
and “our,” we mean The Goldman Sachs Group, Inc., a
Delaware corporation, and its consolidated subsidiaries.
In this discussion, we have included statements that may
constitute “forward-looking statements” within the
meaning of the safe harbor provisions of The Private
Securities Litigation Reform Act of 1995. These forward-
looking statements are not historical facts but instead
represent only our beliefs regarding future events, many
of which, by their nature, are inherently uncertain and
beyond our control. These statements relate to our future
plans and objectives, among other things. By identifying
these statements for you in this manner, we are alerting
you to the possibility that our actual results may differ,
possibly materially, from the results indicated in these
forward-looking statements. Important factors, among
others, that could cause our results to differ, possibly
materially, from those indicated in the forward-looking
statements are discussed under “— Certain Factors That
May Affect Our Business.”
EXECUTIVE OVERVIEW
Our diluted earnings per share were $5.87 for 2003, a
46% increase compared with 2002. Return on average
tangible shareholders’ equity was 19.9%(1) and return on
average shareholders’ equity was 15.0%. Our results in
2003 reflected strong growth in Trading and Principal
Investments, particularly in our Fixed Income, Currency
and Commodities (FICC) business, which continued to
operate in a favorable environment, generally character-
ized by low interest rates and narrow credit spreads.
Results in our Principal Investments business improved in
2003, aided by an unrealized gain on our investment in
the convertible preferred stock of Sumitomo Mitsui
Financial Group, Inc. (SMFG). Our Equities business
generated higher revenues in 2003, though results in
Equities remained well below peak levels. Asset
Management and Securities Services produced strong rev-
enue growth, primarily reflecting higher assets under
management and higher customer balances in securities
and margin lending. In Investment Banking, despite a sig-
nificant improvement in debt underwriting, we reported
a third straight year of decreased revenues and earnings,
reflecting declines in industry-wide mergers and acquisi-
tions and equity underwriting activity.
Our operating results in 2003 also reflected a number of
trends that have emerged in recent years and may con-
tinue in the future. Competitive pressures continued in
our Investment Banking business and, in our Equities
business, commission rates and spreads continued to
(1) Return on average tangible shareholders’ equity is computed by divid-
ing net earnings by average monthly tangible shareholders’ equity. See
”–Results of Operations” for further information regarding our return
on average tangible shareholders’ equity calculation.