Goldman Sachs 2003 Annual Report Download - page 44

Management’s Discussion and Analysis
42 GOLDMAN SACHS 2003 ANNUAL REPORT
Financial Overview
The following table sets forth an overview of our financial results:
FINANCIAL OVERVIEW
YEAR ENDED NOVEMBER
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2003 2002 2001
Net revenues $16,012 $13,986 $15,811
Pre-tax earnings 4,445 3,253 3,696
Net earnings 3,005 2,114 2,310
Diluted earnings per share 5.87 4.03 4.26
Return on average shareholders’ equity(1) 15.0% 11.3% 13.0%
Return on average tangible shareholders’ equity(2) 19.9% 15.3% 17.8%
(1) Return on average shareholders’ equity is computed by dividing net earnings by average monthly shareholders’ equity.
(2) Tangible shareholders’ equity equals total shareholders’ equity less goodwill and identifiable intangible assets. We believe that return on average
tangible shareholders’ equity is a meaningful measure of our financial performance because it reflects the return on equity deployed in our busi-
nesses. Return on average tangible shareholders’ equity is computed by dividing net earnings by average monthly tangible shareholders’ equity.
The following table sets forth the reconciliation of average shareholders’ equity to average tangible shareholders’ equity:
YEAR ENDED NOVEMBER
(IN MILLIONS) 2003 2002 2001
Average shareholders’ equity $20,031 $18,659 $17,704
Deduct: Average goodwill and identifiable intangible assets (4,932) (4,837) (4,727)
Average tangible shareholders’ equity $15,099 $13,822 $12,977
net revenues
2003 versus 2002 – Our net revenues were $16.01 billion
in 2003, an increase of 14% compared with 2002, pri-
marily reflecting higher net revenues in Trading and
Principal Investments. The increase in Trading and
Principal Investments net revenues was primarily driven
by FICC, which operated in a generally favorable envi-
ronment throughout the year, and by Principal
Investments, which included an unrealized gain on our
investment in the convertible preferred stock of SMFG.
Net revenues in Asset Management and Securities Services
increased 14% compared with 2002, primarily reflecting
higher assets under management and higher customer
balances in Securities Services. Net revenues in Investment
Banking declined 4% compared with 2002, due to gen-
erally lower levels of corporate activity. For a further
discussion of our net revenues, see “—Operating Results
by Segment.”
2002 versus 2001 – Our net revenues were $13.99 bil-
lion in 2002, a decrease of 12% compared with 2001,
primarily reflecting lower net revenues in Investment
Banking and Trading and Principal Investments. Net rev-
enues in Investment Banking and Trading and Principal
Investments decreased 26% and 10%, respectively,
compared with 2001, primarily reflecting a difficult eco-
nomic and business environment, characterized by con-
tinued weakness in equity markets and generally lower
levels of corporate activity. Net revenues in Asset
Management and Securities Services increased 4% com-
pared with 2001, primarily reflecting higher assets under
management, partially offset by lower net revenues in
Securities Services. For a further discussion of our net rev-
enues, see “—Operating Results by Segment.”
operating expenses
Our operating expenses are primarily influenced by com-
pensation, headcount and levels of business activity. A
substantial portion of our compensation expense repre-
sents discretionary bonuses, with our overall compensa-
tion and benefits expenses generally targeted at 50%
(plus or minus a few percentage points) of consolidated
net revenues. In addition to the level of net revenues, our
compensation expense in any given year is also influenced
by, among other factors, prevailing labor markets, busi-
ness mix and the structure of our equity-based compen-
sation programs.
Financial Overview
The following table sets forth an overview of our financial results:
FINANCIAL OVERVIEW
YEAR ENDED NOVEMBER
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2003 2002 2001
Net revenues $16,012 $13,986 $15,811
Pre-tax earnings 4,445 3,253 3,696
Net earnings 3,005 2,114 2,310
Diluted earnings per share 5.87 4.03 4.26
Return on average shareholders’ equity(1) 15.0% 11.3% 13.0%
Return on average tangible shareholders’ equity(2) 19.9% 15.3% 17.8%
(1) Return on average shareholders’ equity is computed by dividing net earnings by average monthly shareholders’ equity.
(2) Tangible shareholders’ equity equals total shareholders’ equity less goodwill and identifiable intangible assets. We believe that return on average
tangible shareholders’ equity is a meaningful measure of our financial performance because it reflects the return on equity deployed in our busi-
nesses. Return on average tangible shareholders’ equity is computed by dividing net earnings by average monthly tangible shareholders’ equity.
The following table sets forth the reconciliation of average shareholders’ equity to average tangible shareholders’ equity:
YEAR ENDED NOVEMBER
(IN MILLIONS) 2003 2002 2001
Average shareholders’ equity $20,031 $18,659 $17,704
Deduct: Average goodwill and identifiable intangible assets (4,932) (4,837) (4,727)
Average tangible shareholders’ equity $15,099 $13,822 $12,977