Goldman Sachs 2007 Annual Report Download - page 67

Management’s Discussion and Analysis
The following table sets forth the reconciliation of total shareholders’ equity to
tangible equity capital:
As of November
(in millions) 2007 2006
Total shareholders’ equity $42,800 $35,786
Add: Junior subordinated debt
issued to trusts 5,000 2,750
Deduct: Goodwill and identifiable intangible
assets, excluding power contracts (5,072) (5,019)
Tangible equity capital $42,728 $33,517
(3) Leverage ratio equals total assets divided by total shareholders’ equity.
(4) Adjusted leverage ratio equals adjusted assets divided by tangible equity capital.
We believe that the adjusted leverage ratio is a more meaningful measure of our
capital adequacy than the leverage ratio because it excludes certain low-risk
collateralized assets that are generally supported with little or no capital and
reflects the tangible equity capital deployed in our businesses.
(5) Debt to equity ratio equals unsecured long-term borrowings divided by total
shareholders’ equity.
(6)
Tangible common shareholders’ equity equals total shareholders’ equity less
preferred stock, goodwill and identifiable intangible assets, excluding power
contracts. We do not deduct identifiable intangible assets associated with power
contracts from total shareholders’ equity because, unlike other intangible assets,
less than 50% of these assets are supported by common shareholders’ equity.
The following table sets forth a reconciliation of total shareholders’ equity to
tangible common shareholders’ equity:
As of November
(in millions) 2007 2006
Total shareholders’ equity $42,800 $35,786
Deduct: Preferred stock (3,100) (3,100)
Common shareholders’ equity 39,700 32,686
Deduct: Goodwill and identifiable intangible
assets, excluding power contracts (5,072) (5,019)
Tangible common shareholders’ equity $34,628 $27,667
(7) Book value per common share is based on common shares outstanding, including
restricted stock units granted to employees with no future service requirements,
of 439.0 million and 450.1 million as of November 2007 and November 2006,
respectively.
(8)
Tangible book value per common share is computed by dividing tangible common
shareholders’ equity by the number of common shares outstanding, including
restricted stock units granted to employees with no future service requirements.
Capital Ratios and Metrics
The following table sets forth information on our assets,
shareholders’ equity, leverage ratios and book value per
common share:
As of November
($ in millions, except per share amounts) 2007 2006
Total assets $1,119,796 $838,201
Adjusted assets
(1) 747,300 541,033
Total shareholders’ equity 42,800 35,786
Tangible equity capital
(2) 42,728 33,517
Leverage ratio
(3) 26.2x 23.4x
Adjusted leverage ratio
(4) 17.5x 16.1x
Debt to equity ratio
(5) 3.8x 3.4x
Common shareholders’ equity 39,700 32,686
Tangible common
shareholders’ equity
(6)
34,628 27,667
Book value per common share
(7) $ 90.43 $ 72.62
Tangible book value
per common share
(8) 78.88 61.47
(1) Adjusted assets excludes (i) low-risk collateralized assets generally associated
with our matched book and securities lending businesses (which we calculate by
adding our securities borrowed and financial instruments purchased under
agreements to resell, at fair value, and then subtracting our nonderivative short
positions), (ii) cash and securities we segregate for regulatory and other purposes
and (iii) goodwill and identifiable intangible assets, excluding power contracts. We
do not deduct identifiable intangible assets associated with power contracts from
total assets in order to be consistent with the calculation of tangible equity capital
and the adjusted leverage ratio (see footnote 2 below).
The following table sets forth a reconciliation of total assets to adjusted assets:
As of November
(in millions) 2007 2006
Total assets $1,119,796 $ 838,201
Deduct: Securities borrowed (277,413) (219,342)
Financial instruments
purchased under agreements
to resell, at fair value (85,717) (82,126)
Add: Financial instruments sold,
but not yet purchased,
at fair value 215,023 155,805
Less derivative liabilities (99,378) (65,496)
Subtotal 115,645 90,309
Deduct: Cash and securities segregated
for regulatory and other purposes (119,939) (80,990)
Goodwill and identifiable intangible
assets, excluding power contracts (5,072) (5,019)
Adjusted assets $ 747,300 $ 541,033
(2) Tangible equity capital equals total shareholders’ equity and junior subordinated
debt issued to trusts less goodwill and identifiable intangible assets, excluding
power contracts. We do not deduct identifiable intangible assets associated with
power contracts from total shareholders’ equity because, unlike other intangible
assets, less than 50% of these assets are supported by common shareholders’
equity. We consider junior subordinated debt issued to trusts to be a component
of our tangible equity capital base due to certain characteristics of the debt, including
its long-term nature, our ability to defer payments due on the debt and the
subordinated nature of the debt in our capital structure.
65Goldman Sachs 2007 Annual Report