Goldman Sachs 2015 Annual Report Download - page 110

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Cash Flows
As a global financial institution, our cash flows are complex
and bear little relation to our net earnings and net assets.
Consequently, we believe that traditional cash flow analysis
is less meaningful in evaluating our liquidity position than
the liquidity and asset-liability management policies
described above. Cash flow analysis may, however, be
helpful in highlighting certain macro trends and strategic
initiatives in our businesses.
Year Ended December 2015. Our cash and cash
equivalents increased by $17.51 billion to $75.11 billion at
the end of 2015. We used $18.57 billion in net cash for
investing activities, primarily due to funding of loans
receivable. We generated $36.08 billion in net cash from
financing activities and operating activities primarily from
net issuances of long-term borrowings and bank deposits,
partially offset by repurchases of common stock.
Year Ended December 2014. Our cash and cash
equivalents decreased by $3.53 billion to $57.60 billion at
the end of 2014. We used $22.53 billion in net cash for
operating and investing activities, which reflects an
initiative to reduce our balance sheet, and the funding of
loans receivable. We generated $19.00 billion in net cash
from financing activities from an increase in bank deposits
and net proceeds from issuances of unsecured long-term
borrowings, partially offset by repurchases of common
stock.
Year Ended December 2013. Our cash and cash
equivalents decreased by $11.54 billion to $61.13 billion at
the end of 2013. We generated $4.54 billion in net cash
from operating activities. We used net cash of
$16.08 billion for investing and financing activities,
primarily to fund loans receivable and repurchases of
common stock.
Market Risk Management
Overview
Market risk is the risk of loss in the value of our inventory,
as well as certain other financial assets and financial
liabilities, due to changes in market conditions. We employ
a variety of risk measures, each described in the respective
sections below, to monitor market risk. We hold inventory
primarily for market making for our clients and for our
investing and lending activities. Our inventory therefore
changes based on client demands and our investment
opportunities. Our inventory is accounted for at fair value
and therefore fluctuates on a daily basis, with the related
gains and losses included in “Market making” and “Other
principal transactions.” Categories of market risk include
the following:
‰Interest rate risk: results from exposures to changes in the
level, slope and curvature of yield curves, the volatilities
of interest rates, mortgage prepayment speeds and credit
spreads;
‰Equity price risk: results from exposures to changes in
prices and volatilities of individual equities, baskets of
equities and equity indices;
‰Currency rate risk: results from exposures to changes in
spot prices, forward prices and volatilities of currency
rates; and
‰Commodity price risk: results from exposures to changes
in spot prices, forward prices and volatilities of
commodities, such as crude oil, petroleum products,
natural gas, electricity, and precious and base metals.
Managers in revenue-producing units are accountable for
managing risk within prescribed limits. These managers
have in-depth knowledge of their positions, markets and
the instruments available to hedge their exposures.
Market Risk Management, which is independent of the
revenue-producing units and reports to our chief risk
officer, has primary responsibility for assessing, monitoring
and managing market risk at the firm. We monitor and
control risks through strong firmwide oversight and
independent control and support functions across our
global businesses.
Managers in revenue-producing units and Market Risk
Management discuss market information, positions and
estimated risk and loss scenarios on an ongoing basis.
98 Goldman Sachs 2015 Form 10-K