Goldman Sachs 2007 Annual Report Download - page 53
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Management’s Discussion and Analysis
Results of Operations
The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed.
The composition of net revenues can also vary over the shorter term due to fluctuations in U.S. and global economic and market
conditions. See “
—
Certain Risk Factors That May Affect Our Business” above, and “Risk Factors” in Part I, Item 1A of the
Annual Report on Form 10-K.
Financial Overview
The following table sets forth an overview of our financial results:
Financial Overview
Year Ended November
($ in millions, except per share amounts) 2007 2006 2005
Net revenues $45,987 $37,665 $25,238
Pre-tax earnings 17,604 14,560 8,273
Net earnings 11,599 9,537 5,626
Net earnings applicable to common shareholders 11,407 9,398 5,609
Diluted earnings per common share 24.73 19.69 11.21
Return on average common shareholders’ equity
(1)
32.7% 32.8% 21.8%
Return on average tangible common shareholders’ equity
(2) 38.2% 39.8% 26.7%
(1) Return on average common shareholders’ equity is computed by dividing net earnings applicable to common shareholders by average monthly common shareholders’ equity.
(2)
Tangible common shareholders’ equity equals total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets, excluding power contracts.
Identifiable intangible assets associated with power contracts are not deducted from total shareholders’ equity because, unlike other intangible assets, less than 50%
of these assets are supported by common shareholders’ equity.
Management believes that return on average tangible common shareholders’ equity (ROTE) is meaningful because it measures the performance of businesses consistently,
whether they were acquired or developed internally. ROTE is computed by dividing net earnings applicable to common shareholders by average monthly tangible common
shareholders’ equity.
The following table sets forth a reconciliation of average total shareholders’ equity to average tangible common shareholders’ equity:
Average for the Year Ended November
(in millions) 2007 2006 2005
Total shareholders’ equity $37,959 $31,048 $26,264
Preferred stock (3,100) (2,400) (538)
Common shareholders’ equity 34,859 28,648 25,726
Goodwill and identifiable intangible assets, excluding power contracts (4,971) (5,013) (4,737)
Tangible common shareholders’ equity $29,888 $23,635 $20,989
51Goldman Sachs 2007 Annual Report