Applying the CAMELS Performance Evaluation Approach for

Goldman Sachs Group Inc.

Zannatun Nissa
Abu Dhabi University, Email: 1061746@students.adu.ac.ae

Supervised by:

Professor HaithamNobanee

Abstract

Banks are major contributors to the growth of the economy in this century. To provide the

best and high-level; service, the banks should strictly follow the protocols and standards. This

research focuses on evaluating the performance of US-based investment bank – Goldman

Sachs Group, Inc. Data was collected from 2012 to 2019 (8 years). For the performance

evaluation, CAMELS (Capital adequacy, asset quality, management quality, earnings

efficiency, liquidity risk, and sensitivity to market risk) ratio analysis has been used. All the

six parameters in this ratio reveal that Goldman Sachs has been performing quite well with

quality service over the years. The results of this analysis can be used for management and

investor decisions.
Introduction

The Goldman Sachs Group, Inc. is a multinational investment bank headquartered in New

York City, United States. This corporation provides services such as investment banking,

investment management, securities, asset management, mutual funds, and prime brokerage. It

was found in 1869 by Marcus Goldman and Samuel Sachs. It has many branches and

subsidiaries across the world with varied clients ranging from individuals, financial

institutions, government, and other corporations. Currently the firm is led by David M.

Solomon, the chairman and chief executive officer. Goldman Sachs started as being a private

bank and joined the New York Stock Exchange (NYSE) in 1896. Only during the year 1906,

did Goldman join the Initial Public Offering (IPO) market and started issuing stocks to attract

various investors. Thus, Goldman has started to grow its business into a multi-billion

corporation. In 2019, it reported a net income of US$8.466 billion. Inorder to be a role player

in the society, Goldman has taken various teamwork, environment and sustainability

initiatives and also has successfully contributed. According to the sustainability report, the

corporation plans to deploy $750 billion by 2030 in sustainable financing, advisory, and

investment activity.

CAMELS approach is ratio analysis used for banks and other financial institutions such as

credit unions & mutual funds. This approach helps the banks in determining their overall

condition. The six factors included in this approach: Capital Adequacy helps to determine the

amount of capital required by a bank or any other financial institution to regulate without any

asset related risks in the market (Al-Shamsi and Noabnee, 2020). Asset Quality examines into

the bank’s assets such as loans to the earnings from the assets. Management Quality defines

the banks ‘ability to deal with financial stress. This takes into consideration the expenses such

as operating and staff expenses are divided over the assets. Earning efficiency tells about the

banks’ ability to expand and remain competitive while producing earnings. Liquidity risk
determines whether the bank or financial institution will be able to meet the short term

financial demands or in the case of bankruptcy whether the assets are easily tradable.

Sensitivity to market risk determines whether the ban is able to deal with market fluctuations

without any risk of loss (CAMELS Rating System, 2020).

Accordong to Almutairi & Nobanee (2020), artificial intelligence can be used in the finance

industry. But, CAMELS approach is considered to be an effective method to evaluate

performance of banks and their abilities to deal with risks during market fluctuations and any

other uncertainties. According to Valahzaghard&Jabbari (2013), this approach helps

supervise the banks regulations while maintaining accountability and transparency. Since the

main task of banks is lending so they are supposed to provide it with higher quality. In this

article Rostami (2015) from University of Tehran gathers the data from annual reports of an

Iranian Bank and CAMELS ratios are applied (Al-Ketbi and Nobanee, 2020). Comparisons

of the ratios are then carried out with ratios and data from other banks and the performance of

each area was evaluated thoroughly. This method also helped to notice various issues that the

bank was facing and ultimately look for alternative solutions. This ratio greatly points out

whether the bank is success or a weakness (Munir&Bustamam, 2017).

Akter (2016) mentions that banks and other financial institutions are one of the major

contributors in today’s economy. So, the banks should be thoroughly monitored, supervised,

and evaluated inorder to maintain the financial stability and sustainable economic growth.

Rahman& Islam (2017), conducted an extensive research on seventeen commercial private

banks in Bangladesh by analyzing their financial statements using the CAMELS approach.

Based on the results they concluded that Eastern Bank was on top which is said to provide

better quality and lower risk. Moreover, the other banks which requires special attention and

areas of improvement. This approach is not only limited to commercial banks but can also be

applied to Islamic Banks. The research was conducted on three major Islamic Banks in
Bangladesh and the CAMELS approach was applied on them. The results from the ratios

portrays that all the three banks are strong in almost all the aspects (Ahsan, 2016).

The most inclusive study that was performed based on the soundness in the new European

Union member states that CAMELS is used by the research of DervizetPodpiera (2008) on

the Czech Republic banking sector. The study signifies the development of the financial

soundness for the five largest Czech banks in the pre and post privatisation period from 1999

to 2005.This ratio evaluation approach benefits banks during decision making process and

asses mergers & acquisitions. For example: in the study conducted between the State bank of

India and its five associate banks. It showed that“State Bank of Bikaner & Jaipur has high

efficiency in terms Capital Adequacy,State Bank of Patiala in Assets Quality, State Bank of

Travancore in Management Quality, State Bank of Hyderabad in Earning Quality and

whereas in Liquidity SBI has the top position”. This signifies that the competitive advantage

of each bank can be evaluated and are subjugated through the merger of all these banks

(Sharma & Patel, 2019).

One of the comprehensive researches conducted on five private sector banks and five public

sector banks in India, the CAMELS ratio analysis was used. The annual reports from m2012-

2013 to 2016-2017 (5 years) were analyzed. After applying the CAMELS analysis two of the

private sector banks perform above the average whereas two of the public sector banks

perform below the average. Thus, can be concluded that private sector performs better than

public sector (Panboli&Birda, 2019)

Methodology

The research aims to evaluate the performance and soundness of the investment bank –

Goldman Sachs Group, Inc. To undertake the evaluation process, an international ratio

analysis CAMELS approach is used. The six factors in CAMELS are:

 Capital Adequacy: this is a risk analysis ratio that helps to determine the amount of

capital a bank should keep as a proportion of risky asset. The bank’s capital position the

several years is used in this rating.

 Asset Quality: this ratio determines the quality of banks assets. It is important to assess

the asset quality because the value of asset may decrease if the risk is high. Since, bank

loans are one of the bank’s most important assets so it is required to verify the quality of

the loans used for lending to customers.

 Management Capability: this ratio helps to evaluate the bank management team’s ability

to identify and provide the quality of service. This factor deals with the operating and

staff expenses incurred over the total assets i.e., non-interest expense to the total asset.

 Earnings Efficiency: this ratio helps to assess the banks long term ability to sustain. It

uses the ratio of return on assets (ROA) to know the profitability of the bank’s assets in

generating revenues. Moreover, the ratio return on equity (ROE) is used to evaluate the

profitability of the net income with relation to the equity.

 Liquidity Risk: this ratio is used to determine whether the bank has chances of facing

liquidity risk in the future. This measures the amount of liquid assets the bank has in

relation to the total assets.

 Sensitivity to Market risk: this ratio helps to measure the banks reactivity to market risks.

Sensitivity reviews the effect of interest rates, exchange rates, inflation, and prices with

relation to earnings.

Data was collected from the annual reports of Goldman Sachs Group Inc. for the period of

2012 to 2019 (8 years). Consolidated Statement of Financial Position and Statement of

Profit/Loss is used to calculate the ratios. The sources of the annual reports are from the

official website of Goldman Sachs. The data from Federal Reserve Bank of US annual

reports was not used for benchmarking in this research because the current data collected was
more than 5 years. However, for the years 2010 and 2011 the data could not be gathered as

the consolidated statements were not provided appropriately.

Results and Discussion

1. Camel Adequacy

($, millions) 2012 2013 2014 2015 2016 2017 2018 2019
861,39
Total Assets 938,555 911,507 856,240 5 860,165 916,776 931,796 992,968
Total 774,66
Liabilities 862,839 833,040 773,443 7 773,272 834,533 841,611 902,703
Total Equity 75,716 78,467 82,797 86,728 86,893 82,243 90,185 90,265
Long term 175,42
debts 167,305 160,965 167,571 2 189,086 217,687 224,149 207076
Table 1: (Source: Annual reports Goldman Sachs Group, Inc., 2012-2019)

Capital
Adequacy
Ratios 2012 2013 2014 2015 2016 2017 2018 2019
Total
Equity/Tota 10.07
l Assets 8.07% 8.61% 9.67% % 10.10% 8.97% 9.68% 9.09%
Total
Equity/Long 45.26 49.41 49.44 37.78 43.59
Term Debts % 48.75% % % 45.95% % 40.23% %
Total
Equity/Tota 10.70 11.20 10.00
l Liabilities 8.78% 9.42% % % 11.24% 9.85% 10.72% %
Table 2: Capital Adequacy Ratios

Total Equity/Total Assets

12.00%
10.00%
8.00%
Total
6.00% Equity/Total
4.00% Assets
2.00%
0.00%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 1.1, Total Equity/Total Assets
 Total Equity/Long Term Debts
60.00%
50.00%
40.00%
30.00% Total Equity/Long
20.00% Term Debts
10.00%
0.00%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 1.2, Total Equity/Long Term Debts

Total Equity/Total Liabilities

12.00%
10.00%
8.00%
6.00% Total Equity/
4.00% Total Liabilities
2.00%
0.00%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 1.3, Total Equity/Total Liabilities

In Table 2, it depicts the capital adequacy ratios of Goldman Sachs over the period of 2012 to

2019. In fig 1.1, it portrays that the percentage of this ratio has remained relatively constant

over the years. The percentage increases from 2012 to 2016; however, from 2016 onwards it

starts to decrease. In fig 1.2, it indicates the percentage amplified from 2012 to 2015 which is

45.26% to 49.44%. However, it decreased drastically from 2015 onwards but raised again. In

fig 1.3, it shows that the percentage this ratio only follows gradual change with a slightly high

level during 2015-2016. This change explains that over the years this bank was not faced with

asset or equity related risks in the market. Thus, they have the required amount of capital.

2. Asset Quality

($, millions) 2012 2013 2014 2015 2016 2017 2018 2019
Total Loans 6500 14900 28,938 45,407 63,902 80,810 26,020 26,565
938,55 856,24 860,16 931,79
Total assets 5 911,507 0 861,395 5 916,776 6 992,968
Loan 0 0 0 0 182 657 674 1065
 Provision
Net Interest
Income 3,880 3,392 4,047 3,064 2,587 2,932 3,767 4,362
Loan Loss
Provision 0 0 0 0 182 657 674 1,065
Table 3: (Source: Annual reports Goldman Sachs Group, Inc., 2012-2019)

Asset Quality Ratios 2012 2013 2014 2015 2016 2017 2018 2019
Loan Provision/Net 0.00
Interest Income 0.00% 0.00% % 0.00% 7.04% 22.41% 17.89% 24.42%
Total Loans /Total 3.38
Assets 0.69% 1.63% % 5.27% 7.43% 8.81% 2.79% 2.68%
Loan Loss 0.00
Provision/Total Loans 0.00% 0.00% % 0.00% 0.28% 0.81% 2.59% 4.01%
Table 4; Asset Quality Ratios

Loan Provision/Net Interest

Income
30.00%
25.00% Loan Provi-
20.00% sion/Net In-
15.00% terest Income
10.00%
5.00%
0.00%
2012 2013 2014 2015 2016 2017 2018 2019

Figure 2.1, Loan Provision/Net Interest Income

Total Loans /Total Assets

10.00%
9.00%
8.00%
7.00% Total
6.00% Loans /Total
5.00% Assets
4.00%
3.00%
2.00%
1.00%
0.00%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 2.2, Total Loans/Total Assets
 Loan Loss Provision/Total Loans
4.50%
4.00%
3.50%
3.00%
2.50% Loan Loss
Provision/
2.00% Total Loans
1.50%
1.00%
0.50%
0.00%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 2.3, Loan Loss Provision/Total Loans

In Table 4, it depicts the asset quality ratios of Goldman Sachs over the period of 2012 to

2019. In fig 2.1, it represents that this ratio had no change from 2012 to 2015. But from 2016

to 2017 it rose highly from 7.04% to 22.41% with a slight decreasecin between and raise

again. In fig 2.2, this ratio started to escalate till 2017 but sank dramatically till 2019. In fig

2.3, there was no change till 2015 but started to increase from 2106 onwards. These changes

reveals that the assets provided are of high quality in the bank. Over the years, it did not

require to shell out extra funds for losses from impaired loans.

3. Management Quality

($, millions) 2012 2013 2014 2015 2016 2017 2018 2019
Operating
Expense 22,956 22,469 22,171 25,042 20,304 20,941 23,461 24,898
860,16
Total Assets 938,555 911,507 856,240 861,395 5 916,776 931,796 992,968
Staff
Expense 12,944 12,613 12,691 12,678 11,647 11,853 12,328 12,353
Table 5: (Source: Annual reports Goldman Sachs Group, Inc., 2012-2019)

Management Quality 2012 2013 2014 2015 2016 2017 2018 2019
Operating
Expense/Total Assets 2.45% 2.47% 2.59% 2.91% 2.36% 2.28% 2.52% 2.51%
Staff expense/Total
Assets 1.38% 1.38% 1.48% 1.47% 1.35% 1.29% 1.32% 1.24%
Table 6: Management Quality Ratios
 Operating Expense/Total Assets
3.50%
3.00%
2.50%
Operating
2.00% Expense/
Total Assets
1.50%
1.00%
0.50%
0.00%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 3.1, Operating Expense/ Total Assets

Staff expense/Total Assets

1.55%
1.50%
1.45%
1.40% Staff ex-
1.35% pense/Total
1.30% Assets
1.25%
1.20%
1.15%
1.10%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 3.2, Staff Expense/Total Assets

In Table 6, it depicts the management quality ratios of Goldman Sachs over the period of

2012 to 2019. In fig 3.1, it shows that the percentage of operating expense with relating to the

total assets remains steady with slight changes and only faces a high during 2015. In fig 3.2,

it depicts that in the year 2014 it increased highly but decreased later on. This shows that the

management quality is very high and the expenses incurred are highly justified to the total

assets.

4. Earnings Efficiency

($, millions) 2012 2013 2014 2015 2016 2017 2018 2019
Net Income 7,292 7,726 8,077 5,568 7,087 3,685 9,860 7,897
Equity
Capital 6,200 7,200 9,200 11,200 11,203 11,853 11,203 11,203
Total Assets 938,55 911,507 856,24 861,395 860,165 916,77 931,796 992,968
 5 0 6
Operating
Cost 22,956 22,469 22,171 25,042 20,304 20,941 23,461 24,898
Interest
Income 11,381 10,060 9,604 8,452 9,691 13,113 19,679 21,738
Table 7: (Source: Annual reports Goldman Sachs Group, Inc., 2012-2019)

Earning Efficiency 2012 2013 2014 2015 2016 2017 2018 2019
107.3
ROE 117.6% % 87.8% 49.7% 63.3% 31.1% 88.0% 70.5%
ROA 0.78% 0.85% 0.94% 0.65% 0.82% 0.40% 1.06% 0.80%
Efficiency of
operating activity 2.017 2.233 2.309 2.963 2.095 1.597 1.192 1.145
Table 8: Earnings Efficiency Ratios

ROE
140.0%
120.0%
100.0%
80.0% ROE
60.0%
40.0%
20.0%
0.0%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 4.1, Return on Equity (ROE)

ROA
1.20%

1.00%

0.80%
ROA
0.60%

0.40%

0.20%

0.00%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 4.2, Return on Assets (ROA)
 Efficiency of operating activity
3.500
3.000
2.500
2.000 Efficiency of operating
activity
1.500
1.000
0.500
0.000
12 013 014 015 016 017 018 019
20 2 2 2 2 2 2 2

Figure 4.3, Efficiency of Operating Activity

In Table 8, it illustrates the earnings efficiency ratios of Goldman Sachs over the period of

2012 to 2019. In fig 4.1, the return on equity ratio was seen to drop highly in 2017 with

31.1%. Similarly, in fig 4.2 the return on assets ratio showed a fall in 2017 by 0.40%. Based

on the fig 4.3 the efficiency of the operating activity increased highly during the years 2015.

This exposes that the earnings had fluctuations which raises a risk for the bank.

5. Liquidity Risk

($, millions) 2012 2013 2014 2015 2016 2017 2018 2019
Liquid 235,15
Assets 181,461 189,863 190,752 208,300 4 285,270 313,138 429,913
Total
Deposits 70,124 70,807 83,008 97,519
24,098 138,604 158,257 190,019
Loans 13,765 18,745 5,570 3,614
7,524 14,793 11,808 14,985
860,16
Total Assets 938,555 911,507 856,240 861,395 5 916,776 931,796 992,968
Table 9: (Source: Annual reports Goldman Sachs Group, Inc., 2012-2019)

Liquidity Risk 2012 2013 2014 2015 2016 2017 2018 2019
Liquid
Assets/Total
Deposits 2.59 2.68 2.30 2.14 9.76 2.06 1.98 2.26
Loans/Total 19.63 31.22
Deposits % 26.47% 6.71% 3.71% % 10.67% 7.46% 7.89%
Liquid
Assets/Total 19.33 22.28 27.34 33.61
Assets % 20.83% % 24.18% % 31.12% % 43.30%
Table 10: Liquidity Risk Ratios
 Liquid Assets/Total Deposits
12.00

10.00

8.00
Liquid As-
6.00 sets/Total
Deposits
4.00

2.00

0.00
2012 2013 2014 2015 2016 2017 2018 2019
Figure 5.1, Liquid Assets/Total Deposits

Loans/Total Deposits
35.00%

30.00%

25.00%

20.00%

15.00% Loans/Total
Deposits
10.00%

5.00%

0.00%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 5.2, Loans/ Total Deposits

Liquid Assets/Total Assets

50.00%
45.00%
40.00%
35.00%
30.00% Liquid As-
25.00% sets/Total
Assets
20.00%
15.00%
10.00%
5.00%
0.00%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 5.3, Liquid Assets/ Total Assets

In Table 10, it demonstrates the liquidity ratios of Goldman Sachs over the period of 2012 to

2019. In fig 5.1, it shows that the percentage of this ratio raised highly during 2016 with 9.76.
in fig 5.2, it tells that the percentage was comparatively steady than fig 5.1 percentage but

had slightly increase of 31.12%. In fig 5.3, it can be seen that the percentage of this ratio

grew progressively.

6. Sensitivity to Market Risk

2012 2013 2014 2015

1321907919
Total Sector Assets 8 13525202927 14321445021 14731777244

2016 2017 2018 2019

Total Sector Assets 15473137616 16036015164 16591465368 17340664776
Table 11: (Source: Federal Reserve of St. Louis, US, Total Sector Assets, 2012-2019)

2012 2013 2014 2015 2016 2017 2018 2019

Total
assets/Total
Sector Assets 0.007% 0.007% 0.006% 0.006% 0.006% 0.006% 0.006% 0.006%
Table 12: Sensitivity to Market Risk Ratio

Total assets/Total Sector Assets

0.008%
0.007%
0.006%
0.005%
Total
0.004% assets/Total
Sector Assets
0.003%
0.002%
0.001%
0.000%
2012 2013 2014 2015 2016 2017 2018 2019
Figure 6.1, Total Assets/Total Sector Assets

In Table 12, it illustrates the sensitivity to market risk ratio of Goldman Sachs over the period

of 2012 to 2019. In fig 6.1, this ratio reveals that the percentage had been high only during

the year 2012 and remained steady over years. This shows that the bank is not highly

sensitive to the market risks.

Conclusion
CAMELS ratio analysis technique can be regarded as an essential instrument to analyze the

performance and soundness of the financial institutions such as banks. This ratio helps to

identify the possible strengths and weaknesses from the financial as well as non-financial

aspects of the bank. The ratio analysis concluded in this study reviews that Goldman Sachs,

the multinational investment bank has high efficiency and significant potential to remain

steady by providing high quality service. From the perspective of liquidity risk ratios it can be

estimated that in the long run the bank will not be facing insolvency issues. Thus, they can

attract more investments. The review also indicates that the findings from the study can be

used for various decision making processers for both external and internal users. Although

the scope of this study is limited to only one bank but still the information gathered and

analyzed is quite beneficial.

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