Consumers are becoming more and more socially conscious, and they want the goods and services they use to measure up. In truth, it doesn't take much. A simple action that costs a company very little or nothing at all can make a real difference in the mind of the consumer and the company's bottom line.
There are some companies, however, that the socially responsible investor would never even think to consider as a contender in this regard. Goldman Sachs (NYSE:GS) is very likely one of them. But the Great Vampire Squid, as it was famously coined in a 2011 Rolling Stone article, is up to more good these days than anyone might think.
Without further ado, then, let's have a look at the Wall Street titan and analyze the company in terms of its performance as a socially conscious enterprise, a business, and an investment.
10,000 Small Businesses
An initiative called 10,000 Small Businesses is Goldman's $500 million effort to, as the company puts it on its website, "help small businesses create jobs and economic opportunity by providing them with greater access to business education, financial capital, and business support services." The program is currently at work in cities across the country, including New York, Los Angeles, New Orleans, and Salt Lake City, and will continue to expand.
Begun in 2009, the program has three primary components:
- Practical business and management education. Goldman is contributing $200 million to local community colleges and business schools to fund scholarships and faculty training. Students get a practical education focusing on skills they can apply immediately, including accounting, marketing, and human-resources management.
- Access to capital. Through a combination of lending and philanthropic support, Goldman is contributing $300 million to community development financial Institutions, which will increase the amount of growth capital available to small businesses in underserved communities.
- Business support services. It's understood that entrepreneurs often face challenges finding networking opportunities and expert advice. The 10,000 Small Businesses program provides these vital services through partnerships with national and local business organizations and professional services firms, including those of Goldman itself.
According to the Small Business Association, over the past 15 years, small businesses have generated 64% of net new jobs. In an economy like the one we're in now, that's a significant number to consider, and all the more reason to applaud Goldman's efforts in this arena.
A great company at a fair price
Corporate social responsibility cred established, let's look now at a few basic metrics and see how Goldman measures up against its peers as a business and as an investment.
- In its most recent quarter, Goldman grew its revenue by a staggering 133% year over year.
- JPMorgan Chase's (NYSE:JPM) YOY revenue growth, however, wasn't quite so staggering, at 5.2%.
- But with YOY revenue contraction of 46.1%, Morgan Stanley (NYSE:MS) would kill for JPMorgan's 5.2%.
- Bank of America (NYSE:BAC) is in a similar boat as Morgan Stanley, with YOY revenue contraction of 25.5%.
Return on equity:
- Goldman's trailing-12-month ROE was 7.64%, a solid performance on this classic bank-performance metric.
- JPMorgan came in even better, at 10.12% ROE TTM.
- Unfortunately for investors, Morgan Stanley is tanking here, with an ROE TTM of -0.35%.
- B of A is at least out of the red on this metric, with an ROE TTM of 2.32%.
Cash-to-debt ratio: It's always good to see more cash than debt on the balance sheet, ideally at least 1.5 times as much.
- With $845 billion in cash and $477 billion in debt, Goldman's C/D is a very healthy 1.77.
- With $890 billion in cash and $710 billion in debt, JPMorgan's C/D is a respectable, if not ideal, 1.25.
- $592 billion in cash and $392 billion in debt gives Morgan Stanley the very respectable C/D of 1.51.
- Finally, $625 billion in cash and $647 billion in debt gives B of A a C/D in need of some help, at 0.97.
No matter what kind of business you're in, even banking, it's always better to have more cash than debt on the balance sheet, because when things go wrong -- and they inevitably do -- sometimes it's the size of the war chest that determines whether a company will see events through to the other side. Kudos to Goldman, then, on this important metric.
Making money while making a difference
Goldman currently has a P/E of 11, versus JPMorgan's 8 and B of A's 26. (With negative earnings per share right now, Morgan Stanley technically has no P/E to speak of.)
A P/E of 11 is eminently reasonable, and so is 8. However, 26 is clearly on the high side. Goldman has explosive revenue growth, and it offers investors solid ROE, a superb cash-to-debt position, and a very nice P/E. It's clear to me which bank is the one to own out of the four we've covered.
And if you have a corporate social responsibility bent, as I do, the choice is even more clear. Goldman doesn't have to be doing what it's doing with its 10,000 Small Businesses program, and even if it's just doing it for good PR, who cares? What matters is, Goldman is doing it. And while the Wall Street perennial may not be perfect when it comes to social responsibility, what company is? To paraphrase Voltaire, it's important to never let the quest for the perfect drive out the good.
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