The Intangible Nature of Finance
It sounds like an oxymoron — intangible and finance? But Finance is defined by a clear set of numbers, isn’t it? But does this always work? For example, in high art, the value is perceived as abstract and intangible. And its value could be completely different from one year to the next. So why does this make sense? While finance is defined by hard numbers, what those numbers mean, how they are determined, and their implications, can be exceptionally confusing — even to professionals.
While the foundations of the economy and finance as a whole may be defined by a clear set of numerical data, its impact goes far beyond that. And it’s difficult for investment bankers or hedge fund managers in suits, sitting in their high-rise buildings on Wall Street, to truly grasp.
For example, In Goldman Sachs’ (GS) 2022 Annual Report, they reported the following key figures conveying their results of the past year:
Net revenue: 47.4 Billion USD
Net earnings: 11.3 Billion USD
These are big numbers, and Goldman Sachs employees will definitely be working to make them even bigger through their various investment strategies. But how did GS get to these numbers, and what do they even mean?
In essence, net revenue is the company’s revenue minus its expenses. Net earnings, or net income, are the revenues minus interest, taxes, and expenses.
However, analyzing these figures from Goldman Sachs’ 2022 annual report only reveals a snapshot of the globally leading financial giant. And its impact is on a much wider scale than the financial firm itself. For example, behind the bold term “net revenue” lie investments in struggling startups, loans to ambitious entrepreneurs that could either make or break a company, and even trade deals that could affect hundreds of millions of people worldwide. Now, it’s starting to sound less tangible. How can you place a numerical value on an undefined number of lives affected?
Let’s take another example, JP Morgan Chase, who reported the following in their 2022 Annual Report:
Net revenue: over 128 Billion USD
Net income (earnings): over 37 Billion USD
Once again, while these figures provide an overview of the astonishing financial scope of the company, we cannot numerically assess the impact on countless lives and enterprises affected by the company’s financial activities.
The complexity of these financial metrics is a testament to the intricate nature of finance. While numbers on a page may seem tangible, when you think of the dramatic impact it could have on a small-cap company, its effect isn’t. And those numbers come from countless variables, with some that can be measured — investment expenses and operational costs — and other variables that Goldman Sachs or any other bank has no control over, such as market sentiment and geopolitical events.
Behind the facade of trading floors and balance sheets, a Goldman Sachs analyst must come to terms with the reality: the abstract nature of their domain. As they work their long days and crunch numbers, the impact of their investments on communities and society as a whole remains a complex puzzle. The true extent of their impact goes far beyond the numbers submitted to a spreadsheet, and ultimately on the Annual Report.
