Analyzing the Effectiveness of Profitability Ratios for Evaluating Financial Performance and Profitability Management Approaches Amidst a Systemic Crisis: A Comparative Examination of Goldman Sachs and Bear Stearns in the Early Stages of the Systemic Crisis.

Abstract

The global financial crisis, an iconic example of systemic risk, stands as one of the most pivotal events in the annals of global finance, with profound implications for individuals, institutions, and economies across the globe. It was precipitated by the proliferation of intricate financial instruments, lax regulations, and lapses in risk management practices. This research proposal seeks to delve into the pivotal role played by profitability ratios as analytical tools for assessing management strategies, especially within the challenging context of a systemic crisis. Focusing on the tumultuous period spanning from 1998 to early 2007, this timeframe allows us to elucidate the fluctuations in profitability ratios concerning strategic decisions made both before and during the global financial crisis. The research examines the intricate interplay between management choices and financial performance, with a specific focus on two prominent financial institutions, Goldman Sachs and Bear Stearns. Through this comparative study, we aim to uncover the efficacy of their strategies during the initial stages of the systemic crisis and explore how strategic decisions related to profitability contributed to either resilience or vulnerability in the face of such a far-reaching crisis.