Berkshire Hathaway

Topics: Berkshire Hathaway, Capital asset pricing model, Balance sheet Pages: 7 (2561 words) Published: September 12, 2012
Berkshire Hathaway is an American multinational conglomerate holding company that oversees and manages various subsidiary companies (Berkshire Hathaway, 2011). The current members of the Board of Directors are Warren Buffett, Charlie Munger, Walter Scott Jr., Thomas Murphy, Howard Graham Buffett, Ronald Olson, Donald Keough, Charlotte Guyman, David Gottesman, Bill Gates, Stephen Burke, and Susan Decker (Berkshire Hathaway Inc., 2011). The primary job of the Board of Directors is to see that the right people are running the business and to be sure that the next generation of leaders is identified and ready to take over tomorrow (Berkshire Hathaway, 2011). Another important duty of Board of Directors is to ensure that there is maximization of the shareholder value and their investments hold value long-term. At Berkshire Hathaway, managers of the business units are responsible for day-to-day operations for the various Berkshire businesses. Chief Executive Officer (CEO) Warren E. Buffett along with vice president Charles Munger handles the investment decisions and all other capital allocation decisions for Berkshire and its subsidiaries. One of Berkshire Hathaway’s strengths is notable in the fact that they never split their Class A shares, which helps contribute to their high per-share price (Berkshire Hathaway, 2011). The refusal to split the stock is due to their desire to attract long-term investors, as opposed to short term. Upon reviewing their proxy statement, the Board of Directors displays no ethical issues that warrant concern. Their objectives and goals are straightforward, and they disclose information about investments have not done what they predicted. The Chief Executive Officer (CEO) and senior management of the organization’s major businesses disclose potential risks to the board twice a year and once a year respectively. In addition, an audit committee reviews the policies with respect to risk assessment and management.

Financial Ratios and Reports

From 2010 to 2011, Berkshire shows an increase in revenue and gross profit with a decrease in total net income. There is a decrease in cash, as well as a decrease in net receivables. Berkshire shows a steady growth in assets and liabilities over the year. The current ratio of Berkshire is calculated by dividing the current assets of $232,901 million by the current liabilities $104,934 million, which equals 2.21 times. This ratio means that Berkshire is liquid. To evaluate liquidity even further, we can calculate the quick ratio by subtracting inventory from the current assets and then dividing by current liabilities. Hence, $232,901 million - $15,741 million divided by $104,934 million is 2.06 times which means that Berkshire is liquid. The earnings before interest expense taxes (EBIT) for 2011 are $15,314 million and for 2010 and 2009 are $19,051 million and $11,552 million respectively (Berkshire Hathaway, 2012). One of Berkshire Hathaway’s competitors is Leucadia National Corporation. Leucadia National Corporation is a holding company that has subsidiaries that engage in manufacturing, healthcare services, banking, real estate and telecommunications. They have a market cap of $8 billion as of June 2011 (Leucadia, 2011). From 2010 to 2011, Leucadia has had a significant decrease in liquidity. There is a significant increase in inventory and a decrease in net income after taxes. There is an increase in accounts receivables, which shows a lack of cash flow for the year 2011. There is a significant increase in other noncurrent liabilities. The current ratio is calculated by dividing the current assets of $1,253 billion by the current liabilities of $877 million, which equals 1.43 times. The quick ratio for Leucadia is calculated using the same formula used for Berkshire which is calculated by subtracting the inventory of $354.6 million from the current assets of $1,253.5 billion divided by $877.1 million and amounts to 1.02 times....

References: Berkshire Hathaway. (2011) Proxy Statement. Retrieved from
Berkshire Hathaway. (2011) 2011 Annual Report. Retrieved from
Berkshire Hathaway Inc. (2012) Annual income statements and balance sheets. Retrieved from
Berkshire Hathaway Inc. (2012) 10-Q Form.
Codjia, M. (2012) Long-term capital expenditure budgeting in a quarterly process. Retrieved
Investopedia. (2012) Capital asset pricing model.
Leucadia National Corporation. (2012) Annual report 2011.
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2010). Corporate Finance. New York, NY:
Stock Pup. (2012) Berkshire Hathaway Inc DuPont Identity.
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