Berkshire Hathaway

Berkshire Hatha focal point Overview Before Warren Edward sideboardt, Berkshire Hathaway was a textile fede proportionalityn. tabulator acquired stocks and before long he was the largest sh atomic number 18holder (1963). He became part of the board and appointed the chairwoman so he would have someone he trusted playactning the company. With the funds from Berkshire Hathaway coming in, Buffett used it to invest in National Indemnity. The company was bought just now he left it the way it was left previous Ringwalt in charge, kept current employees, shareholder benefits and so on.Insurance companies are a perfect way to bond a lot of capital up front because you can then use this money to purchase some other companies or stocks, like what Buffet did. Buffet was involved with several companies and bought GEICO(Jayanti), General Re and other manufacturing and service companies. Today Berkshire Hathaway is one of the largest holding companies in America. It owns variant companies from retail to jewelry to voltaic companies. These companies run separate from Berkshire Hathaway.It does not produce the goods or provide the services but serves as an umbrella that owns shares or the whole of the companies that are underneath it. many of these companies were purchased by the companys many insurance options. Big names include GEICO, Borsheim, PacifiCorp and Vanity Fair. (Jayanti). Porter Five-Force Model Porters Five-Forces Model of diligence contender pertains to the threat of new entrants, the bargaining force of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of tilt among competitors in an persistence.These five forces can countersink the top of a market. In the case of Berkshire Hathaway there is a low threat of new entrants for the multi-businesses in one industry. It is significantly sound to own dissimilar different companies, have them operate to full potential and still remain a leader on the industry board. Although competitors cannot directly compete with Berkshire Hathaway, they still fill a nice chunk from its potential market.As a matter a fact, there are tho two direct competitors in the industry that are above Berkshire Hathaway, it is Motors Liquidation Co and Ford Motor Co. As more self-made businesses(which is what Warren Buffett likes to acquire) open challenger is created through price, increase in advertisement, and suppliers. This competition benefits buyers by giving them more options or bargaining power in where they choose to shop. For Instance like what happened to Berkshires textile business, after a tour competition increased prices dropped and textile had simply became another commodity.So as you can see from the example, this affects Berkshire directly because of their higher quality products but exchange premium prices makes it hard to compete with low cost leaders. This takes valuable time and effort away from internal operations becau se in cases like these the opposition has to be forever and a day analyzed. Consequently, if neither competitor decreases their prices to a consumers expectation this may result in the consumers going to the suppliers directly once again giving the bargaining power to the buyer.As far as bargaining power to the suppliers, they wouldnt really have any edge in increasing their prices or power unless it is a incomparable resource and demand is high. Substitutes on the other hand, limit the potential returns of an industry by putting a ceiling on the prices industries can productively charge. Finally, the only reason why rivalry is intense is because when you have large companies like Motors Liquidation, Ford and Berkshire rivalry heats up and everyone fights for the number one spot, and usually does any(prenominal) it takes to liquidate it.The rivalry forces a constant close monitoring of competitors, which entails unnecessary excessive expenditure. For example, they would have to ask and analyze questions such as, where are they opening their stores? argon they victimisation the same criteria in choosing locations? How much are they charging for similar products? And can we compete with their price? In Summary, Berkshire needs to be aware that intensive rivalry leave behind increase costs, such as constantly competing with prices, having to offer bargains which will lead to high exit barriers.In the end if the company is doing everything right and it is stress on their company and how to improve it then it is a win-win situation because the biggest edge any company has is that NO TWO FIRM ARE EXACTLY THE SAME. pulverization digest Berkshire Hathaway is a holding company owning subsidiaries engaged in a number of business activities. Co. s key businesses are its insurance businesses, which are conducted on a primary and reinsurance basis. Co. s insurance businesses provide insurance and reinsurance of property and casualty risks world-wide and also reinsu re life, accident and health risks world-wide. At Dec 31 2008, Co. s insurance and reinsurance activities were conducted through about 60 domestic and foreign-based insurance entities. Co. also owns and operates other businesses, including utilities and energy businesses, manufacturing, service and retailing, as rise up as finance and fiscal products businesses. (mergent online, business synopsis) Strengths Weaknesses Top management reputation & leadership Over dependence on Warren Buffetts leadership Strong capital position and transcendent fiscal ratings Slower growth in certain investments (Coke, P, Shaw industries) Diversified portfolio ranging from property and casualty insurance andDiversification McLane accounts for al more or less 1/3 of Berkshires reinsurance, utilities, energy, finance, manufacturing, services and revenues and 1/3 of McLanes business is tied to one single company retailing (Wal-Mart) Strong and consistent top and bottom line growth Companys stoc k untracked to most people Integrated Insurance Operations Volatile Investment Portfolio Distinct Business Strategy Declining Investment Returns Funding Resources Decline in profitability transformation of Businesses Opportunities Threats Acquisitions given current market conditions the company has Financial & economic markets turmoil identified areas of investment (ie Goldman Sachs) Potential capital requirement changes both in the US and Europe Alternative energy investments Worldwide weak consumer environment Favorable Phase for Life and Annuity Market Unstable Political Conditions in accredited Regions Growing MidAmerican Business Identity Governmental Investigations Opportunity for Acquisitions Competition in the Insurance Industry Impact of Economic Slowdown Industry plaza and misadventure Insurance ? Through its 51 subsidiary companies, it engages primarily in insuring and reinsuring property and casualty risks business. Berkshire H athaway, Inc is a publicly owned investment manager. It invests in the unite States and Canadas public equity markets. Competition Berkshire Hathaways top competitors, based on its insurance businesses are ? The Blackstone Group L. P. (BX) a company with subsidiaries as well that was founded in 1985 and is headquartered in New York. ? HM Capital Partners LLC (Pvt1) is a privately held company with diversified investments primed(p) in Dallas, Texas. ? KKR & Co. L. P. (Pvt2), also a privately held company located in New York, New York. DIRECT COMPETITOR COMPARISON ? ? BRK-A BX Pvt1 Pvt2 Industry Market Cap 158. 43B 3. 90B N/A N/A 885. 31M Employees 246,000 1,340 N/A N/A 718 Qtrly Rev Growth (yoy) -1. 60% 14. 80% N/A N/A 2. 0% Revenue (ttm) 104. 91B -320. 00M N/A N/A 808. 84M Gross Margin (ttm) 11. 6% N/A N/A N/A 18. 38% EBITDA (ttm) 7. 06B -4. 3B N/A N/A 40. 44M Oper Margins (ttm) 3. 86% 1,375. 92% N /A N/A 16. 0% Net Income (ttm) 2. 94B -1. 15B N/A N/A N/A EPS (ttm) 1893. 645 -4. 48 N/A N/A 0. 95 P/E (ttm) 53. 94 N/A N/A N/A 13. 6 PEG (5 yr expected) 4. 14 2. 82 N/A N/A 0. 97 P/S (ttm) 1. 9 N/A N/A N/A 0. 94 Company Financials Balance Sheet (in the thousands) from 2006 2008 organic Assets 248,427,000273,160,000267,399,000 intact Liabilities 137,756,000149,759,000153,820,000 Total Stockholders Equity 108,419,000120,733,000109,267,000 The retained earnings were at a loss 58,912,00072,153,00078,172,000Assets and Liabilities has separate sections for Insurance & other businesses, Utilities & energy, and finance & financial products Income Statement (in the thousands) from 2006 2008 Income Statement has separate sections for Insurance & other businesses, Utilities & energy, and Finance & financial products. Total Revenues 98,539,000118,245,000107,786,000 Total Costs and Expenses 81,761,00098,084,000100,212,000 Earnings before Income Taxes 16,778,00020,161,0007,574,000 Net earnings (loss) 11,015,00013,213,0004,994,000 Total number of Stockholders 19,10018,50018,100 Common Stockholders are split into 2 groups word form A and class B Class A Stockholders 5,1004,6004,200 Class B Stockholders 14,00013,90013,900 Earnings per Share (at a loss) 7,1448,5483,224Statement of bills preys (in the thousands) from 2006 2008 Cash from finances has separate sections for Insurance & other businesses, Utilities & energy, and Finance & financial products. Net Cash from Operations 10,195,00012,550,00011,252,000 Net Cash from Investments (14,077,000)(13,428,000)(32,066,000) Net Cash from Finances 2,607,0001,366,0002,286,000 Cash and cash equivalents at the beginning of the social class 45,018,00043,743,00044,329,000 Cash and cash equivalents at the end of the year 43,743,00044,329,00025,539,000 Financial Ratios from 2006 2008 Profitability Ratios200620072008 Return on Assets 4. 93%5. 07%1. 84% Return on Equity11. 02%11. 53%4. 33% Loss Ratio61. 28%71. 72%70. 91%Debt Management Debt to Equity Ratio0. 290. 270. 34 Asset Management Asset overthrow0. 440. 450. 4 Property, Plant, and Equipment Turnover 4. 833. 42. 64 Cash & Cash Equivalents Turnover 2. 232. 693. 08 Industry/Market comparison data from 2008 CompanyIndustry MedianMarket Medium Net profit margin2. 37%5. 53% cost/Sales ratio1. 483. 416. 55 Price/Earnings ratio62. 50(11. 98)23. 81 Price/Book ratio1. 521. 466. 30 Price/Cash Flow ratio12. 4724. 9440. 65 12-Month EPS growth(62. 3%)(50. 0%) 36-Month EPS growth(16. 5%)(14. 7%) Bibiliography Source Berkshire Hathaway pda file from Harvard Business School Mergent Online Hoovers OnlineBerkshire HathawayBerkshire Hathaway Overview Before Warren Edward Buffett, Berkshire Hathaway was a textile company. Buffet acquired stocks and before long he was the largest shareholder (1963). He became part of the board and appointed the chairman so he would have someone he trusted running the company. Wit h the funds from Berkshire Hathaway coming in, Buffett used it to invest in National Indemnity. The company was bought but he left it the way it was left previous Ringwalt in charge, kept current employees, shareholder benefits and so on.Insurance companies are a perfect way to get a lot of capital up front because you can then use this money to purchase other companies or stocks, like what Buffet did. Buffet was involved with several companies and bought GEICO(Jayanti), General Re and other manufacturing and service companies. Today Berkshire Hathaway is one of the largest holding companies in America. It owns different companies from retail to jewelry to electric companies. These companies run separate from Berkshire Hathaway.It does not produce the goods or provide the services but serves as an umbrella that owns shares or the whole of the companies that are underneath it. Many of these companies were purchased by the companys many insurance options. Big names include GEICO, Bors heim, PacifiCorp and Vanity Fair. (Jayanti). Porter Five-Force Model Porters Five-Forces Model of Industry Competition pertains to the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of rivalry among competitors in an industry.These five forces can determine the stature of a market. In the case of Berkshire Hathaway there is a low threat of new entrants for the multi-businesses in one industry. It is significantly hard to own various different companies, have them operate to full potential and still remain a leader on the industry board. Although competitors cannot directly compete with Berkshire Hathaway, they still take a nice chunk from its potential market.As a matter a fact, there are only two direct competitors in the industry that are above Berkshire Hathaway, it is Motors Liquidation Co and Ford Motor Co. As more self-made businesses(which is what Warren Buffett likes to acquire) open competition is created through price, increase in advertisement, and suppliers. This competition benefits buyers by giving them more options or bargaining power in where they choose to shop. For Instance like what happened to Berkshires textile business, after a while competition increased prices dropped and textile had simply became another commodity.So as you can see from the example, this affects Berkshire directly because of their higher quality products but premium prices makes it hard to compete with low cost leaders. This takes valuable time and effort away from internal operations because in cases like these the opposition has to be constantly analyzed. Consequently, if neither competitor decreases their prices to a consumers expectation this may result in the consumers going to the suppliers directly once again giving the bargaining power to the buyer.As far as bargaining power to the suppliers, they wouldnt really have any edge in increasing their prices or power unless it is a scarce resource and demand is high. Substitutes on the other hand, limit the potential returns of an industry by putting a ceiling on the prices industries can profitably charge. Finally, the only reason why rivalry is intense is because when you have large companies like Motors Liquidation, Ford and Berkshire rivalry heats up and everyone fights for the number one spot, and usually does whatever it takes to get it.The rivalry forces a constant close monitoring of competitors, which entails unnecessary excessive expenditure. For example, they would have to ask and analyze questions such as, where are they opening their stores? Are they using the same criteria in choosing locations? How much are they charging for similar products? And can we compete with their price? In Summary, Berkshire needs to be aware that intensive rivalry will increase costs, such as constantly competing with prices, having to offer bargains which will lead to high exit barriers.In the end if the company is doing everything right and it is focusing on their company and how to improve it then it is a win-win situation because the biggest edge any company has is that NO TWO FIRM ARE EXACTLY THE SAME. SWOT Analysis Berkshire Hathaway is a holding company owning subsidiaries engaged in a number of business activities. Co. s key businesses are its insurance businesses, which are conducted on a primary and reinsurance basis. Co. s insurance businesses provide insurance and reinsurance of property and casualty risks world-wide and also reinsure life, accident and health risks world-wide. At Dec 31 2008, Co. s insurance and reinsurance activities were conducted through about 60 domestic and foreign-based insurance entities. Co. also owns and operates other businesses, including utilities and energy businesses, manufacturing, service and retailing, as well as finance and financial products businesses. (mergent online, business synopsis) Strengths Weaknesses Top managemen t reputation & leadership Over dependence on Warren Buffetts leadership Strong capital position and superior financial ratings Slower growth in certain investments (Coke, P, Shaw industries) Diversified portfolio ranging from property and casualty insurance andDiversification McLane accounts for almost 1/3 of Berkshires reinsurance, utilities, energy, finance, manufacturing, services and revenues and 1/3 of McLanes business is tied to one single company retailing (Wal-Mart) Strong and consistent top and bottom line growth Companys stock inaccessible to most people Integrated Insurance Operations Volatile Investment Portfolio Distinct Business Strategy Declining Investment Returns Funding Resources Decline in Profitability Diversity of Businesses Opportunities Threats Acquisitions given current market conditions the company has Financial & economic markets turmoil identified areas of investment (ie Goldman Sachs) Potential capital requirement chang es both in the US and Europe Alternative energy investments Worldwide weak consumer environment Favorable Phase for Life and Annuity Market Unstable Political Conditions in Certain Regions Growing MidAmerican Business Identity Governmental Investigations Opportunity for Acquisitions Competition in the Insurance Industry Impact of Economic Slowdown Industry Property and Casualty Insurance ? Through its 51 subsidiary companies, it engages primarily in insuring and reinsuring property and casualty risks business. Berkshire Hathaway, Inc is a publicly owned investment manager. It invests in the United States and Canadas public equity markets. Competition Berkshire Hathaways top competitors, based on its insurance businesses are ? The Blackstone Group L. P. (BX) a company with subsidiaries as well that was founded in 1985 and is headquartered in New York. ? HM Capital Partners LLC (Pvt1) is a privately held company with diversified investments located in Dallas, Texas. ? KKR & Co. L. P. (Pvt2), also a privately held company located in New York, New York. DIRECT COMPETITOR COMPARISON ? ? BRK-A BX Pvt1 Pvt2 Industry Market Cap 158. 43B 3. 90B N/A N/A 885. 31M Employees 246,000 1,340 N/A N/A 718 Qtrly Rev Growth (yoy) -1. 60% 14. 80% N/A N/A 2. 0% Revenue (ttm) 104. 91B -320. 00M N/A N/A 808. 84M Gross Margin (ttm) 11. 6% N/A N/A N/A 18. 38% EBITDA (ttm) 7. 06B -4. 3B N/A N/A 40. 44M Oper Margins (ttm) 3. 86% 1,375. 92% N/A N/A 16. 0% Net Income (ttm) 2. 94B -1. 15B N/A N/A N/A EPS (ttm) 1893. 645 -4. 48 N/A N/A 0. 95 P/E (ttm) 53. 94 N/A N/A N/A 13. 6 PEG (5 yr expected) 4. 14 2. 82 N/A N/A 0. 97 P/S (ttm) 1. 9 N/A N/A N/A 0. 94 Company Financials Balance Sheet (in the thousands) from 2006 2008 Total Assets 248,427,000273,160,000267,399,000 Total Liabilities 137,756,000149,759,000153,820,000 Total Stockholders Equit y 108,419,000120,733,000109,267,000 The retained earnings were at a loss 58,912,00072,153,00078,172,000Assets and Liabilities has separate sections for Insurance & other businesses, Utilities & energy, and Finance & financial products Income Statement (in the thousands) from 2006 2008 Income Statement has separate sections for Insurance & other businesses, Utilities & energy, and Finance & financial products. Total Revenues 98,539,000118,245,000107,786,000 Total Costs and Expenses 81,761,00098,084,000100,212,000 Earnings before Income Taxes 16,778,00020,161,0007,574,000 Net earnings (loss) 11,015,00013,213,0004,994,000 Total number of Stockholders 19,10018,50018,100 Common Stockholders are split into 2 groups class A and class B Class A Stockholders 5,1004,6004,200 Class B Stockholders 14,00013,90013,900 Earnings per Share (at a loss) 7,1448,5483,224Statement of Cash Flows (in the thousands) from 2006 2008 Cash from finances has separate sections for Insurance & other businesses, Utilities & energy, and Finance & financial products. Net Cash from Operations 10,195,00012,550,00011,252,000 Net Cash from Investments (14,077,000)(13,428,000)(32,066,000) Net Cash from Finances 2,607,0001,366,0002,286,000 Cash and cash equivalents at the beginning of the year 45,018,00043,743,00044,329,000 Cash and cash equivalents at the end of the year 43,743,00044,329,00025,539,000 Financial Ratios from 2006 2008 Profitability Ratios200620072008 Return on Assets 4. 93%5. 07%1. 84% Return on Equity11. 02%11. 53%4. 33% Loss Ratio61. 28%71. 72%70. 91%Debt Management Debt to Equity Ratio0. 290. 270. 34 Asset Management Asset Turnover0. 440. 450. 4 Property, Plant, and Equipment Turnover 4. 833. 42. 64 Cash & Cash Equivalents Turnover 2. 232. 693. 08 Industry/Market comparison data from 2008 CompanyIndustry MedianMarket Medium Net profit margin2. 37%5. 53% Price/Sales ratio1. 483. 416. 55 Price/Earnings ratio62. 50(11. 98)23. 81 Price/Book ratio1. 521. 466. 30 Price/Cash Flow ratio 12. 4724. 9440. 65 12-Month EPS growth(62. 3%)(50. 0%) 36-Month EPS growth(16. 5%)(14. 7%) Bibiliography Source Berkshire Hathaway pda file from Harvard Business School Mergent Online Hoovers Online