Berkshire Hathaway Financial Analysis

Berkshire Hathaway

Berkshire Hathaway happens to be one of the best known companies across the world. This is more so the case given that it is led by Warren Buffet, a person who has gained acclaim for his investing prowess. The company is essentially a holding company that mostly invests in other companies via acquisition of their stock. Following an assessment of the most recent SEC filing of the company (i.e. for the financial year ended 31st Dec, 2021), as well as the previous financial year’s financial statements, the following ratios were computed:

Category

Formula

2021

2020

Liquidity

Current Ratio

Current Assets/Current Liabilities

$148,896M/$46,072M

3.23

$141,832/$45,568M

3.11

Asset Management

Total Asset Turnover Ratio

Total Revenue/Total Assets

$276,094M/$958,784M

0.29

$245,510M/$873,729M

0.28

Financial Leverage

Debt-to-Equity

Total Debt/Total Equity

$114,262M/$514,930M

0.22

$116,895M/$451,336M

0.26

Profitability

Return on Equity

Net Income/Shareholders Equity

$90,807M/$514,930M

0.18

$43,253M/$451,336M

0.10

Market Value

Earnings Per Share

Net Income/Average Outstanding Common Shares

$90,807M/2.256B

$40.25

$43,253M/2.393B

$18.07

Analysis

From the onset, it would be prudent to note that Berkshire Hathaway faces some of the very same challenges being faced by most other businesses in the U.S. This is more so the case in relation to the possibility of a downturn in economic activity as a consequence of the COVID-19 pandemic. A downturn in economic activity would essentially mean that Americans have less disposable income – and thus less to spend. This would have a negative impact on the profitability of many of the enterprises in which Berkshire Hathaway has a stake, i.e. the Coca-Cola Company. The company also faces an uncertain future given the ages of Warren Buffet (91) who serves as CEO and Chairman of the Company’s Board of Directors, and Charlie Munger (98) who serves as the company’s Board of Directors Vice Chairman. There is no clear succession plan in place. However, it is important to note that there are plenty of opportunities for the company to explore in emerging markets such as Asia-Pacific region. This would be in keeping with the company’s overall objective of “achieving long-term sustainable growth by developing and strengthening competitive advantages” (Berkshire Hathaway, 2021, p. K-25).

With regard to the company’s stock price, available data indicates that over the last 6 months, the company’s stock has been on an upward trend. For instance, on the 18th of October 2021, the company’s stock was trading at $282.59. However, as at close of business on 14th April, 2022, the company’s stock was trading at $344.33. This could be attributed to the market’s response to a series of large investments the company has made in the recent past. The said major investments are inclusive of, but they are not limited to; Occidental Petroleum Corp, Alleghany Corp, and HP (Stampel, 2022). For instance, as Stampel (2022) further indicates, the HP recent stock acquisition alone resulted in a 10% spike in Berkshire Hathaway’s stock.