Berkshire Hathaway Financial Ratio Analysis 2021
This paper examines Berkshire Hathaway's financial health by computing and analyzing five key financial ratios — current ratio, total asset turnover, debt-to-equity, return on equity, and earnings per share — drawn from the company's 2021 and 2020 SEC Form 10-K filings. The analysis reveals strong short-term and long-term solvency, improving asset utilization, and a significant jump in profitability. The paper also considers external risks such as COVID-19's economic impact, leadership succession uncertainty, and growth opportunities in emerging markets, alongside the company's rising stock price driven by high-profile acquisitions including Occidental Petroleum, Alleghany Corp, and HP.
- Introduction to Berkshire Hathaway: Overview of Berkshire Hathaway as a holding company
- Financial Ratio Summary Table: Five key ratios computed for 2020 and 2021
- Stock Price Performance and Recent Investments: Rising stock price linked to major acquisitions
- Assessment of Financial Health and Ratios: Interpretation of solvency, leverage, and profitability trends
- References: SEC 10-K filing and Reuters news source
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What makes this paper effective
- Grounds every claim in specific numerical data drawn directly from SEC filings, making the analysis verifiable and credible.
- Covers all five standard ratio categories — liquidity, asset management, leverage, profitability, and market value — providing a well-rounded financial portrait.
- Connects quantitative findings to qualitative context (COVID-19 risks, succession planning, stock activity), showing the student understands ratios as diagnostic tools, not just arithmetic outputs.
Key academic technique demonstrated
The paper demonstrates comparative ratio analysis across two fiscal years, allowing readers to identify directional trends rather than treating a single year's figures in isolation. This year-over-year comparison is the defining technique in applied financial statement analysis and is correctly applied throughout the discussion section.
Structure breakdown
The paper opens with a brief company overview, presents a structured ratio table for 2020 and 2021, then transitions into a narrative analysis section that interprets each ratio category and situates the numbers within broader business context. It closes with a short reference list citing the primary SEC filing and a news source. The structure follows a standard finance case-analysis format appropriate for an undergraduate business course.
Introduction to Berkshire Hathaway
Berkshire Hathaway is one of the best-known companies in the world, due in large part to its leadership by Warren Buffett, who has gained widespread acclaim for his investing prowess. The company is essentially a holding company that invests in other companies primarily through the acquisition of their stock. Based on an assessment of the company's most recent SEC filing (for the financial year ended December 31, 2021) and the previous financial year's financial statements, the following ratios were computed.
Financial Ratio Summary Table
The table below presents five ratio categories — liquidity, asset management, financial leverage, profitability, and market value — calculated for fiscal years 2021 and 2020.
Liquidity — Current Ratio (Current Assets / Current Liabilities)
2021: $148,896M / $46,072M = 3.23
2020: $141,832M / $45,568M = 3.11
Asset Management — Total Asset Turnover Ratio (Total Revenue / Total Assets)
2021: $276,094M / $958,784M = 0.29
2020: $245,510M / $873,729M = 0.28
Financial Leverage — Debt-to-Equity (Total Debt / Total Equity)
2021: $114,262M / $514,930M = 0.22
2020: $116,895M / $451,336M = 0.26
Profitability — Return on Equity (Net Income / Shareholders' Equity)
2021: $90,807M / $514,930M = 0.18
2020: $43,253M / $451,336M = 0.10
Market Value — Earnings Per Share (Net Income / Average Outstanding Common Shares)
2021: $90,807M / 2.256B = $40.25
2020: $43,253M / 2.393B = $18.07
Stock Price Performance and Recent Investments
From the outset, it is worth noting that Berkshire Hathaway faces some of the same challenges confronting most other businesses in the United States — most notably the possibility of an economic downturn as a consequence of the COVID-19 pandemic. A contraction in economic activity would reduce Americans' disposable income and, by extension, consumer spending, which would negatively affect the profitability of many enterprises in which Berkshire Hathaway holds a stake, such as the Coca-Cola Company. The company also faces an uncertain future given the advanced ages of Warren Buffett (91), who serves as CEO and Chairman of the Board of Directors, and Charlie Munger (98), who serves as Vice Chairman of the Board of Directors, with no clear succession plan in place. However, there are considerable opportunities for the company to explore in emerging markets, particularly the Asia-Pacific region — consistent with the company's stated 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 indicate that over the six months prior to April 2022, the company's stock followed a clear upward trend. On October 18, 2021, shares were trading at $282.59, whereas at the close of business on April 14, 2022, the stock had risen to $344.33. This appreciation can be attributed in part to the market's positive response to a series of large investments made during that period, including stakes in Occidental Petroleum Corp, Alleghany Corp, and HP (Stampel, 2022). Notably, as Stampel (2022) reports, the HP stock acquisition alone produced approximately a 10% spike in Berkshire Hathaway's share price.
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