STOCK ANALYSIS PAPER

Berkshire Hathaway Inc Stock Analysis Paper

Berkshire Hathaway Inc Stock Analysis Paper

Section 1: Analysis of Return on Equity (ROE)

Return on Equity, or ROE, is articulated as a fraction of income in relation to equity. Return on equity is calculated using the following formula. ROE= Net Income/Shareholders' Equity. Here, Net income represents after-tax income (prior to dividend payments for common stockholders). Shareholder's equity does not include preferred shares (Investopedia 2011). In calculating ROE for any company, we can find relevant information from the equity section of the balance sheet. Information regarding net income or return is already available from the key financials appended at the end of this paper.

Stockholders' Equity (numbers in $1000)

Misc Stocks Options Warrants

-  

-  

-  

Redeemable Preferred Stock

-  

-  

-  

Preferred Stock

-  

-  

-  

Common Stock

8,000  

8,000  

8,000  

Retained Earnings

109,448,000  

99,194,000  

86,227,000  

Treasury Stock

(67,000)

-  

-  

Capital Surplus

37,807,000  

37,533,000  

27,074,000  

Other Stockholder Equity

17,654,000  

20,583,000  

17,793,000  

Total Stockholder Equity

164,850,000  

157,318,000  

131,102,00

The above table shows the equity section for Berkshire. Using this information, we calculate the return on equity as follows:

Return on Equity = Net Income/Shareholder's Equity

ROE = 10,254/164,850

ROE = 0.062 or 6.2%Berkshire's current Return on Equity is 6.2%. Since the company operates in a highly risky industry with respects to variation in incomes, this ROE is impressive. It should be noted that the company prime common equity is only $800,000, with a huge amount of equity representing retained earnings. As such, the company is promising well for the shareholders of the company, who will benefit from the return that the company has made on its equity.

Section 2: Stocks and Financial Analysis

The group recorded revenues of $143,688 million in the financial year ended December 2011 (FY2011), an increase of 5.5% over FY2010 (Yahoo Finance 2012).The group derives a majority of its revenues from the US market. Berkshire Hathaway generates revenues through seven business divisions: insurance group (25.6% of the total revenues during financial year 2011); McLane company (23.1%); other businesses (22.4%); Burlington Northern Santa Fe (13.6%); MidAmerican (7.8%); Marmon (4.8%); and finance and financial products (2.8%). In FY2011, the insurance group division recorded revenues of $36,821 million, an increase of 2.5% over FY2010. The McLane company division recorded revenues of $33,279 million in FY2011, an increase of 1.8% over FY2010.

The other businesses division recorded revenues of $32,202 million in FY2011, an increase of 15.2% over FY2010 (Fridson & Alvarez 2011). The Burlington Northern Santa Fe division recorded revenues of $19,548 million in FY2011, an increase of 29.8% over FY2010 (Weil 2011). The MidAmerican division recorded revenues of $11,291 million in FY2011, a decrease of 0.1% over FY2010. The Marmon division recorded revenues of $6,925 million in FY2011, an increase of 16.1% over FY2010. The finance and financial products division recorded revenues of $4,014 million in FY2011, a decrease of 5.9% over FY2010. Revenues from Geography The company derives a majority of its revenues from the US market.

Based on the above trend the future earnings growth estimates can be presented as

Consensus Estimates Summary

2009A

2010A

2011A

Q12012E

Q22012E

Q32012E

Q42012E

2012E

2013E

Earnings Per Share

3.25

4.52

-

1.27

1.35

1.35

1.4

5.15

5.45

A close and detailed look at Berkshire's financial statements can reveal its level of ...