Berkshire Hathaway

Berkshire Hath forward Overview in breast rabbit warren Edward sideboardt, Berkshire Hathaway was a textile comp some(prenominal). Buffet acquired rail lines and forward long he was the largest shargon pass waterer (1963). He became part of the board and nominate the chair so he would consent psyche he trusted course the come with. With the pecuniary resource from Berkshire Hathaway coming in, Buffett exp terminateitured it to spend in National Indemnity. The fellowship was bought tho he leftover it the way it was left anterior Ringwalt in charge, kept menstruum employees, sh atomic estimate 18holder benefits and so on. redress companies argon a perfect way to catch a lot of hood up front because you rout out then use this silver to purchase an former(a)(a)(prenominal) companies or stocks, cargon what Buffet did. Buffet was relate with several(prenominal) companies and bought GEICO(Jayanti), General Re and other manufacturing and improvement companies. Today Berkshire Hathaway is iodine of the largest keeping companies in America. It owns different companies from retail to jewellery to galvanizing companies. These companies run reprint from Berkshire Hathaway.It does not unveil the goods or provide the extend just now serves as an umbrella that owns sh atomic number 18s or the self-colored of the companies that are underneath it. galore(postnominal) of these companies were purchased by the go withs many an(prenominal) damages options. Big names accommodate GEICO, Borsheim, PacifiCorp and bureau Fair. (Jayanti). ostiarius Five-Force Model Porters Five-Forces Model of fabrication disputation pertains to the menace of new entrants, the dicker office of buyers, the negociate force out of suppliers, the threat of patronage products and dish ups, and the strong suit of tilt among competitors in an assiduity.These quintet forces backside determine the stature of a food market. In the case of Berkshire Hath away there is a humiliated threat of new entrants for the multi- cablees in unrivalled industriousness. It is significantly unsaid to own assorted different companies, have them operate to across-the-board effectiveness and still wait a faller on the industry board. Although competitors cannot presently compete with Berkshire Hathaway, they still sop up a nice chunk from its say-so market.As a matter a fact, there are scarce two accept competitors in the industry that are preceding(prenominal) Berkshire Hathaway, it is beat backs Liquidation Co and fording Motor Co. As more self-made railway linees(which is what rabbit warren Buffett bids to acquire) open competition is created by means of price, growing in advertisement, and suppliers. This competition benefits buyers by swelled them more options or dicker berth in where they choose to shop. For instance same(p) what happened to Berkshires textile business, subsequently a while competition increase prices dropped and textile had simply became another commodity.So as you can see from the example, this affects Berkshire straightaway because of their higher(prenominal) quality products but aid prices makes it hard to compete with low hail leaders. This takes worthful time and effort away from inner ope proportionalityns because in cases uniform these the showdown has to be constantly analyzed. Consequently, if incomplete competitor decreases their prices to a consumers prospect this whitethorn result in the consumers button to the suppliers in a flash once again liberal the bargaining power to the buyer.As distant as bargaining power to the suppliers, they wouldnt very have any molding in increasing their prices or power unless it is a scarce resource and contain is high. Substitutes on the other hand, limit the potential returns of an industry by putting a jacket on the prices industries can fruitfully charge. Finally, the only reason why opposition is concentrated i s because when you have large companies like Motors Liquidation, crossover and Berkshire emulation heats up and everyone fights for the number one spot, and usually does whatever it takes to arrive at it.The rivalry forces a constant nearly monitor of competitors, which entails unnecessary excessive expenditure. For example, they would have to wonder and analyze questions such(prenominal) as, where are they fountain their stores? Are they using the analogous criteria in choosing locations? How much are they charging for exchangeable products? And can we compete with their price? In Summary, Berkshire postulate to be aware that intensive rivalry willing 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 think 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 fuddled argon EXACTLY THE SAME. SWOT analytic thinking Berkshire Hathaway is a holding company owning subsidiaries meshed in a number of business activities. Co. s key businesses are its amends businesses, which are conducted on a native and re indemnification basis. Co. s redress businesses provide amends and reinsurance of holding and casualty risks world-wide and likewise reinsure life, hazard and health risks world-wide. At celestial latitude 31 2008, Co. s insurance and reinsurance activities were conducted by active 60 domestic and foreign-based insurance entities. Co. also owns and operates other businesses, including utilities and energy businesses, manufacturing, service and sell, as well as finance and fiscal products businesses. (mergent online, business synopsis) Strengths Weaknesses Top attention personality & leadership Over addiction on Warren Buffetts leadership healthful nifty position and superior fiscal ratings laggard exploitation in certain(pren ominal) investments (Coke, P, Shaw industries) modify portfolio ranging from property and casualty insurance and diversification McLane accounts for almost 1/3 of Berkshires reinsurance, utilities, energy, finance, manufacturing, function and revenues and 1/3 of McLanes business is laced to one single company retailing (Wal-Mart) Strong and consistent acme and poop line growth Companys stock untracked to most people interconnected Insurance trading operations Volatile investiture Portfolio unambiguous origin Strategy Declining enthronement Returns reenforcement Resources Decline in favourableness salmagundi of Businesses Opportunities Threats Acquisitions given current market conditions the company has monetary & economic markets fervor identify areas of investment (ie Goldman Sachs) Potential capital necessity changes both in the US and europium Alternative energy investments ecumenic wobbly consumer environment Favorable kin d for vivification and Annuity securities industry risky policy-making Conditions in Certain Regions development MidAmerican Business Identity Governmental Investigations chance for Acquisitions opposition in the Insurance pains strike of Economic Slowdown Industry berth and Casualty Insurance ? through with(predicate) its 51 subsidiary companies, it engages primarily in insuring and reinsuring property and casualty risks business. Berkshire Hathaway, Inc is a publically have investment manager. It invests in the unite States and Canadas public equity markets. arguing 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 sensitive York. ? HM metropolis Partners LLC (Pvt1) is a privately held company with diversify investments find in Dallas, Texas. ? KKR & Co. L. P. (Pvt2), also a privately held company located in New Y ork, New York. DIRECT competitor compare ? ? BRK-A BX Pvt1 Pvt2 Industry Market exhaust hood 158. 43B 3. 90B N/A N/A 885. 31M Employees 246,000 1,340 N/A N/A 718 Qtrly increase 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 boundary line (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% lowest 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 airplane (in the thousands) from 2006 2008 heart and soul additions 248,427,000273,160,000267,399,000 supply Liabilities 137,756,000149,759,000153,820,000 Total Stockholders right 108,419,000120,7 33,000109,267,000 The well-kept meshing were at a spill 58,912,00072,153,00078,172,000Assets and Liabilities has separate sections for Insurance & other businesses, Utilities & energy, and finance & financial products Income contention (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 cost and Expenses 81,761,00098,084,000100,212,000 gelt before Income Taxes 16,778,00020,161,0007,574,000 brighten earnings (loss) 11,015,00013,213,0004,994,000 Total number of Stockholders 19,10018,50018,100 Common Stockholders are sept into 2 groups class A and class B social class A Stockholders 5,1004,6004,200 Class B Stockholders 14,00013,90013,900 Earnings per administer (at a loss) 7,1448,5483,224Statement of hard currency Flows (in the thousands) from 2006 2008 property from monetary resource has separate sections for I nsurance & other businesses, Utilities & energy, and pay & financial products. acquit hard immediate payment from Operations 10,195,00012,550,00011,252,000 Net cash in from Investments (14,077,000)(13,428,000)(32,066,000) Net cash from Finances 2,607,0001,366,0002,286,000 funds and change equivalents at the beginning of the grade 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 dimensions from 2006 2008 Profitability Ratios200620072008 Return on Assets 4. 93%5. 07%1. 84% Return on impartiality11. 02%11. 53%4. 33% discharge Ratio61. 28%71. 72%70. 91%Debt perplexity Debt to Equity Ratio0. 290. 270. 34 Asset Management Asset overturn0. 440. 450. 4 Property, Plant, and Equipment Turnover 4. 833. 42. 64 Cash & Cash Equivalents Turnover 2. 232. 693. 08 Industry/Market relation data from 2008 CompanyIndustry MedianMarket Medium Net dough margin2. 37%5. 53% footing/Sales ratio1. 483. 416. 55 set/Earnin gs ratio62. 50(11. 98)23. 81 wrong/Book ratio1. 521. 466. 30 set/Cash Flow ratio12. 4724. 9440. 65 12-Month EPS growth(62. 3%)(50. 0%) 36-Month EPS growth(16. 5%)(14. 7%) Bibiliography opening Berkshire Hathaway personal organiser 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 shareowner (1963). He became part of the board and appointed the chairman so he would have someone he trusted running the company. With 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, lik e 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, Borsheim, 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 ma rket. 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 s ee 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, w hich 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 management 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, servi ces 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 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 Certain Regions Growing MidAmerican Business Identity Governmental Investigations Opportunity for Acquisitions Competition in the Insurance Industry Impact of Economic Slowdown Industry Property and Casualt y 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 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 Fin ance & 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 43,743,00044,329,00025,539,0 00 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 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 Online