Berkshire Hathaway

In: Business and Management

Submitted By sudipttewari
Words 800
Pages 4
Individual Assignment


Assignment Report Submitted by: Sudipt Tewari | G13051 |

Case Summary: Berkshire Hathaway, Inc.’s chairman and CEO Warren Buffett, is the world's third richest man. He invested in Berkshire Hathaway in 1962, and by 1963, Buffett was Berkshire’s largest shareholder. Buffett started purchasing other businesses, which were primarily insurance companies, with profits from the declining original textile business. In 1985, the original textile business was shut down and Berkshire Hathaway diversified into higher margin businesses.
Now, Berkshire Hathaway is active in a variety of sectors, including insurance, regulated utilities and retailing. One of the companies that Berkshire Hathaway holds is GIECO (Government Employees Insurance Company). In 1995, GIECO was wholly owned by Berkshire Hathaway. By 2005, its market share was increased from 1.9 percent to 6.1 percent with underwriting revenues of additional $590 million in cash from operating earnings in spite of decline in insurance industry. Another major company under Berkshire Hathaway is Nebraska Furniture Mart. It is a large furniture store, which holds NFM Mega Mart and Homemakers Furniture.
Warren Buffett utilizes a constant strategy to manage these companies including Berkshire Hathaway by holding shares for a long time. Berkshire Hathaway does not pay any dividends to the shareholders but reinvests surplus instead to maximize the value of the company. Under this strategy, each company is growing constantly and some of them such as GIECO and Nebraska Furniture Mart are the major player in their industry.
Berkshire Hathaway has employed an ownership structure that has without a doubt proven its long-term advantage. Warren Buffett CEO of Berkshire Hathaway has a well-built philosophy when it comes to understanding businesses and the financial markets in which…...

Similar Documents


...Colin Drury, Management and Cost Accounting – Berkshire Threaded Fasteners Company Berkshire Threaded Fasteners Company Professor John Shank, The Amos Tuck School of Business Administration Dartmouth College This case is reprinted from Cases in Cost Management, Shank, J. K., 1996, South Western Publishing Company. The case was adapted by Professor John Shank, with permission from the author from an earlier case written by J. P. Culliton, Harvard Business School. The case was originally set in the mid 1970's. In February 2000, Brandon Cook was appointed general manager by Joe Magers, president of Berkshire Threaded Fasteners Company. Cook age 56, had wide executive experience in manufacturing products similar to those of Berkshire. The appointment of Cook resulted from management problems arising from the death of John Magers, founder and until his death in early 1999, president of the company. Joe Magers had only four years experience with the company and in early 2000 he was 34 years old. His father had hoped to train Joe over a 10-year period, but the father's untimely death had cut this seasoning period short. The younger Magers became president after his father's death, and he had exercised full control until he hired Cook. Joe Magers knew that he had made several poor decisions during 1999 and that the morale of the organization had suffered, apparently through lack of confidence in him. When he received the income statement for 1999 (Exhibit 1), the loss of over......

Words: 1918 - Pages: 8

Jp Morgan and Berkshire Hathaway

...J. P. Morgan and Berkshire Hathaway From 1820 to 1870, the Industrial Revolution brought innovations and growth to America’s economy. Of those breakthroughs rose the railroad and textile industries. With the railways falling into debt, John Pierpont Morgan was asked to intervene. Multiple railroads fell under his control due to his reorganization of the industry and his actions came to be known as “morganization.” Founded in 1889 as Berkshire Cotton Manufacturing Company, Berkshire Fine Spinning Associates became one of the largest textile industries in the world. It was later recognized by Warren Buffett who seized control of the company and used it for further investments. This essay focuses on the question of: what can be learned by examining Morgan’s consolidation of the railroad industry and Berkshire’s astonishing growth? This era marked a shift to powered, special-purpose machinery, factories and mass production. Industrialization in America involved three important developments: the harnessing of electricity, improvements to the industrial process including the acceleration of production, and lastly the expansion of transportation. An improved transportation system was crucial for raw materials to reach the factories and manufactured goods to reach consumers. Morgan was fixated on the restructuring of railways and began by proposing agreements between major lines. “Oppressed by debt and overbuilding, more than a third of the country’s railway trackage fell......

Words: 1162 - Pages: 5

Berkshire Hathaway Analysis

...Berkshire Hathaway Summary Facts about the Firm Berkshire Hathaway is an American multinational company based out of Omaha, Nebraska, USA & does not resemble the original company that Buffett had bought during the 1960’s. As of 2008, it was active in a variety of sectors, including insurance, regulated utilities & retailing. It is a holding company that manages a number of subsidiary companies belonging to the companies in these variety sectors. In 2008, the revenues of the conglomerate had become $81.7 bn. Warren Buffett has been at the helm of affairs since the inception & still remains the current Chairman and CEO. Charlie Munger, who is his best advisor and has been attached since early days to Buffett is the current Vice-Chairman. Analysis After gaining some experience in investing in firms, his first moderately successful venture being the Dempster Mill Manufacturing, Buffett bought Berkshire Hathaway, a textile mill which he was tracking from some years and then started looking out for other investing opportunities from the profits he made. His target over the years was to invest and acquire Insurance firms which would give him the extra cash needed to invest elsewhere. He carried on a spate of acquisitions over the years using the below acquisition criteria: - * Large purchases (at least $75 million of pre-tax earnings) * Demonstrated consistent earning power (sustainability of the business) * Businesses earning good returns on equity...

Words: 860 - Pages: 4

Berkshire Hathaway

...Presentation "Greetings, introducing names", we are going to present you today how the Berkshire Hathaway's acquisition criteria, operating principled and incentives work together to enforce hte values of responsibility and trust, which the Berkshire Hathaway model is predicated on. Our presentation outline includes the company's history; its unique approach in corporate governance; the secret of success in terms of acquisition using human resources wisely and effectively; the company's culture and conclusions. Initially, Berkshire Hathaway is one of the largest corporations in the world, which has significant minority hildings in American Express, M&T Bank, Procter & Gamble and IBM. It is known for its control by the investor Warren Buffet, who is the company's chairman and CEO. Berkshire Hathaway traces its roots to a textile manufacturing company established by Oliver Chace in 1839 and its business units employ over 250,000 employees. Being built on a model based on centralization of capital allocation decisions within corporate headquarters along with extreme decentralization of operating decisions within individual business units, Berkshire Hathaway showed an absolutely unique approach in corporate governance that works effectively. Despite the company has a considerable number of employees – over 250,000 individuals – managers, who oversee each unit, hold complete discretion over operating and capital decisions within their businesses, without......

Words: 1007 - Pages: 5

Berkshire Hathaway Company Overview profile for Berkshire Hathaway. This profile will include a brief history of Berkshire Hathaway's humble beginnings as a textile manufacturer, and subsequent diversification into a successful powerhouse holdings company that has spread it's risk into a variety of industries. These industries include insurance, utilities, building materials, furniture, jewelry, apparel and food companies. This paper will examine Berkshire's recent financial situation over the last 5 years. while touching on the CEO compensation package. The CEO behind this conglomerate, Warren Buffet, is considered to be one of the greatest investors of the 20th Century. Since Buffet took over in 1965, with his 20% majority share of ownership, Berkshire Hathaway, has grown to include over 50 firms under the corporate name. For the last 36 years , "The Oracle of Omaha" as Warren Buffet is known, has lived by a simple philosophy to invest in strong managed companies that produced good products but were inherently undervalued in the market. (Hoover's, 2013) This paper will also discuss Berkshire's competition for their major industries. Company Profile Berkshire Hathaway Inc. is an American multinational conglomerate holding company that has subsidiaries in the manufacturing, retail, and service industries and most importantly reinsurance companies. The company itself was founded by Oliver Chase back in 1889 in New Bedford, MA, under the name Berkshire Cotton......

Words: 1444 - Pages: 6

Berkshire Hathaway and Scottish Power Plc

...Question 1: What is your interpretation of changes in stock prices of Berkshire Hathaway and Scottish Power Plc on the day of acquisition announcement? Answer: Deal announcement cause increment in share price of both Berkshire Hathaway and Scottish Power. The possible reason could be that the investor saw this deal as win-win situation for both the companies. The deal created value for both the company. Berkshire became more diversified and Scottish Power got good value from the deal. A possible reason for increase in share price of Scottish Power may be due to the fact investors saw this acquisition as good sign for Scottish Power and the deal taken as proof that Scottish power is in good condition. It is possible that the investors perceived potential synergies between PacifiCorp and MidAmerican. Question 2: Is the Berkshire's offer for Pacfic Corp was in line with the range of peer firm valuations? Answer: From Exhibit 10, we are able to see the following value for PacificCorp MV Equity as Multiple of: | Average Value | EPS | Book Value | | |   | | 4,277 | 5,904 | 5090.5 | 4,308 | 5,678 | 4993 | In the case it is stated that the deal will take around 12 to 18 months to close. We will now calculate the PV of the deal. Risk free return rate as per case is 5.76% Beta for Berkshire is 0.75 The long term market return is 10.5% Cost of equity for Berkshire = 5.76+0.75(10.5-5.76) =9.32 % Using......

Words: 294 - Pages: 2

Berkshire Hathaway

...Berkshire Hathaway Berkshire Hathaway is a holdings company operated by Warren Buffett and Charles Munger. The company was founded in the 1800’s as a textile mill, and through a series of mergers became known as Berkshire Hathaway. Buffett took control of the company in the 1960’s and transformed it from a failing textile mill into a very successful holdings company. Berkshire Hathaway’s main investments are insurance companies such as GEICO, financial institutions such as Wells Fargo, goods companies such as Coca-Cola, and newspapers such as The Washington Post. The company’s financial situation is very strong, with increasing assets, equity, and revenue. The company has several large competitors such as The Allstate Corporation and BlackRock, Inc., as well as many others. However, Berkshire constantly outperforms not only its competitors, but also the market. Berkshire Hathaway is a holdings company that owns businesses in a variety of business activities. The company was founded in 1839 as a textile mill known as The Valley Falls Company and through a series of mergers became known as Berkshire Hathaway. Warren Buffett, the world’s greatest investor, started buying stock in the company in 1962 (Finkle 2010). By the mid 1960’s, Buffett owned enough of the company to change the management and basically take control of the company. Buffett realized that the textile industry was in a decline, so he used the company as an investment vehicle in addition to its textile...

Words: 1859 - Pages: 8

Berkshire Executive Summary

...Bradford KilshawFIN 3717Shan He Warren E. Buffett, 2005 On May 24, 2005, CEO of Berkshire Hathaway Inc., Warren Buffet, stated that one of the company's subsidiaries, MidAmerican Energy Holdings Company, acquired the electric utility PacifiCorp. MidAmerican bought PacifiCorp from its parent company, Scottish Power plc, for $5.1 billion cash and $4.3 billion in preferred stock and liabilities. This acquisition was the second largest of Buffet's career and his largest since 1998. Warren Buffet has long been viewed as one of the most savvy investors in the world. With an estimated net worth of $44 billion, he is one of the richest men walking the planet. Public interest in Buffet rose highly again with the large scale purchase of PacifiCorp. While at Columbia University, Warren Buffet studied under Benjamin Graham, noted for developing a method for identifying undervalued stocks. His method focussed on the value of assets like cash, net working capital and physical assets, and ultimately, Buffet modified it to focus on valuable franchises going unrecognized in the market as well. Buffet's investing strategy includes several different philosophies. Some approaches he uses include: economic reality, the cost of lost opportunity, value creation, risk and discount rates, diversification, investing behavior driven by information, analysis, and self-discipline, setting emotion aside, alignment of agents and owners, and measuring performance based on intrinsic value instead of......

Words: 592 - Pages: 3

Berkshire Post Case

...1. What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power on the day of the acquisition announcement: Specifically, what does the $2.55 billion gin in Berkshire market value of equity imply about the intrinsic value of PacifiCorp? The possible meaning of the change of the stock is that the facts that are created in the deal had a positive effect on both the buyers ( BRK) and the sellers which are the mother company of Pacific( Scottish power), To find the 2.55 Billion gain of BRK on the market value equity that the intrinsic value of Pacific was good because it was within the range demonstrated in the calculations I have done:- $2.55 billion / 312.8 million = $8.17 (Berkshire is willing to pay this premium for each share of PacifiCorp) 5.1 billion / 312.18 million = $16.30 per share of PacifiCorp $8.17 + 16.30 = $24.47 (all information taken from chart 9) 2. Based upon the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? What questions might you have about this range? We find the range of possible values for PacifiCorp in chart 10:- A. Revenue median of $6.252 Billion, mean of $6.584 Billion. B. EBIT median of $8.775 Billion, mean of $9.289 Billion. C- EBITDA median of $9.023 Billion, mean of $9.076 Billion. D- Net Income median of $7.596 Billion, mean of $7.553 Billion. E- EPS median of $4.277 Billion, and a mean of $4.308 Billion. F- Book value......

Words: 748 - Pages: 3

Examining Berkshire Hathaways Purchase of Geico

...Berkshire Hathaway and GEICO Insurance © 2001 Tim Glowa White Paper: Examining Berkshire Hathaway’s 1995 Purchase of GEICO Insurance Tim Glowa September 12, 2001 © 2001 Tim Glowa September 12, 2001 -1- Berkshire Hathaway and GEICO Insurance Table of contents © 2001 Tim Glowa Executive Summary.................................................................................................... 3 Introduction................................................................................................................. 4 Review of the case: Berkshire Hathaway purchasing GEICO.................................... 4 Strategic Outcome....................................................................................................... 7 Finance........................................................................................................................ 7 Time Value of Money................................................................................................. 8 Assessment of the GEICO purchase ........................................................................... 8 Time value of money ................................................................................................ 11 An examination of the GEICO acquisition in hindsight........................................... 13 Limitations of Discounted Cash Flow ...................................................................... 15 Limitations of this Analysis ...

Words: 5107 - Pages: 21

Berkshire Hathway

...Berkshire Hathaway is an American multinational conglomerate holding company. It was founded in 1888 by Horatio Hathaway. At this time, the company was named the Hathaway Manufacturing Company. When the merger of Berkshire Fine Spinning Associates and the Hathaway Manufacturing Company took place it was named Berkshire Hathaway. Before the combining of these companies, Hathaway Manufacturing Company was its own successful business until World War I caused it to suffer. The combination that created Berkshire Hathaway had fifteen plants. These plants employed over twelve thousand people and represented one hundred and twenty million dollars in revenues. In 1962, Warren Buffett, noticed stock price direction. Buffett brought great importance to the company because of the interest he showed. He bought enough shares that the company decided to buy back his shares for slightly less than pleased by him. This caused Buffett to buy even more stocks to take control of the company. The effort shown by Buffett resulted in him to gain control of most of the company. It was then brought to a new level, thanks to Buffett, as he expanded the company into the insurance industry, utilities and energy, finance and financial products and flight services. The first new investments included National Indemnity Company and the Government Employees Insurance Company (GEICO). These companies formed the foundation of its insurance companies, and are a major source of the company's capital.......

Words: 1956 - Pages: 8

Regression Analysis of Verizon Communications, Berkshire Hathaway, and Wyndham Worldwide

...Regression Analysis of Verizon Communications, Berkshire Hathaway, and Wyndham Worldwide The stock market plays a pivotal role in the world today, bringing together investors with companies looking to raise funds. The government, organizations, and individual shareholder’s all have a stake in actively following and participating in the stock market. The problem that hinders common traders and professional investors alike becomes differentiating between the thousands of publicly traded companies in the U.S. alone to pick the best investments. By comparing three large, but very different companies to the market as a whole this paper will demonstrate how Beta can be used to measure the volatility of a stock. The three dependent variables will be acquired from historical stock returns from the communications conglomerate Verizon Communications (VC), Berkshire Hathaway Inc. (BRK-A) the multinational holding company best known its chairman Warren Buffet, and Wyndham Worldwide Corporation (WYN) one of the world’s largest hotel and resort chains. After comparing relevant statistical factors to each other a regression analysis will be done for each company comparing the excess market returns for each company (found by subtracting out the market free rate) to the market excess return. Table 1: Stock Return Statistics | Average Price/Share | Mean Return | Largest Gain | Largest Loss | Standard Deviation | Coefficient of Variation | VZ | $34.73 | 1.43% | 12.58% |......

Words: 1069 - Pages: 5

Hathaway Effect

...The Hawks of Mass Street Hathaway Write Up Introduction Berkshire-Hathaway, conglomerate holdings company founded by Warren Buffet, may have a hidden connection to actress Anne Hathaway which was originally discovered by Dan Mervish of the Huffington Post. Mervish noticed six events, five movie premieres and one decoration (announcing the Oscars), all relating Hathaway to a positive daily performance by Buffet’s company. Mervish attempts to explain the trend that “automated, robotic trading programming are picking up the same chatter on the Internet about ‘Hathaway’ as the IMDb’s StarMeter, and they’re applying it to the stock market”. The following write-up tackles the issues and accuracy of Mervish’s accusation. Establishing a Database Using the original six events (movies and awards) we decided to expand the list to 28 total. Even though hosting the Oscars is not an award it is an honor and therefore we decided to use all movie honors in addition to movie openings. Starting in August 2004 with the opening of The Princess Diaries until 2013 her most recent release Don Jon (September 2013), we ran all daily data for BRK.A (Berkshire Hathaway.) Furthermore, award data was comprised for all ceremonies in which Anne won and was not just nominated. Note that movies and awards that opened/conducted over the weekend were not included in our data (i.e. Monday). Some award ceremonies were conducted in the evening; however, in order to stay concurrent with movie release......

Words: 825 - Pages: 4

Warren Buffet Case - Bekshire Hathaway

...ITESM Dirección Financiera Mariana Soto Giraldo A01324999 ------------------------------------------------- WARREN BUFFET Biography American business magnate, investor and philanthropist. The most successful investor in the world. Chairman, CEO and largest stakeholder of Berkshire Hathaway. He studied at Columbia University. Trained in investing by professor Benjamin Graham, who’s the coauthor of Security Analysis (Method of identifying undervalued stocks, P<Intrinsic Value). Graham | Buffet | Focus on the value of assets such as: cash, net working capital and physical assets. | + Also on valuable franchises that were unrecognized by the market. | Berkshire Hathaway American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States. - 1965-1995 Compound Annual Growth Rate: 24% - May 24, 2005 Announcement of the acquisition of Pacific Corp (electric utility) by Mid American Energy Holdings Company (subsidiary). - 2004 Portfolio of businesses included: insurance, apparel, building products, finance and financial products, flight services, retail, grocery distribution and carpet and floor coverings. Buffet investment philosophy: 1) Economic reality not accounting reality Long-term prospects based on the quality of management and the firm’s capacity to create value. 2) The cost of the lost opportunity Analyzing and comparing an investment opportunity with the second alternative (the lost one). 3)...

Words: 549 - Pages: 3

Berkshire Hathway

...Suggested Questions for Advance Assignment 1. What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement? Specifically, what does the $2.55 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp? 2. Based on the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? What questions might you have about this range? 3. Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value? Perform a simple discounted cash-flow (DCF) analysis in Excel. 4. How well has Berkshire Hathaway performed? One way to measure this is to compare the stock market performance of BRK-A vs the S&P index. Do the following: as of a recent date compare the price of SPY(S&P ETF) vs BRK-A. Now use Yahoo finance historical prices (adjusted close) to compare compound annual return of each for the last 1,2,5,10, and 15 year periods. (Why did I pick adjusted close prices?) Comment on how BRK-A compared to benchmark. How well has it performed in the aggregate? What about its investment in MidAmerican Energy Holdings? 5. What is your assessment of Berkshire’s investments in Buffett’s Big Four: American Express, Coca-Cola, Gillette, and Wells Fargo? Calculate the compound annual return from purchase date through the date of the case, 2004. Now compare the compound annual return of each vs. SPY from 2004 to a recent...

Words: 364 - Pages: 2