Berkshire Hathaway Cash Position, Positive Cash Flow and Short-term financing
First, combine Parts I-III of your paper. Make sure that you include an introduction and transitions so that these three parts read as one cohesive document.
Examine your firms working capital management. Look at the firms annual report and answer the following questions:
What is the firms cash position? Does the firm reflect positive cash balances for the last three years?
What methods does the firm use to ensure and maintain positive cash flows?
What methods of short-term financing does the firm use?
Conclude your paper with a final recommendation about whether or not this company would be a good investment for potential investors. Your finished paper must be a minimum of seven pages long, and you must use at least five sources (most of which were likely used in other units). At least one source must come from the CSU Online Library. Any information from those sources must be cited and referenced in APA format and you should format your paper in accordance to APA guidelines.
Running head: BERKSHIRE HATHAWAY INC. 1
BERKSHIRE HATHAWAY INC. 4
Berkshire Hathaway Inc.
David B. Jones
Financial Management
Richard Gordon
8/20/2020
Financial ratios
Category
Ratio
Berkshire Hathaway A
Blackrock,
Liquidity
Current ratio
1.80
2.11
Quick ratio
1.5
2.11
Profitability
Profit margin
32%
30.8%
Return on assets
10.7%
2.7%
Solvency
Debt ratio
0.48
0.79
Interest coverage
26.93
29.51
The liquidity ratios include the current ratio and quick ratio. The current and quick ratios of the organization are 1.8 and 1.5, respectively. The two ratios show that the organization is in a position to pay its current liabilities using the total current assets or to use the most liquid assets of the company. The company is, however, less liquid compared to Blackrock Company which is one of its competitors in the market. The current assets of Blackrock are twice the current liabilities of the firm. The organization has the right liquidity ratios that prove the quality of financial management in Berkshire Hathaway Inc (Berkshire Hathaway Inc, 2019).
The second category of ratios of the firm is profitability ratios. The profitability ratios examined are profit margin and the return on assets. The profit margin and return on assets of Berkshire Hathaway Inc. are 32% and 10.7% respectively. The two ratios show that the organization is generating sufficient revenue to cover the expenses of the firm and retained income for the shareholders and reinvestment. Berkshire Hathaway Inc. is more profitable than Blackrock Company since the profit margin and return on assets are 30.8% and 2.7% respectively. The profitability of Berkshire Hathaway Inc. is impressive. It would help in attracting more investors to boost the capital of the firm (Berkshire Hathaway Inc, 2019).
The debt ratio of Berkshire Hathaway Inc. is 0.48 compared to 0.79 of Blackrock, which is one of its competitors in the industry. The debt ratio shows that the firm is doing well by maintaining a low debt ratio. The debt ratio shows that loans finance only less than 49% of the assets. The interest coverage ratio of the company is 26.93, while the interest coverage of the competitor is 29.51. The ratio shows that the two firms generate sufficient earnings before interest and tax expenses to cover the cost of the interest expense. Blackrock has a better ratio than Berkshire Hathaway Inc.
The financial health of an organization is measured examining the liquidity and profitability over a given period. Berkshire Hathaway Inc. has proven that it is a healthy organization based on the two metrics. The liquidity of the organization has been on the rise in the last three financial years. The increase in current ratio from 1.21 in 2017 to 1.8 in 2019 is an indication that the firm is becoming financially stable to handle its financial obligations. The health of the company is also measured using profitability ratios in a given period. The net profit of the firm increased from 22.9% in 2017 to 32% in 2019, an indication that the firm is on the right financial track (Berkshire Hathaway Inc, 2019).
The company has a high current ratio that needs to be reduced to invest the idle cash to other projects to boost the revenue of the firm. The current assets held by the firm should be adequate to cater for the current obligations while channeling excess resources to the investment department. The interest expenses of the firm seem to be high, thus posting lower interest coverage compared to Blackrock’s ratio (Mullaney,2020). The interest coverage can be increased by reducing the interest expense through reduced debt financing or increase of EBIT through reinvestment of extra resources in the company.
References
Berkshire Hathaway Inc. (2019).Berkshire Hathaway (BRKA) balance sheet. Investing.com.https://www.investing.com/equities/berkshire-hathaway-inc-balance-sheet
Mullaney,T. (2020, February 26).For investors shaken by Dow plunge, Warren Buffett’s new advice on finding long-term market winners. CNBC.https://www.cnbc.com/2020/02/26/warren-buffetts-new-advice-on-how-to-find-long-term-stock-winners.html Running head: BERKSHIRE HATHAWAY INC.
1
BERKSHIRE HATHAWAY INC.
4
Berkshire Hathaway Inc.
David B. Jones
Financial Management
Richard Gordon
8/10/2020
Berkshire Hathaway Company is a public firm that operates in the New York Stock exchange market-based in the United States. The company is subdivided into two parts operating using the symbols BRK A and BRK B for Berkshire Hathaway A and Berkshire Hathaway B respectively. The stock prices of the company range between $311,500 and $335,996 in the past three years. The stock of Berkshire Hathaway Company is one of the most expensive stock prices in the market. The average stock price of the company is calculated by adding the annual stock prices for the three years and dividing by three (New York Stock Exchange, 2016).
Average stock price = (335,996 + 311,500 + 323,375)/3 = $323,623.67. The highest price was realized on February 1, 2020 while the lowest was realized on March 1, 2020. The highest stock price was $345,000 while the lowest stock price was $239,440.
The stock price of Berkshire Hathaway Company has remained high in the market, thus denying some of the potential investors the opportunity to be part of the shareholders in the company. The management had a negative attitude against the stock split, making the firm to operate without a stock split from the time of its formation to 2010. A stock split led to a creation of a second wing of the company known as Berkshire Hathaway Company B. The stock split was on the ratio of 50 for one share that helped in accommodating more investors. The split of the stock shares of the company into class A and B helped in the acquisition of BNSF Railroad in 2010 (Crippen, 2013).The organization has not split from 2010 and is unlikely to split because the goal of the split was accomplished in 2010. The company has 3 billion authorized shared that could be used to generate revenue for the organization within the financial year. A total of 2.39 shares were issued in the last financial year, with 2.453 billion shares outstanding at the end of the financial year ended December 30 2019 (Stempel,2020).
The organization is good for investment for various reasons. First, the leadership of Warren Buffett has proved that the company would continue to generate great profits to benefit the shareholders. The rate of return on investment has been impressive since the foundation of the company. The company has remained profitable, regardless of the economic challenges encountered by other firms in the same industry. Investors are lured by the dividend per share offered by an organization, thus making Berkshire Hathaway Company one of the best firms for the investors across the globe. The organization has reliable cash inflow that helps in meeting its current liabilities. The current ratio of the company is proof that the firm can use its current assets to offset current liabilities without using shareholders’ equity. The last benefit of investing in the firm is the revenue generated through investment in other firms (Williams, 2020). The CEO uses the assets of the firm to buy shares from other profitable firms across the globe to generate more wealth to the shareholders.
Berkshire Hathaway Company remains above its competitors in the industry because of the able leadership of Warren Buffett as the CEO of the organization. Some of the competitors of Berkshire Hathaway Company are KKR & Co, The Allstate Corporation and Leucadia National Corporation. The stock prices of Blackrock, KKR & Co, The Allstate Corporation and Leucadia National Corporation are $589.56, $36.37, $96.26 and $17.64 respectively. The stock prices of the firm show that the organizations are way below Berkshire Hathaway Company in the stock market. Comparing Berkshire Hathaway Company to Blackrock Company that is the closest competitor shows that Berkshire is more efficient, its operations than other firms in the industry. The return on assets of Berkshire Hathaway Company and Blackrock is 27.5% and 9.69% respectively while assets turnover of Berkshire Hathaway Company and Blackrock are 0.43 and 0.09 respectively.
References
Crippen, A. (2013).Berkshire Hathaway ‘B’ Shares Soar after Split. CNBC. Retrieved 14 August 2020, from https://www.cnbc.com/2010/01/21/berkshire-hathaway-b-shares-soar-after-split.html#:~:text=Berkshire%20shareholders%20approved%20a%2050,Trading%20began%20today.&text=At%20yesterday’s%20meeting%2C%20Warren%20Buffett,driver%20of%20Berkshire’s%20market%20value.
New York Stock Exchange. (2016).New York Stock Exchange: A-Z company listing: B. ADVFN – Free stock and cryptocurrency prices, charts, market news and streaming real-time quotes.
https://www.advfn.com/nyse/newyorkstockexchange.asp?companies=B
Stempel,J. (2020, July 10).Buffett’s Berkshire Hathaway reduces share count, suggesting possible buybacks. U.S.
https://www.reuters.com/article/us-berkshire-buffett-stock/buffetts-berkshire-hathaway-reduces-share-count-suggesting-possible-buybacks-idUSKBN24B2CZ
Williams,S. (2020, April 20).Seven reasons to buy Berkshire Hathaway and never sell. The Motley Fool.
https://www.fool.com/investing/2020/04/20/7-reasons-to-buy-berkshire-hathaway-and-never-sell.aspx Running head: BERKSHIRE HATHAWAY INC.
1
BERKSHIRE HATHAWAY INC.
2
Berkshire Hathaway Inc.
David B. Jones
Financial Management
Richard Gordon
8/10/2020
Berkshire Hathaway Inc. is an American firm that was formed by Chase Oliver in 1839 with the headquarter in Cumberland, Rhode Island in the United States. The organization is a public company with the majority of shares owned by Buffett Warrant. Warren owns 30.7% shares of the company. The company is an employer to over 389,000 individuals across the globe. The company operates in conglomerate industry that allows it to offer a wide range of goods and services to customers across the globe. Some of the products offered by the company include Property insurance, food processing, sporting goods, real estate, media and many others. Berkshire Hathaway Inc. is a public limited company that offers its shares to the public (Langlois, 2020). The key people in the company include Warren Buffett as the CEO and executive chairman, Munger Charles, Greg Abel and Ajit Jain as vice-Chairmen in charge of different departments.
The organization has subsidiaries in different parts of the world that help in meeting the needs of the customers across the globe. The company was listed by Forbes as the eighth largest public firm in the world. Berkshire Hathaway Inc has the most expensive shares in the world ranging between $250,000 and $310,000 per share. The company began as a textile manufacturing company before going into mergers with other firms in different industries to become the famous Berkshire Hathaway Inc. some of the areas where the company has invested include insurance and reinsurance businesses, utilities, retailing, manufacturing, and financial products. Berkshire Hathaway Inc majorly invested in Coca-Cola Company, Apple, American Express and Goldman Sachs. The investments were dome between prior to February 2018. The company has continued to sell and buy share from other firms in a bid to enhance its financial stability in the international market.
Berkshire Hathaway Inc has increased its rate of investment in the recent past. Between 20th and 27th July, 2020, the organization invested over $1.2 billion in Bank of America. Berkshire Hathaway Inc targets firms that are doing well in the market to help in boosting its financial stability. The total holding of the company is over 3.4 billion with the market value of over $244 billion. The organization became active in investment from 1994 and has continued to invest in more firms in the local and international market (Langlois, 2020). The top six companies where Berkshire Hathaway Inc has invested in the last ten year include Apple $111 billion 5.9% stake, Wells Fargo $8.7 billion 8.4% stake, Bank of America $27 billion 11.9% stake, American Express $15 billion 18.8% stake and Coca-cola $19 billion 9.3% stake. The figures show that the organization has used a large percentage of its assets to invest in other firms.
The company is valued at $817 billion, thus ranked as one of the largest firms in the industry and in the world. The capital structure of the firm consists of debt, preference shares and common shares. The debt, preference shares and common shares of Berkshire Hathaway Inc are 499 billion, $.4 billion and $425 billion respectively. The managers of the organization use the three sources of income to generate more investment opportunity for the company. Preferences shares form the least percentage of the capital structure followed by debt while common share takes the largest percentage. The company has succeeded in most of its invested because of the experience of the managers responsible for the investment activities of the company. The competition is becoming stiffer in the industry because of the increased number of firms joining as a result of the huge profits earned by the current companies (CNN, 2020). The products offered by the company are provided by other firms locally and internationally in other industries.
References
CNN. (2020, June 19). Berkshire Hathaway portfolio tracker. Retrieved from https://www.cnbc.com/berkshire-hathaway-portfolio/
Langlois, S. (2020, July 18). Diversify? Almost half of Warren Buffetts Berkshire Hathaway portfolio is now composed of a single stock. Retrieved from https://www.google.com/amp/s/www.marketwatch.com/amp/story/diversify-almost-half-of-warren-buffetts-berkshire-hathaway-portfolio-is-comprised-of-a-single-stock-2020-07-07
