Financial Strategic Analysis Of Berkshire Hathaway

1. Background and academic context

Basic background

Berkshire Hathaway Inc. (Berkshire) is a holding company, which owns subsidiaries engaged in a variety of business activities including property and casualty insurance and reinsurance, utilities and energy, finance, manufacturing, retailing, and services. The company has operations principally in the US and Western Europe.

The major insurance subsidiaries of the company include GEICO, General Re, the Berkshire Hathaway Reinsurance Group, Berkshire Hathaway Primary Group, and National Indemnity Company. The other subsidiaries of Berkshire are MidAmerican Energy Holdings Company (MidAmerican), McLane Company, and Shaw Industries. It is headquartered in Omaha in Nebraska, the US.

Berkshire Hathaway is where Warren Buffett, the world's third-richest man (behind Mexican billionaire Carlos Slim and Warren's good buddy Bill Gates), spreads his risk by investing in a variety of industries, from insurance and utilities to apparel and food, and building materials to jewelry and furniture retailers. Its core insurance subsidiaries include GEICO, National Indemnity, and reinsurance giant General Re.

The company's other largest holdings include Marmon Group, McLane Company, MidAmerican Energy, and Shaw Industries. Known as the Oracle of Omaha, Buffett holds more than 20% of Berkshire Hathaway, which owns a majority of more than 70 firms in all and has stakes in more than a dozen others.

Berkshire Hathaway oversees and manages a number of subsidiary companies. The company wholly owns GEICO, Dairy Queen, Fruit of the Loom, Helzberg Diamonds and NetJets, owns half of Heinz and has significant minority holdings in American Express, M&T Bank, Procter & Gamble, and IBM. Berkshire Hathaway averaged an annual growth in book value of 19.7% to its shareholders for the last 48 years (compared to 9.4% from S&P 500 with dividends included for the same period), while employing large amounts of capital, and minimal debt. Berkshire Hathaway stock produced a total return of 76% from 2000–2010 versus a negative 11.3% return for the S&P 500.

The company is known for its control by investor Warren Buffett, who is the company's chairman and CEO. Buffett has used the "float" provided by Berkshire Hathaway's insurance operations (paid premiums which are not held in reserves for reported claims and may be invested) to finance his investments. In the early part of his career at Berkshire, he focused on long-term investments in publicly quoted stocks, but more recently he has turned to buying whole companies.

Berkshire now owns a diverse range of businesses including confectionery, retail, railroad, home furnishings, encyclopedias, manufacturers of vacuum cleaners, jewelry sales; newspaper publishing; manufacture and distribution of uniforms; as well as several regional electric and gas utilities.

Academic context

In the assignment, I will make a SWOT analysis of Berkshire Hathaway’s financial strategic . At second ,Identify, assess, evaluate and then select the appropriate sources of finance available to Berkshire Hathaway. At last , Warren Buffett ‘s leadership style is also become my research project .

Research question and objectives.

Question

Which typeset of corporation is your investment target ? Berkshire Hathaway is a collection of great businesses held both as fully owned operating businesses and as investments in publicly traded companies. The management at Berkshire carries a superb reputation for honest, reliably consistent and shareholder focused actions. Most importantly, Berkshire is available for investment today at historically low valuations.

Objective

The investor and me want to know why the assest has a steadily increase in a financial crisis era.

Question

Why prepare so much cash ? At that time, Berkshire had $38 billion in cash. Today it has $40 billion in ammunition.

Objective

The cash coming so fast ,how to do this ?

Academic literature review

From《Buffett Beyond Value: Why Warren Buffett Looks to Growth and Management When Investing 》 (2010) , Warren Buffett said “The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.” In my opinion, a low enterprise, but has the potential of enterprise, is not a bad company. In comparison, any one of the great was born from obscurity.

Research method

Data collection

Data collection is any process of preparing and collecting data, for example, as part of a process improvement or similar project. The purpose of data collection is to obtain information to keep on record, to make decisions about important issues, or to pass information on to others. Data are primarily collected to provide information regarding a specific topic.Data collection usually takes place early on in an improvement project, and is often formalised through a data collection plan which often contains the following activity. Pre collection activity — agree on goals, target data, definitions, methods. Collection — data collection.Present Findings — usually involves some form of sorting,analysis and/or presentation.

Secondary data are the main part in the data collection and consist of technical journal and magazine articles ,technical newspapers ,books,tape and video recording from internet .Besides, I also collect some primary data by online questionnaires from Berkshire hathaway's home page, and some other home page .

Data analysis

Online analysis and questionnaires are the main part of data analysis . In the process of data analysis,I mainly adopt some question answers,financial reporting ,consumers’s attitude and their suggestions . On the other hand ,balance sheet ,profit and loss account , Financial Statements are also as a evaluation standard .

Evaluation is a systematic way of reflecting on and assessing the value of what is being done (i.e. a project, a programme, an event). Evaluation is commonly interpreted as an end product or an activity taking place at the end of a project. However evaluation should be considered as a process, taking place across all phases of a project, used to determine what has happened and whether the initial aims of the project have been carried out and achieved. Evaluation is more than assessing and measuring,it helps set the stage for a culture of learning, change and improvement.

Access to data

Secondary data can be described as the most widely used method for data collection. This process involves accessing information that is already gathered from either the originator or a distributor of primary research. Secondary research includes collecting information from third-party sources such as company websites, sales and accounting records, magazine articles and marketing research reports. It also includes any previously gathered information used by the marketer from any internal or external source.

Advantages

  • Considerably cheaper and faster than doing original studies
  • You can benefit from the research from some of the top scholars in your field, which for the most part ensures quality data.
  • If you have limited funds and time, other surveys may have the advantage of samples drawn from larger populations.
  • How much you use previously collected data is flexible; you might only extract a few figures from a table, you might use the data in a subsidiary role in your research, or even in a central role.
  • A network of data archives in which survey data files are collected and distributed is readily available, making research for secondary analysis easily accessible.

Disadvantages

  • Since many surveys deal with national populations, if you are interested in studying a well-defined minority subgroup you will have a difficult time finding relevant data.
  • Secondary analysis can be used in irresponsible ways. If variables aren't exactly those you want, data can be manipulated and transformed in a way that might lessen the validity of the original research.
  • Much research, particularly of large samples, can involve large data files and difficult statistical packages