Accounting

Daniel J Cross

Dr. Virginia Rae

BUS 100-100F

10/12/2015

Accounting

Capital Budgeting: “The process a firm uses to evaluate long-term investment proposals” (Kelly & Williams, 2015 p. 152).

Net Present Value: “The sum of the present values of expected future cash flows form an investment, minus the cost of that investment” (Kelly & Williams, 2015 p. 154).

Retained Earnings: “The part of a firm’s net income it reinvests” (Kelly & Williams, 2015 p. 146).

The stock I chose is the stock of Berkshire Hathaway Incorporated. As of right now, Tuesday, October 6, 2015, one share of Berkshire Hathaway Inc. trades at 197,840.00 United States Dollars (Google Finance, 2015). Berkshire Hathaway is the brain child of genius investor and not by coincidence the richest man in the world in 2008, he is currently ranked at third because of his astronomically expensive charitable donations. His company is a good example because Warren is known as the best investor in the 20th century and his skills reflect into his accounting and the accounting of his company. This company is so unbelievably steady, the only serious drop in their market price dates back to the 2008-2009 recession, during which the cheapest the company’s stock value dropped to was 73,000 dollars. Which even once the economy recovered, their inevitable climb continued. (Google Finance, 2015).

Warren Buffet is affiliated with many astronomical numbers beyond his charitable donations. Equity, is the total value of the shares sold by a company. Berkshire Hathaway has an equity of 246.04 billion dollars including both class A and B stock. The price of their class A stock is 197,840.00 dollars and their class B stocks cash in at 152.09 dollars. Their equity has risen 50 billion just over the last four years (Berkshire Hathaway Shareholders Equity, 2015). With Warren maintaining his ownership stake at 38.57% or 321,000 of the class A shares and 2,105,640 of the class B shares, he maintains control of his company by having a majority ownership stake and maintaining it throughout expansive growth. Not only do these numbers speak for his performance as owner thus far, but they also serve as a prediction for the future (Warren Buffett: What is Warren Buffetts net worth from his ownership stake in Berkshire Hathaway, 2015). The company has incredible revenue every quarter as well, with their lowest reported revenue for a quarter last year being 48.259 billion dollars. They have astronomical expenses as well. These expenses chop their massive revenue down to a net income of about 6 billion a quarter. To translate that this conglomerate generates on average, over the last year, about 6 billion dollars every three months. With large income comes large liability, Berkshire Hathaway’s liability totals to 286.016 billion dollars. Liability is the total cost of all the things that a company is economically responsible for like deferred income tax, minority interest and other miscellaneous debts. While this debt may seem insurmountable the company possess about 526 billion dollars just in assets (Google Finance, 2015).  

This seems like an incredible amount of assets for one company that has never even aired a television ad to claim. But this comes from the important fact that Berkshire Hathaway is a conglomerate. Which is basically a company that makes their living off buying or investing in other companies. Berkshire Hathaway completely owns Geico, Lubrizol, Dairy Queen, Fruit of the Loom, Helzberg Diamonds, FlightSafety International, and NetJets. In addition to this long list of companies they own they are partial owners of Kraft Heinz and Mars. There are also some more companies that they have smaller amounts of money invested in like American Express, Coco-Cola, Wells Fargo, and IBM (Berkshire Hathaway,2015). With this knowledge on hand one can see how they can accumulate half a trillion dollars in assets.

        With five hundred dollars just in assets and 6 billion dollars of net income after tax every three months, it is hard to argue that Berkshire Hathaway isn’t booming. They are so large that on their income statements they have to scale the numbers down to fit on the charts. Their income statement states that each digit represents one million. Their income statement has their total revenue at 51,368.00, with their numbers being scaled down they are still in the thousands, even when talking about millions. The pride of ownership by Warren Buffett is also an important aspect, with the greatest investor at the head of a company how could it be a bad investment. He has brought this company from a tapestry factory in the 60s to the fifth largest public company in the world. This is a company I would gladly invest in for a long-term investment. Honestly I think it would be smart to have a mutual fund invested in Berkshire Hathaway or have my retirement 401k held in Berkshire Hathaway stock. Just off of pride of ownership, Warren Buffett has proven himself to me and any other investors looking to spend their money in the stock exchange.