Berkshire Hathaway Financial Analysis Essay

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Berkshire HathawayBerkshire Hathaway happens to be one of the best known companies across the world. This is more so the case given that it is led by Warren Buffet, a person who has gained acclaim for his investing prowess. The company is essentially a holding company that mostly invests in other companies via acquisition of their stock. Following an assessment of the most recent SEC filing of the company (i.e. for the financial year ended 31st Dec, 2021), as well as the previous financial year’s financial statements, the following ratios were computed:CategoryFormula20212020LiquidityCurrent RatioCurrent Assets/Current Liabilities$148,896M/$46,072M3.23$141,832/$45,568M3.11Asset ManagementTotal Asset Turnover RatioTotal Revenue/Total Assets$276,094M/$958,784M0.29$245,510M/$873,729M0.28Financial LeverageDebt-to-EquityTotal Debt/Total Equity$114,262M/$514,930M0.22$116,895M/$451,336M0.26ProfitabilityReturn on EquityNet Income/Shareholders Equity$90,807M/$514,930M0.18$43,253M/$451,336M0.10Market ValueEarnings Per ShareNet Income/Average Outstanding Common Shares$90,807M/2.256B$40.25$43,253M/2.393B$18.07AnalysisFrom the onset, it would be prudent to note that Berkshire Hathaway faces some of the very same challenges being faced by most other businesses in the U.S. This is more so the case in relation to the possibility of a downturn in economic activity as a consequence of the COVID-19 pandemic. A downturn in economic activity would essentially mean that Americans have less disposable income – and thus less to spend. This would have a negative impact on the profitability of many of the enterprises in which Berkshire Hathaway has a stake, i.e. the Coca-Cola Company. The company also faces an uncertain future given the ages of Warren Buffet (91) who serves as CEO and Chairman of the Company’s Board of Directors, and…

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…has not been particularly aggressive in the deployment of debt in efforts to advance its growth agenda.

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The company’s total asset turnover ratio indicates that the firm’s asset utilization has gotten better over the last two financial years. The seemingly low ratio in this case is typical for a company like Berkshire that has a large asset base. In as far as profitability is concerned, the growth in return on equity indicates that Berkshire’s shareholders are better off than they were one year ago. If this trend were to continue, it would mean that the company is a viable investment alternative due to its efficiency in profit generation. This assertion is further supported by the 55% increase in EPS over….....

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