Berkshire Hathaway, Inc.
Founded by Warren Buffett in 1956, Berkshire Hathaway is a company that specializes in insurance and has business activities in many other areas. The most important of these are direct property and reinsurance based property and disaster insurance. Berkshire's core business is insurance, including property, accident, reinsurance, and special insurance. Berkshire has many very different businesses, but it has gradually turned into a full acquisition of the company's equity. Berkshire Hathaway's investment business is carried out by holding shares in the company. These companies include: American Express, Coca-Cola, Federal Home Mortgage Corporation, Gillette, and Washington Post.
First Impressions from Financials
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With the exception of 2018, profit margin and return on equity are at a healthy level.
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Clearly a very liquid corporation, but perhaps too liquid.
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Financial leverage throughout the last three years has been maintained at just about half debt, half equity.
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Financial leverage is at a comfortable level, but under 0.5 is ideal.
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Implications from Financials
Walt Disney Co.
The Walt Disney Co. was originally founded on October 16, 1923, by brothers Walt and Roy O. Disney as the Disney Brothers Cartoon Studio, is a diversified international family entertainment and media enterprise. It operates through the following segments: Media Networks, Parks, Experiences and Products, Studio Entertainment and Direct-to-Consumer and International (DTCI).
First Impressions from Financials
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Fairly profitable company, attractive profitability ratios.
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Not very liquid, this company does not have enough assets on hand to cover its liabilities.
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Financial leverage of this company is consistently very near or just better than the ideal level, less than 0.5.
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Financial leverage is at a comfortable level, but could be slightly improved.
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Implications from Financials
Walt Disney Co.’s gross profit margin ratio deteriorated from 2017 to 2018 and from 2018 to 2019. Operating profit margin ratio deteriorated from 2017 to 2018 and from 2018 to 2019. Net profit margin ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
1. Market Analysis
Berkshire Hathaway’s Market: Companies it owns have target markets that range from all types of people.
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Size of Market: A total of 389,000 employees in 2019 (estimated # of people)
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Market Share: The company's stock price is about $ 310,000 (% of market owned)
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Disney’s Market: Mainly children and teenagers, but also parents.
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Size of Market: A total of 201,000 employees in 2019(estimated # of people)
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Market Share: According to the statistics of the boxofficemojo website, in 2016, Disney occupied the top spot in six major Hollywood studios with a 24.2% market share.(% of market owned)
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Resources:
Producers can take advantage of a large number of local production talents and production centers and equipment, especially in Hollywood, where there are many large-scale film production facilities, modern shooting and production equipment, and more than 180 modern studios.
Technology:
Whether a movie is selling well depends not only on whether modern digital technology can bring a good movie viewing effect to the movie viewers, but whether the special effects technology is shocking is also one of consumers' expectations for movies.
2. Industry Analysis
Berkshire Hathaway:
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1. Fidelity Management and Research Company
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Fidelity Management and Research is the largest holder of Berkshire shares, with 29,215 shares. Fidelity holds Berkshire shares through its various funds, valued at Berkshire's aforementioned share price of $ 8.7 billion and constitutes 3.88% of Berkshire's outgoing stock.
2. Capital world investors
Capital World Investors is the second largest shareholder of Berkshire shares, with 21,490 shares. Capital has US $ 5.9 billion in shares, accounting for 2.85% of Berkshire's total outgoing shares. Capital is a privately owned investment manager, such as Fidelity, based in Los Angeles.
3.The first Manhattan company
The first Manhattan company was an investment manager based in New York and the third largest shareholder of Berkshire Hathaway's Class A shares. Compared to Fidelity and Capital, the first Manhattan was a relatively small asset management company with more than $ 16 billion in truth
4.Vista stock partner companies
Vista Stock Partners, the company is a technology investment company and the fourth largest shareholder in Berkshire Hathaway, with 5,390 shares worth $ 1.6 billion. The company's shares in Berkshire Hathaway account for 0.72% of all outgoing shares.
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Disney:
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Overview of American Movies:
In 2008, the annual income of US film overseas box office exceeded US $ 25.8 billion, making it the second largest currency exchange industry after aerospace. In the world film market, it accounts for 92.3% of the total. American film is the core force of the world film industry.
Competition among existing companies:
For the American film industry, it is characterized by an oligopoly formed by several large movie companies. Although there are many independent producers, they rely solely on personal financing. The amount of possession has always been small.
Cost structure:
For the six major companies, theaters consider their own interests. They are more willing to accept large-scale productions and large-scale publicity films than small-production and low-cost films. But the big movie companies are squeezing independent production companies and potential threats by setting up high costs.
3. Company Analysis
Profit Analysis (2019 Financials):
Profitability
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Company
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ROA
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ROE
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ROCE
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Sales
($ millions)
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Berkshire Hathaway
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0.10
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19.17%
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0.13
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$327,223
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Disney
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0.06
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11.77%
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0.12
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$59,434
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Activity
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Company
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Inventory Turnover
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Asset Turnover
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Berkshire Hathaway
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5.71
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0.44
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Disney
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9.4
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0.54
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Risk Analysis (2019 Financials):
Company
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Liquidity
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Solvency
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Current Ratio
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Quick Ratio
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Debt/Assets
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Debt/Equity
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Berkshire Hathaway
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4.75
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4.29
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0.48
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0.93
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Disney
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0.90
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0.84
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0.52
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1.07
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Growth Analysis:
Berkshire Hathaway
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2017
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2018
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2019
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Net Income
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$44,940
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$4,021 (-91.05%)
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$81,417 (+77,396)
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Sales
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$242,061
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$225,382 (-7.01%)
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$327,223 (+45.19%)
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Assets
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$702,095
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$707,794 (+0.81%)
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$817,729 (+15.53%)
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*dollar values are in millions
Disney
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2017
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2018
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2019
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Net Income
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$8,980
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$12,598 (+27.51%)
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$11,054 (-12.26%)
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Sales
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$55,137
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$59,434 (+7.79%)
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$69,570 (+17.05%)
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Assets
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$95,789
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$98,598 (+2.93%)
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$193,984 (+96.74%)
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*dollar values are in millions
iv. Select the best:
1. Creating composite indices using results from 3-a-I, ii, iii, & others.
2. Establish selection process:
a. Aggressive approach: consider
i. Growth potential measures first,
ii. Profit measures second
iii. Then, risk measures.
b. Conservative approach: consider
i. risk measure first
ii. profit measures second
iii. Then growth potential measures
3. Using valuation models.
a. Choose the most under-valued item which has the largest gap between the intrinsic value from the model and the current market value.
b. Methods to find intrinsic values:
i. Present value methods：
1. Cash flow based
2. Earnings based
3. Dividend based
Ii. CAPM for expected return: Ri = Rf +βi (E(Rm) - Rf ) +εi
4. Other methods to find under-valued stocks:
a. Using P/E ratios
b. Using BV/MV ratios.
b. Time series: Trend analyses
i. Growing vs. shrinking in value
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