Berkshire Hathaway Cash Position, Positive Cash Flow and Short-term financing

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