Hi Rusmin, Victor and Adam,
I would like to ask some questions regarding Berkshire Hathaway.
1. There are 2 kinds of incomes. Net earnings attributable to Berkshire Hathaway shareholders and Comprehensive income attributable to Berkshire Hathaway shareholders. Which do I use to calculate ROE. http://www.berkshirehathaway.com/2017ar/2017ar.pdf
2. To calculate current ratio, where do I find the numbers to determine the current assets and current liabilties? In the annual report, the balance sheet is segmented into 3 portions and the current assets and liabilites are not apparent.
3. In a Q & A session in April 2018. Victor mentioned that if the PE ratio is below 10-15 for S & P 500, it is considered undervalued? Currently, Berkshire Hathaway’s PE ratio is at 10.85 and is close to the historical low PE of 9.761. Can I say that it is undervalued now and a good opportunity to buy Berkshire Hathaway? https://ycharts.com/companies/BRK.B/pe_ratio
4. Where can I find the numbers in the annual report to determine the debt to equity ratio?
For Berkshire Hathaway, Kenny [Our Seventh Person : ) ] got a better understanding of the whole business model because he just research on it. I will get him to ask your questions.
- You should net earnings to calculate ROE. Comprehensive income include items such as unrealized gains and losses on investments and foreign currency fluctuations. The volatility of these items may distort the true earning capabilities of the business.
- Unfortunately, the company did not break it down for you in the annual report. This is a good time to learn some accounting determining which items are current.
- P/E is not a good way to Berkshire Hathaway. Its earnings does not take into account their investment portfolio. For a holding company, it’s best to use P/B.
- Divide total liabilities by total equity from three different operations, taking numbers from their consolidated financial statements
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