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Berkshire Report

Berkshire Report

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Published by brettpeven

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Published by: brettpeven on Jul 15, 2010
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11/05/2012

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 April 2010 Vinod Palikalavpalika@hotmail.com
BerkshireHathaway
Business Analysis andValuation
 
Business Analysis and Valuation by Vinod Palikala
2
Contents
1. Company Overview ............................................................................................................................... 32. Valuation Approach .............................................................................................................................. 43. Valuation ............................................................................................................................................... 63.1. Insurance ....................................................................................................................................... 73.2. Utilities and Energy ..................................................................................................................... 123.3. Manufacturing, Service and Retail .............................................................................................. 133.4. Finance and Financial Products ................................................................................................... 143.5. Total Company Valuation ............................................................................................................ 154. Alternative Valuation Methods ........................................................................................................... 154.1. Book Value Growth ..................................................................................................................... 164.2. Look Through Earnings ................................................................................................................ 174.3. Two Column Approach ................................................................................................................ 175. Recommendation ................................................................................................................................ 18Appendix ..................................................................................................................................................... 20Float Value Calculation ........................................................................................................................... 20
 
Business Analysis and Valuation by Vinod Palikala
3
1.
 
Company Overview
Berkshire Hathaway is a unique collection of diverse business operating in a variety of industries.Management segregates the business into the segments illustrated in the diagram below.Berkshire is best viewed as a diversified conglomerate. However, it is managed on an extraordinarilydecentralized basis with no centralized business processes like human resources or sales. The onlycentralized functions are capital allocation and selection of Chief Executive for each of the operatingbusinesses. There is no attempt made to create synergies between the individual businesses. Profitsfrom each of the businesses flow back to the parent company where it is allocated opportunistically toearn high rates of return.
Insurance
Berkshire’s insurance operations are carr
ied out under four subsidiaries (1) GEICO (2) General Re (3)Berkshire Hathaway Reinsurance Group and (4) Berkshire Hathaway Primary Group. The main businessof Berkshire is insurance and is the dominant driver of the company value.
Utilities & Energy
Berkshire owns 90% of MidAmerican Energy Holdings Company. MidAmerican has several operatingunits (1) PacifiCorp (2) MidAmerican Energy Company (3) Northern Natural Gas Company (4) Kern RiverGas Transmission Company (5) CE Electric (6) CalEnergy (7) HomeServices of America. BurlingtonNorthern Santa Fe railroad acquired in 2010 is also part of this group.
Manufacturing, Service & Retail
This segment consists of very diverse group of businesses the most significant of which are (1) 64%ownership of Marmon (2) Shaw Industries (3) McLane (4) 80% ownership of ISCAR MetalworkingCompanies (5) FlightSafety International (6) NetJets.
Finance & Finance Products
This consists of four main units (1) Clayton Homes (2) XTRA Corporation (3) BH Finance (4) CORT.

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