Intrinsic value of Berkshire Hathaway Cl B - BRK-B

Previous Close

$178.54

  Intrinsic Value

$459.53

stock screener

  Rating & Target

str. buy

+157%

  Value-price divergence*

+24%

Previous close

$178.54

 
Intrinsic value

$459.53

 
Up/down potential

+157%

 
Rating

str. buy

 
Value-price divergence*

+24%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of BRK-B stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 441.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.00
  25.00
  23.00
  21.20
  19.58
  18.12
  16.81
  15.63
  14.57
  13.61
  12.75
  11.97
  11.28
  10.65
  10.08
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
  6.29
  6.16
  6.05
  5.94
Revenue, $m
  223,604
  279,505
  343,791
  416,675
  498,260
  588,554
  687,489
  794,936
  910,726
  1,034,669
  1,166,573
  1,306,254
  1,453,550
  1,608,332
  1,770,512
  1,940,045
  2,116,935
  2,301,236
  2,493,054
  2,692,546
  2,899,918
  3,115,426
  3,339,375
  3,572,114
  3,814,038
  4,065,586
  4,327,239
  4,599,519
  4,882,987
  5,178,246
  5,485,939
Variable operating expenses, $m
 
  231,120
  282,449
  340,644
  405,785
  477,881
  556,876
  642,667
  735,120
  834,083
  939,402
  1,042,981
  1,160,590
  1,284,177
  1,413,670
  1,549,033
  1,690,272
  1,837,427
  1,990,585
  2,149,869
  2,315,446
  2,487,519
  2,666,331
  2,852,162
  3,045,328
  3,246,177
  3,455,094
  3,672,496
  3,898,832
  4,134,583
  4,380,261
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  190,860
  231,120
  282,449
  340,644
  405,785
  477,881
  556,876
  642,667
  735,120
  834,083
  939,402
  1,042,981
  1,160,590
  1,284,177
  1,413,670
  1,549,033
  1,690,272
  1,837,427
  1,990,585
  2,149,869
  2,315,446
  2,487,519
  2,666,331
  2,852,162
  3,045,328
  3,246,177
  3,455,094
  3,672,496
  3,898,832
  4,134,583
  4,380,261
Operating income, $m
  32,744
  48,385
  61,342
  76,031
  92,475
  110,673
  130,613
  152,269
  175,606
  200,587
  227,172
  263,272
  292,960
  324,156
  356,843
  391,012
  426,663
  463,809
  502,469
  542,676
  584,472
  627,907
  673,043
  719,951
  768,710
  819,409
  872,145
  927,022
  984,155
  1,043,663
  1,105,678
EBITDA, $m
  41,645
  64,454
  79,279
  96,086
  114,900
  135,722
  158,536
  183,314
  210,015
  238,597
  269,014
  301,224
  335,191
  370,884
  408,283
  447,378
  488,169
  530,669
  574,903
  620,906
  668,726
  718,423
  770,066
  823,736
  879,524
  937,531
  997,869
  1,060,657
  1,126,025
  1,194,112
  1,265,067
Interest expense (income), $m
  3,732
  3,982
  7,349
  11,212
  15,592
  20,495
  25,921
  31,867
  38,324
  45,282
  52,731
  60,658
  69,052
  77,904
  87,205
  96,952
  107,140
  117,770
  128,846
  140,373
  152,362
  164,824
  177,775
  191,234
  205,220
  219,759
  234,876
  250,600
  266,963
  283,998
  301,742
Earnings before tax, $m
  33,667
  44,403
  53,993
  64,819
  76,882
  90,178
  104,692
  120,402
  137,282
  155,304
  174,441
  202,615
  223,908
  246,252
  269,637
  294,060
  319,523
  346,038
  373,623
  402,303
  432,110
  463,083
  495,268
  528,717
  563,490
  599,651
  637,269
  676,422
  717,192
  759,665
  803,936
Tax expense, $m
  9,240
  11,989
  14,578
  17,501
  20,758
  24,348
  28,267
  32,509
  37,066
  41,932
  47,099
  54,706
  60,455
  66,488
  72,802
  79,396
  86,271
  93,430
  100,878
  108,622
  116,670
  125,032
  133,722
  142,754
  152,142
  161,906
  172,063
  182,634
  193,642
  205,110
  217,063
Net income, $m
  24,074
  32,414
  39,415
  47,318
  56,124
  65,830
  76,425
  87,894
  100,216
  113,372
  127,342
  147,909
  163,453
  179,764
  196,835
  214,664
  233,252
  252,608
  272,745
  293,681
  315,440
  338,050
  361,546
  385,964
  411,348
  437,745
  465,206
  493,788
  523,550
  554,556
  586,873

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  86,370
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  620,854
  668,672
  822,467
  996,830
  1,192,009
  1,408,025
  1,644,711
  1,901,760
  2,178,769
  2,475,286
  2,790,845
  3,125,009
  3,477,392
  3,847,685
  4,235,675
  4,641,256
  5,064,437
  5,505,349
  5,964,244
  6,441,497
  6,937,602
  7,453,172
  7,988,934
  8,545,726
  9,124,493
  9,726,283
  10,352,247
  11,003,633
  11,681,786
  12,388,148
  13,124,255
Adjusted assets (=assets-cash), $m
  534,484
  668,672
  822,467
  996,830
  1,192,009
  1,408,025
  1,644,711
  1,901,760
  2,178,769
  2,475,286
  2,790,845
  3,125,009
  3,477,392
  3,847,685
  4,235,675
  4,641,256
  5,064,437
  5,505,349
  5,964,244
  6,441,497
  6,937,602
  7,453,172
  7,988,934
  8,545,726
  9,124,493
  9,726,283
  10,352,247
  11,003,633
  11,681,786
  12,388,148
  13,124,255
Revenue / Adjusted assets
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
Average production assets, $m
  192,226
  240,374
  295,660
  358,340
  428,503
  506,157
  591,241
  683,645
  783,224
  889,816
  1,003,253
  1,123,378
  1,250,053
  1,383,166
  1,522,640
  1,668,439
  1,820,564
  1,979,063
  2,144,027
  2,315,589
  2,493,929
  2,679,266
  2,871,862
  3,072,018
  3,280,073
  3,496,404
  3,721,426
  3,955,586
  4,199,369
  4,453,292
  4,717,907
Working capital, $m
  0
  -27,951
  -34,379
  -41,667
  -49,826
  -58,855
  -68,749
  -79,494
  -91,073
  -103,467
  -116,657
  -130,625
  -145,355
  -160,833
  -177,051
  -194,005
  -211,693
  -230,124
  -249,305
  -269,255
  -289,992
  -311,543
  -333,937
  -357,211
  -381,404
  -406,559
  -432,724
  -459,952
  -488,299
  -517,825
  -548,594
Total debt, $m
  101,644
  183,717
  280,300
  389,800
  512,373
  648,031
  796,670
  958,096
  1,132,058
  1,318,270
  1,516,442
  1,726,297
  1,947,593
  2,180,137
  2,423,795
  2,678,500
  2,944,258
  3,221,150
  3,509,336
  3,809,051
  4,120,605
  4,444,383
  4,780,842
  5,130,507
  5,493,973
  5,871,897
  6,265,002
  6,674,073
  7,099,953
  7,543,548
  8,005,823
Total liabilities, $m
  337,853
  419,926
  516,509
  626,009
  748,582
  884,240
  1,032,879
  1,194,305
  1,368,267
  1,554,479
  1,752,651
  1,962,506
  2,183,802
  2,416,346
  2,660,004
  2,914,709
  3,180,467
  3,457,359
  3,745,545
  4,045,260
  4,356,814
  4,680,592
  5,017,051
  5,366,716
  5,730,182
  6,108,106
  6,501,211
  6,910,282
  7,336,162
  7,779,757
  8,242,032
Total equity, $m
  283,001
  248,746
  305,958
  370,821
  443,427
  523,785
  611,833
  707,455
  810,502
  920,806
  1,038,194
  1,162,503
  1,293,590
  1,431,339
  1,575,671
  1,726,547
  1,883,971
  2,047,990
  2,218,699
  2,396,237
  2,580,788
  2,772,580
  2,971,884
  3,179,010
  3,394,311
  3,618,177
  3,851,036
  4,093,351
  4,345,625
  4,608,391
  4,882,223
Total liabilities and equity, $m
  620,854
  668,672
  822,467
  996,830
  1,192,009
  1,408,025
  1,644,712
  1,901,760
  2,178,769
  2,475,285
  2,790,845
  3,125,009
  3,477,392
  3,847,685
  4,235,675
  4,641,256
  5,064,438
  5,505,349
  5,964,244
  6,441,497
  6,937,602
  7,453,172
  7,988,935
  8,545,726
  9,124,493
  9,726,283
  10,352,247
  11,003,633
  11,681,787
  12,388,148
  13,124,255
Debt-to-equity ratio
  0.359
  0.740
  0.920
  1.050
  1.160
  1.240
  1.300
  1.350
  1.400
  1.430
  1.460
  1.480
  1.510
  1.520
  1.540
  1.550
  1.560
  1.570
  1.580
  1.590
  1.600
  1.600
  1.610
  1.610
  1.620
  1.620
  1.630
  1.630
  1.630
  1.640
  1.640
Adjusted equity ratio
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24,074
  32,414
  39,415
  47,318
  56,124
  65,830
  76,425
  87,894
  100,216
  113,372
  127,342
  147,909
  163,453
  179,764
  196,835
  214,664
  233,252
  252,608
  272,745
  293,681
  315,440
  338,050
  361,546
  385,964
  411,348
  437,745
  465,206
  493,788
  523,550
  554,556
  586,873
Depreciation, amort., depletion, $m
  8,901
  16,069
  17,937
  20,055
  22,425
  25,048
  27,923
  31,045
  34,409
  38,010
  41,842
  37,952
  42,232
  46,729
  51,441
  56,366
  61,506
  66,860
  72,433
  78,229
  84,254
  90,516
  97,022
  103,784
  110,813
  118,122
  125,724
  133,635
  141,871
  150,449
  159,389
Funds from operations, $m
  39,456
  48,484
  57,352
  67,373
  78,549
  90,879
  104,348
  118,938
  134,625
  151,382
  169,184
  185,861
  205,684
  226,492
  248,276
  271,030
  294,758
  319,468
  345,178
  371,910
  399,694
  428,566
  458,568
  489,748
  522,161
  555,867
  590,930
  627,423
  665,420
  705,005
  746,262
Change in working capital, $m
  6,921
  -5,590
  -6,429
  -7,288
  -8,158
  -9,029
  -9,893
  -10,745
  -11,579
  -12,394
  -13,190
  -13,968
  -14,730
  -15,478
  -16,218
  -16,953
  -17,689
  -18,430
  -19,182
  -19,949
  -20,737
  -21,551
  -22,395
  -23,274
  -24,192
  -25,155
  -26,165
  -27,228
  -28,347
  -29,526
  -30,769
Cash from operations, $m
  32,535
  54,074
  63,781
  74,661
  86,708
  99,908
  114,242
  129,683
  146,204
  163,776
  182,374
  199,829
  220,414
  241,971
  264,494
  287,983
  312,447
  337,898
  364,360
  391,860
  420,432
  450,117
  480,963
  513,022
  546,354
  581,022
  617,096
  654,651
  693,767
  734,531
  777,031
Maintenance CAPEX, $m
  0
  -6,494
  -8,121
  -9,989
  -12,106
  -14,476
  -17,100
  -19,974
  -23,096
  -26,460
  -30,061
  -33,894
  -37,952
  -42,232
  -46,729
  -51,441
  -56,366
  -61,506
  -66,860
  -72,433
  -78,229
  -84,254
  -90,516
  -97,022
  -103,784
  -110,813
  -118,122
  -125,724
  -133,635
  -141,871
  -150,449
New CAPEX, $m
  -12,954
  -48,149
  -55,286
  -62,680
  -70,163
  -77,653
  -85,084
  -92,404
  -99,579
  -106,592
  -113,437
  -120,125
  -126,675
  -133,113
  -139,475
  -145,798
  -152,125
  -158,499
  -164,964
  -171,563
  -178,340
  -185,337
  -192,596
  -200,156
  -208,055
  -216,332
  -225,021
  -234,160
  -243,783
  -253,923
  -264,616
Cash from investing activities, $m
  -84,267
  -54,643
  -63,407
  -72,669
  -82,269
  -92,129
  -102,184
  -112,378
  -122,675
  -133,052
  -143,498
  -154,019
  -164,627
  -175,345
  -186,204
  -197,239
  -208,491
  -220,005
  -231,824
  -243,996
  -256,569
  -269,591
  -283,112
  -297,178
  -311,839
  -327,145
  -343,143
  -359,884
  -377,418
  -395,794
  -415,065
Free cash flow, $m
  -51,732
  -569
  374
  1,993
  4,439
  7,778
  12,058
  17,305
  23,528
  30,725
  38,876
  45,810
  55,787
  66,626
  78,290
  90,744
  103,955
  117,894
  132,536
  147,864
  163,862
  180,525
  197,851
  215,844
  234,514
  253,877
  273,952
  294,767
  316,350
  338,737
  361,967
Issuance/(repayment) of debt, $m
  12,679
  84,167
  96,583
  109,500
  122,573
  135,658
  148,639
  161,427
  173,962
  186,212
  198,171
  209,855
  221,296
  232,544
  243,658
  254,705
  265,758
  276,893
  288,186
  299,715
  311,554
  323,778
  336,459
  349,665
  363,466
  377,924
  393,105
  409,070
  425,880
  443,595
  462,275
Issuance/(repurchase) of shares, $m
  0
  17,607
  17,797
  17,545
  16,482
  14,528
  11,622
  7,729
  2,831
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  12,791
  101,774
  114,380
  127,045
  139,055
  150,186
  160,261
  169,156
  176,793
  186,212
  198,171
  209,855
  221,296
  232,544
  243,658
  254,705
  265,758
  276,893
  288,186
  299,715
  311,554
  323,778
  336,459
  349,665
  363,466
  377,924
  393,105
  409,070
  425,880
  443,595
  462,275
Total cash flow (excl. dividends), $m
  -39,113
  101,205
  114,754
  129,038
  143,494
  157,964
  172,319
  186,460
  200,322
  216,937
  237,047
  255,665
  277,084
  299,170
  321,948
  345,449
  369,713
  394,787
  420,722
  447,578
  475,416
  504,303
  534,310
  565,510
  597,980
  631,801
  667,058
  703,837
  742,230
  782,332
  824,242
Retained Cash Flow (-), $m
  -27,451
  -50,021
  -57,212
  -64,863
  -72,607
  -80,358
  -88,047
  -95,622
  -103,047
  -110,304
  -117,388
  -124,309
  -131,086
  -137,749
  -144,332
  -150,876
  -157,424
  -164,019
  -170,709
  -177,538
  -184,551
  -191,792
  -199,304
  -207,127
  -215,301
  -223,866
  -232,859
  -242,316
  -252,273
  -262,767
  -273,832
Prev. year cash balance distribution, $m
 
  84,276
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  135,460
  57,542
  64,174
  70,887
  77,606
  84,272
  90,838
  97,274
  106,633
  119,659
  131,356
  145,997
  161,421
  177,616
  194,573
  212,290
  230,767
  250,013
  270,040
  290,865
  312,511
  335,006
  358,383
  382,678
  407,935
  434,199
  461,522
  489,957
  519,566
  550,410
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  129,875
  52,678
  55,849
  58,368
  60,154
  61,159
  61,369
  60,799
  61,255
  62,733
  62,379
  62,302
  61,375
  59,629
  57,123
  53,947
  50,211
  46,042
  41,579
  36,960
  32,324
  27,797
  23,489
  19,491
  15,869
  12,668
  9,906
  7,580
  5,672
  4,144
Current shareholders' claim on cash, %
  100
  94.6
  90.5
  87.3
  84.8
  83.1
  81.9
  81.3
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1
  81.1

Berkshire Hathaway Inc. operates as a holding company. It provides property and casualty insurance and reinsurance, as well as life, accident, and health reinsurance; and operates railroad systems in North America. The company also generates, transmits, and distributes electricity primarily from solar, wind, nuclear, geothermal, and hydro sources; operates natural gas distribution and storage facilities, interstate pipelines, and compressor and meter stations; and holds interest in coal mining assets. In addition, it offers real estate brokerage services; invests in fixed-income and equity instruments; and engages in manufactured housing and finance business, leasing of transportation equipment, and furniture leasing activities. Further, the company manufactures boxed chocolates and other confectionery products; specialty chemicals, metal cutting tools, and other products; flooring, insulation, roofing and engineered, building and engineered components, paints and coatings, and bricks and masonry products; recreational vehicles, apparel products, jewelry, and custom picture framing products; and alkaline batteries. Additionally, it manufactures structural investment castings and forged components, machined airframe components and engineered critical fasteners; airfoil castings; titanium and nickel superalloy melted and mill products; and seamless pipes, fittings, and forgings. The company distributes newspapers, televisions, and information; franchises and services quick service restaurants; distributes electronic components; and offers steel and logistics services, professional aviation training programs, and fractional aircraft ownership programs. In addition, it retails automobiles; furniture, bedding, and accessories; household appliances, electronics, and computers; jewelry, watches, crystal, china, stemware, flatware, gifts, and collectibles; kitchenware; and motorcycle accessories. The company was founded in 1889 and is headquartered in Omaha, Nebraska.

FINANCIAL RATIOS  of  Berkshire Hathaway Cl B (BRK-B)

Valuation Ratios
P/E Ratio 0
Price to Sales 0
Price to Book 0
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate 6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -19.5%
Cap. Spend. - 3 Yr. Gr. Rate 3.2%
Financial Strength
Quick Ratio 41
Current Ratio NaN
LT Debt to Equity 35.2%
Total Debt to Equity 35.9%
Interest Coverage 10
Management Effectiveness
Return On Assets 4.6%
Ret/ On Assets - 3 Yr. Avg. 4.6%
Return On Total Capital 6.6%
Ret/ On T. Cap. - 3 Yr. Avg. 6.8%
Return On Equity 8.9%
Return On Equity - 3 Yr. Avg. 9.1%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 24.4%
Gross Margin - 3 Yr. Avg. 24.4%
EBITDA Margin 20.7%
EBITDA Margin - 3 Yr. Avg. 20.8%
Operating Margin 14.6%
Oper. Margin - 3 Yr. Avg. 15.2%
Pre-Tax Margin 15.1%
Pre-Tax Margin - 3 Yr. Avg. 15.4%
Net Profit Margin 10.8%
Net Profit Margin - 3 Yr. Avg. 10.8%
Effective Tax Rate 27.4%
Eff/ Tax Rate - 3 Yr. Avg. 28.6%
Payout Ratio 0%

BRK-B stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BRK-B stock intrinsic value calculation we used $223604 million for the last fiscal year's total revenue generated by Berkshire Hathaway Cl B. The default revenue input number comes from 2016 income statement of Berkshire Hathaway Cl B. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BRK-B stock valuation model: a) initial revenue growth rate of 25% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for BRK-B is calculated based on our internal credit rating of Berkshire Hathaway Cl B, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Berkshire Hathaway Cl B.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BRK-B stock the variable cost ratio is equal to 83.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for BRK-B stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4% for Berkshire Hathaway Cl B.

Corporate tax rate of 27% is the nominal tax rate for Berkshire Hathaway Cl B. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BRK-B stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BRK-B are equal to 86%.

Life of production assets of 29.6 years is the average useful life of capital assets used in Berkshire Hathaway Cl B operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BRK-B is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $283001 million for Berkshire Hathaway Cl B - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 2470.67 million for Berkshire Hathaway Cl B is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Berkshire Hathaway Cl B at the current share price and the inputted number of shares is $441.1 billion.

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COMPANY NEWS

▶ [$$] Elliott Moves to Block Berkshires Oncor Bid; Buffett Stands Pat   [Aug-17-17 12:33AM  The Wall Street Journal]
▶ Top Stocks Warren Buffett's Buying Now   [08:45PM  Motley Fool]
▶ [$$] Elliott Moves to Block Buffett Bid for Oncor   [06:34PM  The Wall Street Journal]
▶ [$$] Elliott Management Buys Slice of Energy Future Debt   [05:43PM  The Wall Street Journal]
▶ 3 Warren Buffett Stocks to Buy Right Now   [03:42PM  Motley Fool]
▶ [$$] Corrections & Amplifications   [12:26AM  The Wall Street Journal]
▶ How Warren Buffett Made $1.5 Billion on GE   [12:25AM  The Wall Street Journal]
▶ [$$] Berkshire Made $1.5 Billion on GE   [12:10AM  The Wall Street Journal]
▶ [$$] Corrections & Amplifications   [Aug-15-17 09:56PM  The Wall Street Journal]
▶ How Warren Buffett Made $1.5 Billion on GE   [03:06PM  The Wall Street Journal]
▶ 3 Warren Buffett Stocks for Retirees   [11:00AM  Motley Fool]
▶ Warren Buffett sells all $315M worth of shares in General Electric   [05:30AM  American City Business Journals]
▶ GE Sale Is the Standout in Berkshire's Portfolio   [Aug-14-17 07:00PM  Morningstar]
▶ Warren Buffett's $100 Billion Problem   [Aug-13-17 08:23AM  Motley Fool]
▶ How Monetary Policy and Rate Hikes Could Impact Berkshire   [Aug-10-17 10:35AM  Market Realist]
▶ How Berkshires Manufacturing Division Fared   [09:06AM  Market Realist]
▶ How Did Berkshires Energy Investments Fare?   [07:38AM  Market Realist]
▶ Why Berkshires Insurance Profit Fell   [10:39AM  Market Realist]
▶ What Drove Berkshires 2Q17 Performance?   [08:11AM  Market Realist]
▶ 3 Warren Buffett Stocks to Buy in August   [08:32AM  Motley Fool]
▶ Buffett's Berkshire Hathaway Struggles to Find Profits   [Aug-06-17 07:08PM  Bloomberg Video]
▶ [$$] Warren Buffetts Berkshire Hathaway Reports 15% Profit Drop   [Aug-04-17 11:47PM  The Wall Street Journal]
▶ Berkshire posts 2Q profit   [10:14PM  Associated Press]
Stock chart of BRK-B Financial statements of BRK-B
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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