Intrinsic value of Berkshire Hathaway Cl B - BRK-B

Previous Close

$197.40

  Intrinsic Value

$246.72

stock screener

  Rating & Target

buy

+25%

Previous close

$197.40

 
Intrinsic value

$246.72

 
Up/down potential

+25%

 
Rating

buy

*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 486.8

 

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
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
Revenue, $m
  223,604
  237,020
  251,004
  265,588
  280,803
  296,686
  313,272
  330,600
  348,712
  367,648
  387,455
  408,179
  429,869
  452,576
  476,356
  501,263
  527,358
  554,703
  583,364
  613,407
  644,906
  677,936
  712,574
  748,905
  787,014
  826,992
  868,936
  912,944
  959,122
  1,007,580
  1,058,433
Variable operating expenses, $m
 
  197,198
  208,364
  220,008
  232,157
  244,838
  258,081
  271,917
  286,378
  301,498
  317,313
  325,911
  343,230
  361,361
  380,347
  400,235
  421,070
  442,904
  465,788
  489,777
  514,927
  541,299
  568,957
  597,965
  628,393
  660,314
  693,804
  728,942
  765,813
  804,504
  845,109
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
  197,198
  208,364
  220,008
  232,157
  244,838
  258,081
  271,917
  286,378
  301,498
  317,313
  325,911
  343,230
  361,361
  380,347
  400,235
  421,070
  442,904
  465,788
  489,777
  514,927
  541,299
  568,957
  597,965
  628,393
  660,314
  693,804
  728,942
  765,813
  804,504
  845,109
Operating income, $m
  32,744
  39,822
  42,641
  45,580
  48,647
  51,848
  55,191
  58,683
  62,333
  66,150
  70,142
  82,268
  86,639
  91,216
  96,008
  101,028
  106,288
  111,799
  117,576
  123,631
  129,979
  136,636
  143,618
  150,940
  158,621
  166,678
  175,132
  184,002
  193,309
  203,075
  213,325
EBITDA, $m
  41,645
  54,488
  57,703
  61,055
  64,553
  68,204
  72,017
  76,001
  80,164
  84,518
  89,071
  93,835
  98,821
  104,041
  109,508
  115,234
  121,233
  127,519
  134,108
  141,014
  148,256
  155,849
  163,812
  172,163
  180,924
  190,115
  199,757
  209,874
  220,490
  231,630
  243,320
Interest expense (income), $m
  3,732
  3,982
  4,796
  5,636
  6,513
  7,427
  8,382
  9,379
  10,420
  11,508
  12,646
  13,837
  15,082
  16,386
  17,750
  19,179
  20,676
  22,245
  23,888
  25,610
  27,416
  29,309
  31,294
  33,376
  35,559
  37,849
  40,252
  42,773
  45,417
  48,193
  51,105
Earnings before tax, $m
  33,667
  35,840
  37,845
  39,944
  42,134
  44,421
  46,809
  49,305
  51,914
  54,642
  57,496
  68,431
  71,557
  74,830
  78,258
  81,849
  85,611
  89,555
  93,688
  98,020
  102,563
  107,327
  112,324
  117,564
  123,062
  128,829
  134,880
  141,229
  147,891
  154,883
  162,220
Tax expense, $m
  9,240
  9,677
  10,218
  10,785
  11,376
  11,994
  12,638
  13,312
  14,017
  14,753
  15,524
  18,476
  19,320
  20,204
  21,130
  22,099
  23,115
  24,180
  25,296
  26,466
  27,692
  28,978
  30,327
  31,742
  33,227
  34,784
  36,418
  38,132
  39,931
  41,818
  43,799
Net income, $m
  24,074
  26,163
  27,627
  29,159
  30,758
  32,427
  34,171
  35,992
  37,897
  39,888
  41,972
  49,954
  52,237
  54,626
  57,128
  59,750
  62,496
  65,375
  68,392
  71,555
  74,871
  78,349
  81,996
  85,822
  89,835
  94,045
  98,462
  103,097
  107,961
  113,064
  118,421

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  75,386
  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
  578,098
  612,206
  647,775
  684,886
  723,624
  764,078
  806,343
  850,516
  896,704
  945,013
  995,558
  1,048,460
  1,103,845
  1,161,843
  1,222,593
  1,286,240
  1,352,935
  1,422,838
  1,496,116
  1,572,942
  1,653,502
  1,737,986
  1,826,597
  1,919,546
  2,017,054
  2,119,355
  2,226,692
  2,339,321
  2,457,512
  2,581,545
Adjusted assets (=assets-cash), $m
  545,468
  578,098
  612,206
  647,775
  684,886
  723,624
  764,078
  806,343
  850,516
  896,704
  945,013
  995,558
  1,048,460
  1,103,845
  1,161,843
  1,222,593
  1,286,240
  1,352,935
  1,422,838
  1,496,116
  1,572,942
  1,653,502
  1,737,986
  1,826,597
  1,919,546
  2,017,054
  2,119,355
  2,226,692
  2,339,321
  2,457,512
  2,581,545
Revenue / Adjusted assets
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
Average production assets, $m
  175,485
  186,061
  197,038
  208,486
  220,431
  232,898
  245,919
  259,521
  273,739
  288,604
  304,152
  320,420
  337,447
  355,272
  373,939
  393,491
  413,976
  435,442
  457,940
  481,525
  506,252
  532,180
  559,371
  587,890
  617,806
  649,189
  682,114
  716,661
  752,911
  790,950
  830,870
Working capital, $m
  0
  -77,743
  -82,329
  -87,113
  -92,103
  -97,313
  -102,753
  -108,437
  -114,377
  -120,589
  -127,085
  -133,883
  -140,997
  -148,445
  -156,245
  -164,414
  -172,974
  -181,943
  -191,343
  -201,198
  -211,529
  -222,363
  -233,724
  -245,641
  -258,141
  -271,253
  -285,011
  -299,446
  -314,592
  -330,486
  -347,166
Total debt, $m
  101,644
  119,899
  140,910
  162,820
  185,681
  209,543
  234,463
  260,498
  287,709
  316,160
  345,919
  377,055
  409,643
  443,759
  479,486
  516,908
  556,115
  597,199
  640,259
  685,398
  732,724
  782,348
  834,390
  888,975
  946,231
  1,006,296
  1,069,314
  1,135,433
  1,204,813
  1,277,618
  1,354,023
Total liabilities, $m
  337,853
  356,108
  377,119
  399,029
  421,890
  445,752
  470,672
  496,707
  523,918
  552,369
  582,128
  613,264
  645,852
  679,968
  715,695
  753,117
  792,324
  833,408
  876,468
  921,607
  968,933
  1,018,557
  1,070,599
  1,125,184
  1,182,440
  1,242,505
  1,305,523
  1,371,642
  1,441,022
  1,513,827
  1,590,232
Total equity, $m
  283,001
  221,990
  235,087
  248,746
  262,996
  277,872
  293,406
  309,636
  326,598
  344,334
  362,885
  382,294
  402,609
  423,876
  446,148
  469,476
  493,916
  519,527
  546,370
  574,508
  604,010
  634,945
  667,387
  701,413
  737,106
  774,549
  813,832
  855,050
  898,299
  943,685
  991,313
Total liabilities and equity, $m
  620,854
  578,098
  612,206
  647,775
  684,886
  723,624
  764,078
  806,343
  850,516
  896,703
  945,013
  995,558
  1,048,461
  1,103,844
  1,161,843
  1,222,593
  1,286,240
  1,352,935
  1,422,838
  1,496,115
  1,572,943
  1,653,502
  1,737,986
  1,826,597
  1,919,546
  2,017,054
  2,119,355
  2,226,692
  2,339,321
  2,457,512
  2,581,545
Debt-to-equity ratio
  0.359
  0.540
  0.600
  0.650
  0.710
  0.750
  0.800
  0.840
  0.880
  0.920
  0.950
  0.990
  1.020
  1.050
  1.070
  1.100
  1.130
  1.150
  1.170
  1.190
  1.210
  1.230
  1.250
  1.270
  1.280
  1.300
  1.310
  1.330
  1.340
  1.350
  1.370
Adjusted equity ratio
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24,074
  26,163
  27,627
  29,159
  30,758
  32,427
  34,171
  35,992
  37,897
  39,888
  41,972
  49,954
  52,237
  54,626
  57,128
  59,750
  62,496
  65,375
  68,392
  71,555
  74,871
  78,349
  81,996
  85,822
  89,835
  94,045
  98,462
  103,097
  107,961
  113,064
  118,421
Depreciation, amort., depletion, $m
  8,901
  14,666
  15,062
  15,475
  15,906
  16,356
  16,827
  17,318
  17,831
  18,368
  18,929
  11,568
  12,182
  12,826
  13,500
  14,205
  14,945
  15,720
  16,532
  17,384
  18,276
  19,212
  20,194
  21,223
  22,303
  23,436
  24,625
  25,872
  27,181
  28,554
  29,995
Funds from operations, $m
  39,456
  40,829
  42,689
  44,634
  46,664
  48,783
  50,997
  53,310
  55,728
  58,256
  60,901
  61,522
  64,419
  67,452
  70,628
  73,955
  77,441
  81,095
  84,924
  88,939
  93,148
  97,561
  102,190
  107,045
  112,139
  117,482
  123,088
  128,969
  135,142
  141,619
  148,416
Change in working capital, $m
  6,921
  -4,401
  -4,587
  -4,783
  -4,991
  -5,209
  -5,440
  -5,684
  -5,940
  -6,211
  -6,497
  -6,797
  -7,114
  -7,448
  -7,800
  -8,170
  -8,559
  -8,969
  -9,401
  -9,854
  -10,332
  -10,834
  -11,361
  -11,916
  -12,500
  -13,113
  -13,757
  -14,435
  -15,146
  -15,894
  -16,680
Cash from operations, $m
  32,535
  45,230
  47,275
  49,417
  51,655
  53,993
  56,437
  58,994
  61,668
  64,467
  67,397
  68,319
  71,533
  74,900
  78,428
  82,125
  86,001
  90,064
  94,325
  98,793
  103,479
  108,395
  113,552
  118,962
  124,638
  130,595
  136,845
  143,404
  150,288
  157,513
  165,096
Maintenance CAPEX, $m
  0
  -6,335
  -6,717
  -7,113
  -7,527
  -7,958
  -8,408
  -8,878
  -9,369
  -9,882
  -10,419
  -10,980
  -11,568
  -12,182
  -12,826
  -13,500
  -14,205
  -14,945
  -15,720
  -16,532
  -17,384
  -18,276
  -19,212
  -20,194
  -21,223
  -22,303
  -23,436
  -24,625
  -25,872
  -27,181
  -28,554
New CAPEX, $m
  -12,954
  -10,576
  -10,978
  -11,448
  -11,944
  -12,468
  -13,020
  -13,603
  -14,217
  -14,865
  -15,548
  -16,268
  -17,027
  -17,825
  -18,667
  -19,552
  -20,485
  -21,466
  -22,498
  -23,584
  -24,727
  -25,928
  -27,191
  -28,519
  -29,916
  -31,383
  -32,925
  -34,546
  -36,250
  -38,040
  -39,920
Cash from investing activities, $m
  -84,267
  -16,911
  -17,695
  -18,561
  -19,471
  -20,426
  -21,428
  -22,481
  -23,586
  -24,747
  -25,967
  -27,248
  -28,595
  -30,007
  -31,493
  -33,052
  -34,690
  -36,411
  -38,218
  -40,116
  -42,111
  -44,204
  -46,403
  -48,713
  -51,139
  -53,686
  -56,361
  -59,171
  -62,122
  -65,221
  -68,474
Free cash flow, $m
  -51,732
  28,318
  29,581
  30,856
  32,184
  33,567
  35,009
  36,513
  38,082
  39,720
  41,430
  41,071
  42,939
  44,892
  46,935
  49,073
  51,310
  53,653
  56,106
  58,676
  61,369
  64,191
  67,148
  70,249
  73,499
  76,908
  80,483
  84,233
  88,166
  92,292
  96,622
Issuance/(repayment) of debt, $m
  12,679
  20,349
  21,010
  21,911
  22,860
  23,863
  24,920
  26,035
  27,211
  28,451
  29,758
  31,136
  32,588
  34,117
  35,727
  37,422
  39,206
  41,084
  43,060
  45,139
  47,325
  49,625
  52,042
  54,584
  57,256
  60,065
  63,017
  66,120
  69,380
  72,805
  76,404
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  12,791
  20,349
  21,010
  21,911
  22,860
  23,863
  24,920
  26,035
  27,211
  28,451
  29,758
  31,136
  32,588
  34,117
  35,727
  37,422
  39,206
  41,084
  43,060
  45,139
  47,325
  49,625
  52,042
  54,584
  57,256
  60,065
  63,017
  66,120
  69,380
  72,805
  76,404
Total cash flow (excl. dividends), $m
  -39,113
  48,668
  50,591
  52,767
  55,044
  57,430
  59,929
  62,548
  65,293
  68,171
  71,189
  72,207
  75,527
  79,009
  82,662
  86,495
  90,517
  94,737
  99,167
  103,815
  108,694
  113,815
  119,191
  124,833
  130,756
  136,973
  143,500
  150,352
  157,546
  165,098
  173,026
Retained Cash Flow (-), $m
  -27,451
  -12,281
  -13,097
  -13,659
  -14,251
  -14,875
  -15,534
  -16,230
  -16,963
  -17,736
  -18,551
  -19,410
  -20,314
  -21,268
  -22,271
  -23,328
  -24,440
  -25,611
  -26,843
  -28,139
  -29,501
  -30,935
  -32,442
  -34,027
  -35,692
  -37,443
  -39,283
  -41,217
  -43,250
  -45,385
  -47,629
Prev. year cash balance distribution, $m
 
  73,292
  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
 
  109,679
  37,494
  39,108
  40,794
  42,555
  44,395
  46,318
  48,330
  50,435
  52,638
  52,798
  55,212
  57,741
  60,391
  63,167
  66,076
  69,126
  72,324
  75,677
  79,193
  82,880
  86,749
  90,806
  95,063
  99,530
  104,217
  109,135
  114,296
  119,713
  125,397
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
 
  105,157
  34,324
  34,035
  33,590
  32,985
  32,219
  31,292
  30,208
  28,972
  27,596
  25,073
  23,561
  21,954
  20,274
  18,545
  16,791
  15,041
  13,319
  11,652
  10,063
  8,573
  7,198
  5,952
  4,842
  3,872
  3,041
  2,342
  1,768
  1,307
  944
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in various business activities. Its segments include Insurance, such as GEICO, Berkshire Hathaway Primary Group, General Re Corporation and Berkshire Hathaway Reinsurance Group; Burlington Northern Santa Fe, LLC, which is engaged in the operation of the railroad system; Berkshire Hathaway Energy, which includes regulated electric and gas utility; Manufacturing, which includes manufacturers of various products, including industrial, consumer and building products; McLane Company, which is engaged in the wholesale distribution of groceries and non-food items; Service and retailing, which includes providers of various services, including fractional aircraft ownership programs, aviation pilot training and various retailing businesses, and Finance and financial products, which includes manufactured housing and related consumer financing, transportation equipment, manufacturing and leasing, and furniture leasing.

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 36
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 6% 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 78.5%.

Life of production assets of 27.7 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 -32.8%. 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 2466.09 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 $486.8 billion.

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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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