Summary - Assignment Example

Summary Task Introduction This work presents a summary of the eighteen - year period of Berkshire Hathaway annual reports (from1995 to 2012). The summary is specifically on the leverage level of the company between the stated periods. This will involve analyses of the company’s capital structure and the potential effects of the identified leverage level on the company’s operations. The summary also covers the portrayed trend in the company’s leverage level between the stated periods. Below are the analyses.

The company’s leverage analysis between 1995 and 2012 In the year 1995, the company’s level of debt, according to the period’s financial statement was $ 1,061,700. The figure, as compared to the debt level in 1994, shows an increase of $ 251,000. On the other hand, the company’s equity level in the year 1995 was $ 29,928,800. From the company’s capital structure, it is possible to determine the leverage level, which is as follows (1,061,700/16,738,700) = 6.343%. This means that in the year 1995, 6.

343% of the company’s capital structure was debt. Therefore, the leverage level was low. In the year 1996, the outstanding borrowing was 1,944,400 up from 1,061,700 in the previous year. On the other hand, the company’s equity level was 23,457,700. Therefore, the company’s leverage level = (1,944,400/23,457,700) = 8.289%. The increase in the leverage level is due to an increase in the outstanding borrowing in the year 1996. The company’s debt level is still manageable. In the year 1997, the company’s borrowing under investment agreement and other debts was 2,266,700, up from 1,944,400 in the previous year thus, increasing the company’s total debt.

The company’s equity level rose from 23,426,300 to 31,455,200. Therefore the leverage level = (2,266,700/31,455,200) = 7.206 %. The gearing ratio has decreased as compared to the previous year. The decrease is attributed to more than proportionate increase in shareholders’ equity (Berkshire Hathaway Inc., n.d.). The year 1998 presents $ 2,385,000 as the borrowing under investment agreements. The figure is up from 2,266,700 of the previous year. Thus, increases the company’s total debt.

On the other hand, the company’s total equity stands at 57, 403,000 up from 31,455,000. Using this record, the company’s gearing/leverage level = (2,385,000/57,403,000) = 4.15 %. Consequently, the company’s leverage level has decreased as compared to the previous year. In the year 1999, the company’s borrowings under investment agreement and other debt stands at 2,465,000 up from 2,385,000. This explains the increase in the company’s total debts. On the other hand, the shareholder’s equity for the period stands at 57,761,000 up from 57,403,000.

Therefore, the company’s leverage level = (2,465,000/57,761,000) = 4.268 %. This shows an increase in the leverage level as compared to the previous year. In the year 2000, company’s fixed charge capital was 2,663,000 up from 2,465,000 in the previous year. This implies an increase in the interest expense. The other component of capital structure, equity, stands at $ 61,724,000 up from 57,761,000 in the previous year. The Berkshire Hathaway’s gearing/leverage level = (2,663,000/61,724,000) = 4.314 %. The figure represents an increase in leverage level as compared to the previous year (Berkshire Hathaway Inc., n.d.). In the year 2001, company’s fixed charge capital was 2,663,000 up from 2,465,000 in the previous year.

This implies an increase in the interest expense. The other component of capital structure, equity, stands at $ 61,724,000 up from 57,761,000 in the previous year. The Berkshire Hathaway’s gearing/leverage level = (3,485,000/57,950,000) = 6.014 %. The figure represents an increase in leverage level due to a decrease in total equity and an increase in the company’s borrowings. In the year 2002, the company’s fixed charge and other forms of long-term borrowing increased to $ 28,726,000. There was also a large increase, in the company’s equity shares, to 64,037,000.

These events put the company’s gearing level at = (28,726,000/64,037,000) = 44.86 %. The reason behind the increased leverage level is the business expansion plan the company had. Therefore, the leverage level of the company has increased. In the year 2003, the company’s fixed charge and other forms of long-term borrowing decreased to $ 21,963,000 from $ 28,970,000. On the other hand, the company’s shareholder equity increased to 77,596,000. From these data, the companys, gearing level is = (21,963,000/77,596,000) = 28.30 %. The repayment of a portion of the company’s debt (Berkshire Hathaway Inc., n.d) caused the decrease in the leverage level.

In the year 2004, the company’s fixed charge and other forms of long-term borrowing decreased to $ 20,408,000 from $ 21,963,000. On the other hand, the company’s shareholder equity increased to $ 85,900,000 from 77,596,000 of the previous year. From these data, the companys, gearing level is = (20,408,000/85,900,000) = 23.76 %, which is a decrease due to a decrease in debt and an increase in the total equity. In the financial year 2005, the company’s fixed charge and other forms of long-term borrowing decreased to $ 20,280,000.

On the other hand, the company’s shareholder equity increased to $ 91,484,000. Therefore, the leverage level of the company is = (20,280,000/91,484,000) = 22.17%. In the financial year 2006, the company’s fixed charge debt and other forms of long-term borrowing decreased to $ 19,387,000. On the other hand, the company’s shareholder equity increased to $ 108,419,000. Therefore, the leverage level of the company is = (19,387,000/108,419,000) = 17.88%. In the year 2007, the company’s fixed charge debt and other forms of long-term borrowing increased to $ 21,962,000.

On the other hand, the company’s shareholder equity increased to $ 120,733,000. Therefore, the gearing level of the company is = (21,962,000/120,733,000) = 18.19% (Berkshire Hathaway Inc., n.d.). In the financial year 2008, the company’s fixed charge and other forms of long-term borrowing increased to $ 30,656,000. On the other hand, the company’s shareholder equity decreased to $ 109,267,000. Therefore, the leverage level of the company is = (30,656,000/109,267,000) = 28.06%. In the financial year 2009, the company’s fixed charge and other forms of long-term borrowing decreased to $ 26,394,000.

On the other hand, the company’s shareholder equity increased to $ 135,785,000. Therefore, the leverage level of the company is = (26,394,000/135,785,000) = 19.44%. The leverage level has decreased compared to the previous year. In the financial year 2010, the company’s fixed charge and other forms of long-term borrowing increased to $ 24,016,000. On the other hand, the company’s shareholder equity increased to $ 162,934,000. Therefore, the leverage level of the company is = (24,016,000/162,934,000) = 14.74%. In the financial year 2011, the company’s fixed charge and other forms of long-term borrowing increased to $ 25,399,000.

On the other hand, the company’s shareholder equity increased to $ 168,961,000. Therefore, the leverage level of the company is = (25,399,000/168,961,000) = 15.03%. Lastly, in the financial year 2012, the company’s fixed charge and other forms of long-term borrowing decreased to $ 22,077,000. On the other hand, the company’s shareholder equity increased to $ 191,588,000. Therefore, the leverage level of the company is = (22,077,000/191,588,000) = 11.52 %. The graph below shows the fluctuation in the company’s leverage level between 1995 and 2012 (Berkshire Hathaway Inc., n.d.). Reference Berkshire Hathaway Inc. (n.d.). Retrieved from < http://www.

berkshirehathaway.com/reports.html>.