Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. The most important of these are insurance businesses conducted on both a primary basis and a reinsurance basis, a freight rail transportation business and a group of utility and energy generation and distribution businesses. Berkshire also owns and operates a large number of other businesses engaged in a variety of activities, as identified herein. Berkshire is domiciled in the state of Delaware, and its corporate headquarters are located in Omaha, Nebraska.
Berkshire’s operating businesses are managed on an unusually decentralized basis. There are essentially no centralized or integrated business functions (such as sales, marketing, purchasing, legal or human resources) and there is minimal involvement by Berkshire’s corporate headquarters in the day-to-day business activities of the operating businesses. Berkshire’s corporate office senior management participates in and is ultimately responsible for significant capital allocation decisions, investment activities and the selection of the Chief Executive to head each of the operating businesses. It also is responsible for establishing and monitoring Berkshire’s corporate governance practices, including, but not limited to, communicating the appropriate “tone at the top” messages to its employees and associates, monitoring governance efforts, including those at the operating businesses, and participating in the resolution of governance-related issues as needed.
Berkshire and its consolidated subsidiaries employ approximately 367,700 people worldwide.
BUSINESS ANALYSIS OF BERKSHIRE HATHAWAY
The Insurance Sector is witnessing a major shakeup, new age business models in the industry are transforming both customers and businesses. Faced with this uncertainity, companies are investing resources to transform their business. An in-depth business analysis is a valuable resource to identify and articulate the need for a business model change. At R&P Research we believe, the starting point for a business analysis is Benchmarking. Business benchmarking can be done at various levels: 1) Industry Benchmarking 2) Peer Benchmarking 3) Disruptors Benchmarking. In this report, we share the snapshot of how Berkshire Hathaway compares against the industry on the major performance indicators. This analysis, along with peer group/disruptors benchmarking and revenue model understanding can help identify growth and cost optimization opportunities to maximize the value delivered by Berkshire Hathaway to its stakeholders. R&P Research Industry Intelligence Platform provides historical data for last 15 years with an easy to use benchmarking interface for an in-depth comparative business analysis.
Here is the performance snapshot of Berkshire Hathaway with an interactive chart.
- Revenue Growth: Berkshire Hathaway reported a revenue growth of 6.0% year-on-year during 2016. Property & Casualty Insurance Industry grew at 6.6% in the same period
- COGS share of Revenues: As a percentage of revenue, Berkshire Hathaway spent 75.7% of its total revenues on COGS. Property & Casualty Insurance industry average (COGS share of revenue) in the same period was 65.6%
- R&D; share of Revenues: Berkshire Hathaway R&D; share of Revenues details are not available because either company does not share the data or we do not have it
- SG&A; share of Revenues: As a percentage of revenue, Berkshire Hathaway spent 8.1% of its total revenues on Sales, Marketing, and General Administration (SG&A;). Property & Casualty Insurance industry average SG&A; spending in the same period was 14.9%
- Inventory share of Revenues: As a percentage of revenue, Berkshire Hathaway spent 7.0% of its total revenues on Inventories. Property & Casualty Insurance industry average Inventory spending in the same period was 2.8%
- Accounts Payable share of Revenues: As a percentage of revenue, Berkshire Hathaway invested 15.7% of its total revenues on Accounts Payable (A/P) Property & Casualty Insurance industry average Accounts Payable investment in the same period was 18.9%
- Accounts Receivable share of Revenues: As a percentage of revenue, Berkshire Hathaway invested 12.1% of its total revenues on Accounts Receivable (A/R). Property & Casualty Insurance industry average Accounts Receivable investment in the same period was 33.0%
- PP&E; share of Revenues: As a percentage of revenue, Berkshire Hathaway invested 68.3% of its total revenues on Property, Plants, and Equipments (PP&E;). Property & Casualty Insurance industry average PPE investment in the same period was 30.9%
- Intangibles share of Revenues: As a percentage of revenue, Berkshire Hathaway invested 50.5% of its total revenues on Intangibles. Property & Casualty Insurance industry average Intangibles investment in the same period was 29.7%
- Net Margins: Berkshire Hathaway Net Margins in the year 2016 were 10.8%. Property & Casualty Insurance industry average Net Margins in the same period were 8.2%
SECTOR AND INDUSTRY ASSOCIATION OF BERKSHIRE HATHAWAY
For the purpose of performance benchmarking of a company with a sector or industry average, R&P; Research associates every company with one sector and one industry. An industry consists of companies with related/similar business models. A sector comprises of a group of related/similar industries. For high-level analysis purposes, related/similar sectors are grouped into sector groups.
Berkshire Hathaway is associated with Financials Sector Group, Insurance Sector, and Property & Casualty Insurance Industry.
Insurance sector is comprised of the following industries: Life Insurance; Property & Casualty Insurance; Surety & Title Insurance; Insurance Brokerage; Diversified Insurance. The definitions for each of the industries is as follows:
- Life Insurance industry includes companies engaged principally in life insurance.
- Property & Casualty Insurance industry includes companies engaged principally in accident, fire, automotive, marine, malpractice and other classes of non-life insurance.
- Surety & Title Insurance industry includes companies providing title & surety insurance.
- Insurance Brokerage industry includes insurance brokers and agencies.
- Diversified Insurance industry includes companies with life, health, property & casualty, and reinsurance interests, none of which predominates.
INDUSTRY RANKING OF BERKSHIRE HATHAWAY
With $223.6 billion revenues, Berkshire Hathaway ranked number 1 of all the companies in the US Property & Casualty Insurance industry. There were a total of 66 public companies in the US Property & Casualty Insurance industry that had revenues greater than $50 million during 2016.
The top-10 companies in the US Property & Casualty Insurance industry by revenues during 2016 were:
- Berkshire Hathaway ($223.6 billion)
- AIG ($52.4 billion)
- Allstate ($36.5 billion)
- Chubb ($31.5 billion)
- Travelers Companies ($27.6 billion)
- Progressive ($23.4 billion)
- Hartford Financial Services Group ($18.3 billion)
- Loews ($13.1 billion)
- XL Group ($10.5 billion)
- CNA Financial ($9.4 billion)
BUSINESS MODEL ANALYSIS (BMA) FRAMEWORK
We use the following framework to assess the business model of a company. Business Model Analysis framework can be used by organizations to articulate growth strategies and identify cost optimization opportunities. Technology and consulting companies can use this framework to identify the value drivers and pain points of their targeted customers. Entrepreneurs can use this framework to understand the language of business and identify promising business opportunities. This framework can be used by any professional aspiring to take up a leadership role to better understand the businesses challenges, articulate growth strategy, and monitor the business improvement requirements for the organization.