...tends to agree with Buffett on this philosophy. Accounting is a product of many estimates and judgments. It is essentially a rear-view mirror, looking back at what has happened. To add to the problem the view changes with each new accounting period. In contrast the economic reality is the view through the windshield at what lies ahead. It consists of intellectual property, creativity, know-how and the network of production and distribution systems. The brands and trademarks of a business are the symbols of the economic reality – symbols that indicate the reputation of the company. The economic reality changes much more slowly than the accounting reality as it is dependent on the response of the markets to new products and services that the company has to offer or to any substantive changes - up or down - in corporate reputation. 2. The cost of the lost opportunity. Analysis: Here Buffett is building on the economic principle of the efficient use of scarce resources where the notion of opportunity cost plays a crucial part in ensuring that resources are being used efficiently. The true cost of an investment is what you give up (opportunity) to get it. This includes not only the money spent in buying that asset but also the economic benefits that one has to do without because one bought that particular asset and thus can no longer buy something else with that money. 3. Value creation: time is money. Analysis: One agrees with Buffett on this philosophy...
Words: 1340 - Pages: 6
...Trueblood Case 14-3: Coconut Telegraph Brett O’Baker 9/14/15 Facts: * Coconut Telegraph Corporation (Coconut) is a developer and provider of specialized customer billings and management software and systems * On February 1, 2012, Coconut entered into an arrangement with Buffett Worldwide Inc. (Buffett) to deliver the Volcano System and provide one year of post-contract customer support (PCS) beginning March 1, 2012. * Buffett paid $12,000 on February 1, 2012, for the Volcano System and the related PCS. On May 1, 2012, and in a separate contract, Coconut agreed to provide Buffett with (1) training services on the customer management system and (2) an additional year of PCS. * Under the terms of this agreement, Buffett immediately paid consideration of $4,500 for the additional services. 1. Is Coconut’s February 1, 2012, arrangement with Buffett within the scope of ASC 985-605? Per ASC 985-605-15-3c, the software and software-related elements of arrangements that include software that is more-than-incidental to the products or services in the arrangement as a whole are within the scope. Indicators that software is more-than-incidental to the products or services in an arrangement as a whole include (but are not limited to): 1. The software is a significant focus of the marketing effort or is sold separately. 2. The vendor is providing post-contract customer support. 3. The vendor incurs significant costs that are within the scope of Subtopic 985-20...
Words: 782 - Pages: 4
.............................................................................5 Volatility timing .................................................................................................................................6 Conclusion .........................................................................................................................................7 Appendix ...........................................................................................................................................8 Reference ..........................................................................................................................................9 1 Executive Summary This report provides an analysis on the cases of the successes and weaknesses of Berkshire Hathaway (Berkshire) including models that could be applied to avoid poor performing acquisitions, better diversification of portfolios and use of volatility timing. Success in this report is defined by...
Words: 3371 - Pages: 14
...Buffett Essays Summary Ch1 Corporate Governance 2 Ch2 Finance and Investing 5 Ch3 Investment alternatives 8 Ch4 Common stock 11 Ch5 Mergers and acquisitions 14 Ch6 Valuation and accounting 17 Ch7 Accounting shenanigans 19 Ch8 Accounting policy 21 Ch9 Tax matters 23 Ch1 Corporate Governance Mr. Buffett mentioned some problems existing in annual meetings and possible causes. In most situations, annual meetings are a kind of time waste for shareholders and management, because managers don’t want to express actual accounting conditions to others. Contrary to it, Berkshire’s meetings are different because many thoughtful questions would emerge and are valued to be answered. However, many people won’t be honest in these situations. Companies that provide information also hope to obtain information from other companies. There’s no doubt that people wish enough financial details to make some predictions. But more and more corporate choose “selective disclosure”, which is corrupt behavior about accepted by the whole America. Chairman Levitt cracked down on this kind of behavior. At the same time, Mr. Buffett doesn’t agree that CEO should make too many efforts to make too often predictions, which may cause trouble. For one thing, a much too high growth rate would spread unwarranted optimism. For another, announcing such a high rate might force companies to make some unwise decision. Three advices are provided to investors. Many occupations have their own standard...
Words: 5085 - Pages: 21
...selecting and using the right chemicals rests with the executive housekeeper. Housekeeping Chemical The three major purposes of chemical used in the housekeeping department are to remove dirt, to destroy harmful microorganisms, and to preserve and beautify furniture, fixtures, and surfaces. Chemical cleaners are manufactured to remove soils from surfaces through chemical action. The stronger are chemical is, the better it will get the job done. The strength of cleaning chemicals is measured on the pH scale. In chemistry, pH is a measure of the acidity and basicity of a solution; a low pH indicates a high concentration of hydronium ions, while a high pH denotes a low concentration. The scale goes from 1 to 14,1 indicating a very acidic solution very alkaline solution, and 7 a neutral solution. For example, a very acidic solution should near pH 1; pure water is neutral, giving a pH of 7; and a solution highly alkaline should be to pH 14. Cleaning chemical that have been enhanced with alkalis or acids to strengthen cleaning powers can be dangerous to humans and often cannot be used on certain surfaces neutral cleaner can be used for all types of jobs, but its cleaning power is limited.The executive housekeeper should have adequate knowledge of the department on selecting cleaning chemicals appropriate for each type of cleaning...
Words: 1933 - Pages: 8
...Advantage Anything that prevents a business’ extraordinary return on capital from being whittled down to mediocrity by the ravages of competition. Where a business enjoys a durable competitive advantage it is said to have a franchise. Sometimes, a business will have a durable competitive advantage without earning an extraordinary return on capital in the aggregate. In a few cases, a business will have a durable competitive advantage without earning an extraordinary return on capital in any line of business. It is even possible for a currently unprofitable business to have a durable competitive advantage. But, this is a very special case. For instance, an unprofitable business may have a durable competitive advantage if it is the low – cost operator in an inefficient, highly fragmented industry, if and only if, the sole cause of unprofitability is inadequate sales volume. This is most likely to be true in an industry where efficient, low cost operations can only be carried out after a substantial infrastructure investment and can not be sustained at a low sales volume. In such a case, it would not be surprising to see the established, efficient (and unprofitable) business secure a dominant share of the fragmented industry and earn an extraordinary return on capital once sales volume has increased. Where a marginal sale is ridiculously profitable, advertising costs will serve to entrench the position of the business with the highest volume and the lowest costs. ...
Words: 3272 - Pages: 14
...Dell delisting, and share valuation concerns MOHAN R. LAVI SHARE · COMMENT (1) · PRINT · T+ As with Dell, questions on the offer price have arisen in the case of Cadbury in India. The story of Dell represents the story of American enterprise. Started in a college dormitory room, and making products that the technology age devoured with passion, the company wasted no time in catapulting itself to a market capitalisation of more than $100 billion. For some time, it was also the darling of the stock market. In stark contrast, last week, Dell unveiled a buyout deal to take the company private. The $24.4-billion buyout would be financed with Michael Dell’s cash and equity, cash from Silver Lake, and a $2 billion credit line from Microsoft. Four major investment banks — Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets — are financing the debt. The primary intention behind the go-private move appears to be to escape the harsh glare of the markets with iffy quarterly results and to focus on strategy without being hounded by analysts. It could well be a combination of many factors, but the fact that cannot be denied is that Dell has been bleeding because of the shift in the market to smartphones and tablets and its inability to play catch-up. Further bleeding could have only hammered its stock price. While the buyout can help it avoid quarterly analysis and questions, delisting could also prevent Dell from building a war-chest for future acquisitions. ...
Words: 1412 - Pages: 6
...Lecture 1 NATURE AND SCOPE OF MANAGERIAL ECONOMICS QUESTIONS & ANSWERS Q1.1 Is it appropriate to view firms primarily as economic entities? Q1.1 ANSWER Yes. Firms represent a combination of people, physical assets, and information (financial, technical, marketing, and so on). People directly involved include stockholders, managers, workers, suppliers, and customers. Businesses use scarce resources that would otherwise be available for other purposes, pay income and other taxes, provide employment opportunities, and are responsible for much of the material well-being of our society. Thus, all of society is indirectly involved in the firm's operation. Firms exist because they are useful in the process of allocating resources -- producing and distributing goods and services. As such, they are basically economic entities. Q1.2 Explain how the valuation model given in Equation 1.2 could be used to describe the integrated nature of managerial decision making across the functional areas of business. Q1.2 ANSWER As seen in the text, Equation 1.2 can be written: [pic] where TR is total revenue, TC is total cost, i is an appropriate (risk-adjusted) interest rate, and t indicates the relevant time period. Thus, the value of the firm is the discounted present value of the stream of expected future profits. Each of the functional areas of business plays an important role in managerial decision making since each area...
Words: 4074 - Pages: 17
...Lecture 1 NATURE AND SCOPE OF MANAGERIAL ECONOMICS QUESTIONS & ANSWERS Q1.1 Is it appropriate to view firms primarily as economic entities? Q1.1 ANSWER Yes. Firms represent a combination of people, physical assets, and information (financial, technical, marketing, and so on). People directly involved include stockholders, managers, workers, suppliers, and customers. Businesses use scarce resources that would otherwise be available for other purposes, pay income and other taxes, provide employment opportunities, and are responsible for much of the material well-being of our society. Thus, all of society is indirectly involved in the firm's operation. Firms exist because they are useful in the process of allocating resources -- producing and distributing goods and services. As such, they are basically economic entities. Q1.2 Explain how the valuation model given in Equation 1.2 could be used to describe the integrated nature of managerial decision making across the functional areas of business. Q1.2 ANSWER As seen in the text, Equation 1.2 can be written: [pic] where TR is total revenue, TC is total cost, i is an appropriate (risk-adjusted) interest rate, and t indicates the relevant time period. Thus, the value of the firm is the discounted present value of the stream of expected future profits. Each of the functional areas of business plays an important role in managerial decision making since each area...
Words: 4074 - Pages: 17
...Berkshire Hathaway and GEICO Insurance © 2001 Tim Glowa White Paper: Examining Berkshire Hathaway’s 1995 Purchase of GEICO Insurance Tim Glowa Tim@Glowa.ca September 12, 2001 © 2001 Tim Glowa September 12, 2001 -1- Berkshire Hathaway and GEICO Insurance Table of contents © 2001 Tim Glowa Executive Summary.................................................................................................... 3 Introduction................................................................................................................. 4 Review of the case: Berkshire Hathaway purchasing GEICO.................................... 4 Strategic Outcome....................................................................................................... 7 Finance........................................................................................................................ 7 Time Value of Money................................................................................................. 8 Assessment of the GEICO purchase ........................................................................... 8 Time value of money ................................................................................................ 11 An examination of the GEICO acquisition in hindsight........................................... 13 Limitations of Discounted Cash Flow ...................................................................... 15 Limitations of this Analysis ...
Words: 5107 - Pages: 21
...The Essays of Warren Buffett: Lessons for Corporate America Essays by Warren E. Buffett Selected, Arranged, and Introduced by Lawrence A. Cunningham Includes Previously Copyrighted Material Reprinted with Permission THE ESSAYS OF WARREN BUFFETT: LESSONS FOR CORPORATE AMERICA Essays by Warren E. Buffett Chairman and CEO Berkshire Hathaway Inc. Selected, Arranged, and Introduced by Lawrence A. Cunningham Professor of Law Director, The Samuel and Ronnie Heyman Center on Corporate Governance Benjamin N. Cardozo School of Law Yeshiva University © 1997; 1998 Lawrence A. Cunningham All Rights Reserved Includes Previously Copyrighted Material Reprinted with Permission TABLE OF CONTENTS INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROLOGUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 27 I. CORPORATE GOVERNANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . A. B. C. D. E. Owner-Related Business Principles................ Boards and Managers............................. The Anxieties of Plant Closings An Owner-Based Approach to Corporate Charity. A Principled Approach to Executive Pay.......... 29 29 38 43 47 54 II. CORPORATE FINANCE AND INVESTING. . . . . . . . . . . . . . . . A. B. C. D. E. F. G. H. I. 63 Mr. Market........................................ 63 Arbitrage......................
Words: 86030 - Pages: 345
...The Essays of Warren Buffett: Lessons for Corporate America Essays by Warren E. Buffett Selected, Arranged, and Introduced by Lawrence A. Cunningham Includes Previously Copyrighted Material Reprinted with Permission THE ESSAYS OF WARREN BUFFETT: LESSONS FOR CORPORATE AMERICA Essays by Warren E. Buffett Chairman and CEO Berkshire Hathaway Inc. Selected, Arranged, and Introduced by Lawrence A. Cunningham Professor of Law Director, The Samuel and Ronnie Heyman Center on Corporate Governance Benjamin N. Cardozo School of Law Yeshiva University © 1997; 1998 Lawrence A. Cunningham All Rights Reserved Includes Previously Copyrighted Material Reprinted with Permission TABLE OF CONTENTS INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROLOGUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 27 I. CORPORATE GOVERNANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . A. B. C. D. E. Owner-Related Business Principles................ Boards and Managers............................. The Anxieties of Plant Closings An Owner-Based Approach to Corporate Charity. A Principled Approach to Executive Pay.......... 29 29 38 43 47 54 II. CORPORATE FINANCE AND INVESTING. . . . . . . . . . . . . . . . A. B. C. D. E. F. G. H. I. 63 Mr. Market........................................ 63 Arbitrage......................
Words: 86813 - Pages: 348
...C H A P T E R 1 The Nature and Scope of Managerial Economics chief of Omaha, W arren E. Buffett, the renowned chairman andstartedexecutive officerpartnership Nebraska-based Berkshire Hathaway, Inc., an investment with $100 in 1956 and has gone on to accumulate a personal net worth in excess of $30 billion. It is intriguing that Buffett credits his success to a basic understanding of managerial economics. Berkshire’s collection of operating businesses includes the GEICO Insurance Company, Buffalo News newspaper, See’s Candies, and the Nebraska Furniture Mart. They commonly earn 30%–50% per year on invested capital. This is astonishingly good performance in light of the 10%–12% return typical of industry in general. A second and equally important contributor to Berkshire’s outstanding performance is a handful of substantial holdings in publicly traded common stocks such as The American Express Company, The Coca-Cola Company, and Wells Fargo & Company. As both manager and investor, Buffett looks for ‘‘wonderful businesses’’ with outstanding economic characteristics: high rates of return on invested capital, substantial profit margins on sales, and consistent earnings growth. Complicated businesses that face fierce competition or require large capital investment and ongoing innovation are shunned.1 Buffett’s success is powerful testimony to the practical usefulness of managerial economics. Managerial economics answers fundamental questions. When are the characteristics of a market...
Words: 11588 - Pages: 47
...Reaction Report of IBM case 1. Description of the Case: New facts and illustrations - Nobody believed that IBM would face a crisis because it had achieved huge success before 1990. However, the company finally faced difficulties. In order to save the IBM, Gerstner was new in office as a CEO in 1993. He started innovative measures such as decreasing cost, communicating clearly, restructuring organization, and connecting with key customers to solve the problems. In addition, he reorganized as one IBM and created the foundation for growth, and then shift to high growth and the search for “the next big thing”. As a result, shifting its strategy from marketing and selling specific products and services to marketing and selling solutions to problems that have yet fully defined, IBM becomes the company which Warren Buffett prefers most from the collapsing company by competition with cheaper PC made by Chinese and American company such as Compaq and dell. From this case of IBM in early, we can learn that large established companies such as IBM can be difficult to build successful and sustainable new business. First of all, being elated by existing success, employees couldn’t notice the change of market. In addition, well-aligned business model is necessary for success, but tight alignment can also make it difficult to change. If business models fail to successfully evolve overtime, misalignment with the environment can occur. 2. Key questions and issues of case & Analysis 1) What’s...
Words: 734 - Pages: 3
...trafficking has never been widely acknowledged in the United States, as many view the issue as an international problem. Human trafficking comes in two ways, international and domestic. International trafficking can be forced child labor or prostitution, whereas domestic is, for the most part, child prostitution (Levy). Close to twenty-seven million people are trafficked in the world, around 14,500 are brought to the United States from other countries (Buffett 116). Meanwhile, many children living in America are taken off the street and forced to become something most people could hardly comprehend. This issue is coming from all sides in America,...
Words: 600 - Pages: 3
