What's the Best Way to Value Berkshire?
In Part 1 of a 5-part series, Morningstar's Gregg Warren and Drew Woodbury explore the pros and cons of using an earnings multiple to value Berkshire Hathaway.
Given its complexity, as well as the size and diversity of its businesses, valuing
Berkshire Hathaway (BRK.A) (BRK.B) is unquestionably a challenge. The most commonly cited methods for valuing the company's shares include the use of an earnings-based multiple, a book-value-based multiple, a two-column approach, a float-based methodology, and, finally, a discounted cash flow valuation. In some cases, investors will use a combination of these different methodologies to value different parts of the business, or as a way to triangulate their own estimates.
We believe that understanding the benefits and shortfalls of each of these methodologies can provide valuable insight into the ways in which different investors are approaching the firm's overall valuation. It also provides us with an opportunity to expand on our own discounted cash flow valuation, which we feel provides a more robust and reliable valuation than any of the other shortcut or alternative methods in use today.
Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.