Berkshire Hathaway (Berkshire Hathaway) Intrinsic Value: DCF (FCF Based) : $176.78 (As of Apr. 26, 2024)

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Berkshire Hathaway Intrinsic Value: DCF (FCF Based) Chart

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Competitive Comparison of Berkshire Hathaway's Intrinsic Value: DCF (FCF Based)

For the Insurance - Diversified subindustry, Berkshire Hathaway's Price-to-DCF (FCF Based), along with its competitors' market caps and Price-to-DCF (FCF Based) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.

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Berkshire Hathaway's Price-to-DCF (FCF Based) Distribution in the Insurance Industry

For the Insurance industry and Financial Services sector, Berkshire Hathaway's Price-to-DCF (FCF Based) distribution charts can be found below:

* The bar in red indicates where Berkshire Hathaway's Price-to-DCF (FCF Based) falls into.

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Berkshire Hathaway Intrinsic Value: DCF (FCF Based) Calculation

This is the intrinsic value calculated from the Discounted Cash Flow model with default parameters. In a discounted cash flow model, the future cash flow is estimated based on a cash flow growth rate and a discount rate. The cash flow of the future is discounted to its current value at the discount rate. All of the discounted future cash flow is added together to get the current intrinsic value of the company.

Usually a two-stage model is used when calculating a stock's intrinsic value using a discounted cash flow model. The first stage is called the growth stage; the second is called the terminal stage. In the growth stage the company grows at a faster rate. Because it cannot grow at that rate forever, a lower rate is used for the terminal stage.

GuruFocus DCF calculator is a two-stage model. The default values are defined as:

1. Discount Rate: d = 11%
A reasonable discount rate assumption should be at least the long term average return of the stock market, which can be estimated from risk free rate plus risk premium of stock market. GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate and rounded up to the nearest integer. It is updated daily. The current risk-free rate is 4.67%. Please go to Economic Indicators page for more information. Please note that we use the 10-Year Treasury Constant Maturity Rate of the country/region where the company is headquartered. If the data for that country/region is not available, then we will use the 10-Year Treasury Constant Maturity Rate of the United States as default. Then we added a risk premium of 6% to get the estimated discount rate. Some investors use their expected rate of return, which is also reasonable. A typical discount rate can be anywhere between 6% - 20%.

2. Growth Rate in the growth stage: g1 = 6.70%
The Growth Rate in the growth stage is initially set as the default 10-Year FCF Growth Rate (Per Share). In cases where the 10-year growth rate is unavailable, it defaults to using the 5-Year FCF Growth Rate (Per Share). If both the 10-year and 5-year growth rates are unavailable, the system defaults to the 3-Year FCF Growth Rate (Per Share).
However, it's important to note that there is a growth rate range. If the calculated growth rate exceeds 20%, it will be capped at 20%. Conversely, if the calculated growth rate falls below 5%, it will be adjusted to 5% to maintain a reasonable range.
=> Berkshire Hathaway's average Free Cash Flow Growth Rate in the past 10 years was 6.70%, which is between 5% and 20%. => GuruFocus defaults => Growth Rate: 6.70%

3. Years of Growth Stage: y1 = 10

4. Terminal Growth Rate: g2 = 4%

5. Years of Terminal Growth: y2 = 10

6. Free Cash Flow per Share: fcf = $13.715.
However, GuruFocus DCF calculator is actually a Discounted Earnings calculator, the EPS without NRI is used as the default. The reason we are doing this is we found that historically stock prices are more correlated with earnings than free cash flow.

All of the default settings can be changed and the results are calculated automatically.

Berkshire Hathaway's Intrinsic Value: DCF (FCF Based) for today is calculated as

set x = (1+g1)/(1+d) = (1+0.067)/(1+0.11) = 0.96126126126126
and y = (1+g2)/(1+d) = (1+0.04)/(1+0.11) = 0.93693693693694

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

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Berkshire Hathaway  (NYSE:BRK.B) Intrinsic Value: DCF (FCF Based) Explanation

Unlike valuation methods such as Net Current Asset Value, Tangible Book per Share, Graham Number, Median PS Value etc, discounted Cash Flow model evaluates the companies based on their future earnings power instead of their assets.

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Be Aware

What you need to know about the DCF model:

1. The DCF model evaluates a company based on its future earnings power
2. Growth is taken into account; therefore a faster growth company is worth more if everything else is the same.
3. Since we are projecting future growth, it is assumed that the company will grow at the same rate as it did during the past 10 years. Therefore this model works better for the companies that have relatively consistent performance.
4. The DCF model works poorly for inconsistent performers such as cyclicals.
5. What discount rate should you use? Your expected return from the investment is a good discount rate assumption.
6. A larger margin of safety should be required for companies with less predictable businesses.

You can screen for stocks that trade below their Intrinsic Value: DCF (FCF Based) and Intrinsic Value: DCF (Earnings Based) with the GuruFocus All-in-One Screener. Companies with a high Predictability Rank that trade at a discount to their Intrinsic Value: DCF (FCF Based) and Intrinsic Value: DCF (Earnings Based) can be found in the screen of Undervalued Predictable Companies.

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Berkshire Hathaway Intrinsic Value: DCF (FCF Based) Related Terms

Thank you for viewing the detailed overview of Berkshire Hathaway's Intrinsic Value: DCF (FCF Based) provided by GuruFocus.com. Please click on the following links to see related term pages.

Predictability Rank Intrinsic Value: DCF (Earnings Based) Intrinsic Value: DCF (Dividends Based) Intrinsic Value: Projected FCF Free Cash Flow Free Cash Flow per Share Margin of Safety % (DCF FCF Based) Margin of Safety % (DCF Earnings Based) Margin of Safety % (DCF Dividends Based)

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Berkshire Hathaway (Berkshire Hathaway) Business Description

Executives

Ajit Jain	director, officer: Vice Chairman	100 FIRST STAMFORD PLACE, BHRG, STAMFORD CT 06902
Murphy Thomas S Jr	director	C/O CRESTVIEW ADVISORS, 667 MADISON AVENUE, 10TH FLOOR, NEW YORK NY 10021
Warren E Buffett	director, 10 percent owner, officer: Chairman and CEO	3555 FARNAM ST, STE 1440, OMAHA NE 68131
Charlotte Guyman	director	3324 78TH PL. N.E., MEDINA WA 98004
Susan A. Buffett	director	808 CONAGRA DRIVE, OMAHA NE 68102
Christopher C Davis	director	C/O GRAHAM HOLDINGS COMPANY, 1300 NORTH 17TH STREET, SUITE 1700, ARLINGTON VA 22209
Ronald L Olson	director	EDISON INTERNATIONAL, 2244 WALNUT GROVE AVENUE, ROSEMEAD CA 91770
Kenneth I Chenault	director	C/O GENERAL CATALYST, 20 UNIVERSITY ROAD, 4TH FLOOR, CAMBRIDGE MA 02138
Gregory Abel	director, officer: Vice Chairman	666 GRAND AVE., STE.500, DES MOINES IA 50309
Meryl B Witmer	director	655 THIRD AVENUE, 11TH FLOOR, NEW YORK NY 10017
Thomas S Murphy	director	C/O WALT DISNEY CO, 500 S BUENA VISTA STREET, BURBANK CA 91521-1010
Bill & Melinda Gates Foundation Trust	10 percent owner	2365 CARILLON POINT, KIRKLAND WA 98033
Stephen B Burke	director	41 CENTRAL PARK WEST - APT 11A, NEW YORK NY 10023
Susan L Decker	director	C/O YAHOO INC, 701 FIRST AVE, SUNNYVALE CA 94089
Gates William H Iii	director	2365 CARILLON POINT, KIRKLAND WA 98033