No. of Recommendations: 10
However, according to US GAAP, once the goodwill impairment is recorded it cannot be reversed. Similarly, internal generated goodwill, say the franchise value of See's Candies cannot be recorded as a gain in goodwill.
So I guess my question is for "Grove 1" the operating earnings of Berkshire owned businesses, shouldn't the multiple that's applied whether one uses Price/Earnings or something else be increasing over time? And likewise, shouldn't the intrinsic value of Berkshire be increasing over time such that perhaps 2x Book Value is now a more appropriate measure than 1.5x BV?
This is the kind of problem you run into with book value, along with all the other problems, like the fact that share repurchases reduce a higher proportion of the equity than the number of shares. But in grove 1, the fully owned businesses, we usually use that grove's earnings to get an idea of its value, either by assigning some arbitrary multiple (15?) to the post-tax earnings, or (my preference) by adding up all the earnings except those from the equity portfolio and fixed income, and then seeing what the implied multiple of those businesses is.
The earnings of grove 1 are fully reported in the earnings statement of the overall company, so I can't see why any adjustment would be necessary, if you are using grove 1's earnings in your valuation and assigning a multiple to them. And if you are subtracting off the market value of the public equities (grove 2) and the fixed income assets (grove 4), and dividing by the earnings from groves 1, 3 and 5, you don't need to apply any multiple at all, you just see what multiple the market is assigning these businesses and you decide whether you want to pay that multiple or not.
dtb
