The veteran investor Warren Buffett is considered to be the Shahkar of the investment world. Large investors around the world try to follow their footsteps. However, Buffette company Berkshire Hathaway has booked a huge loss of about ₹ 31,600 crore ($ 3.8 billion) on an investment.
Let us know which company has suffered losses on Buffet’s Berkshire Hathway. Buffet is still in profit in this company, so why did they show loss and what is the business of this company.
In which company is the loss?
Berkshire Hathaway made one of its major investment Kraft Heinz CO. Has booked impairment in. This loss has been on the stake, which has now come under pressure due to continuous decreasing value over the years. Berkshire has shown the value of its share in Kraft Heinz to $ 8.4 billion by the end of the June quarter.
Kraft Heinz Co is a US major packaged food and beverage company, which was formed in 2015 after the merger of Kraft Foods and Heinz. Its business is in ready-to-Eat and processed food products. The company’s product portfolio includes ketchup, sauce, cheese, packed juice, instant pasta, snacks and ready-to-cuk food.
Its brands are sold worldwide through supermarkets, grocery stores and restaurant channels. The focus of the company has been on a large scale packaged and processed food, but in recent years, consumers are moving towards healthy and natural food, causing pressure on its business.
How to make Kraft Heinz a loss deal?
Most investment of Warren Buffett is part of their strong track records. However, Kraft Heinz is one of them rare cases that are constantly paying losses. The new company that became after the merger of Kraft and Heinz in 2015 has so far fallen by 62%. During the same period, the US Stock Index S&P 500 has gained 202%.
However, Buffet had bought Kraft Heinz shares at a very low price, so even today, if he sells it, he will benefit a little. But in the accounting, companies show value according to the current price of the market. The market value of Kraft Heinz shares has now reduced considerably from the price shown in his balance sheet (book value).
Therefore, Berkshire had to reduce the value of that investment in his account under compulsion and had to book this deficiency as impairment loss. This does not mean that they have sold shares, just in the accounting book, it is assumed that this loss is permanent.
Impairment means when an asset book value and real value will come a lot, and the real value decreases. Such as share, land, investment in company. For example, Buffetted company Berkshire Hathaway had earlier bought Kraft Heinz shares at a very low price. Suppose ₹ 30.
Then when Kraft Heinz shares went up for many years, the value of that stake increased to ₹ 100. Berkshire showed this value on his balance sheet only ₹ 100. This is called Carrying Value. Then the shares of Kraft Heinz fell to ₹ 50, so it means that the carrying value was ₹ 100 and the market value is now ₹ 50. So the company has to show an impairment loss of ₹ 50.
But, it is worth noting that when Buffet actually bought these shares, his market value was ₹ 30, which had already gone far before him. This means that the stock purchased for ₹ 30 is being traded today at ₹ 50. That is, Buffetes are still in the real benefit of ₹ 20.
So the question arises where the loss was? The answer is on the company’s balance sheet. Because she valued that stake at ₹ 100, and now she has been reduced to ₹ 50.
Why did Buffet book a loss
Buffet’s Berkshire has accepted this major deficit as ‘indefinite’. That is, the company believes that the shares of Kraft Heinz are not expected to boom soon. Berkshire has given some special reasons behind this.
- The price of shares of Kraft Heinz is constantly falling. This stock has come down 23.99% in the last 1 year.
- Berkshire has left its directors seats from the board of Kraft Heinz, that is, it is no longer a direct participation in the management of the company.
- Kraft Heinz is now preparing for big strategic changes like separating its units.
- There is pressure on the company’s sales due to increasing inflation in the market and change in customer catering.
Berkshire says that in view of all these factors, this deficit is now permanent. Now the company’s shares are not going to grow soon. Therefore, it was necessary to show it properly in the balance sheet.
Buffett’s cash reserve also decreased
The cash reserve of Berkshire Hathaway has also come down in three years for the first time. At the end of the June quarter, the cash stock remained at $ 344 billion, which is 1% less than the previous quarter. The big reason for this is that Buffet did not invest much in recent months and the market was cautious.
He sold about $ 3 billion shares in this quarter, that is, he remained a net seller. Even he did not make any buyback to the shares of his own company Berkshire Hathaway, while he was doing so continuously until a year ago. In May, he announced to quit the CEO post, after which the company’s shares have fallen to 12%, yet no buyback was done.
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