Question
Consider the following financial data for Berkshire Hathaway Inc. and JPMorgan Chase & Co. for the fiscal year 2023: ($ millions) Berkshire Hathaway Inc. JPMorgan
($ millions) | Berkshire Hathaway Inc. | JPMorgan Chase & Co. |
Net sales | $278,094 | $133,892 |
Cost of sales | 185,436 | 73,948 |
Gross profit | 92,658 | 59,944 |
Operating expenses: | ||
Selling, general, and administrative | 42,183 | 23,109 |
Research and development | 6,982 | 5,746 |
Operating income | 43,493 | 31,089 |
Interest and other (income) expense | 7,421 | 4,210 |
Interest and investment income | (2,311) | (1,865) |
Earnings before provision for income taxes | 38,383 | 28,744 |
Provision for income taxes | 9,596 | 6,898 |
Net earnings | $28,787 | $21,846 |
Required: a. Compute the return on equity (ROE), return on assets (ROA), and return on financial leverage (ROFL) for Berkshire Hathaway Inc. and JPMorgan Chase & Co. Assume a tax rate of 25%. b. Break down the ROA into profit margin (PM) and asset turnover (AT) for both companies. Identify the primary drivers of their ROA. c. Assess the trend in net earnings over the past five years. What does it indicate about the overall financial health of the companies? d. Evaluate the debt-to-equity ratio for Berkshire Hathaway Inc. and JPMorgan Chase & Co. What does it imply about their financial risk and leverage? e. Compare the research and development (R&D) expenses as a percentage of sales for Berkshire Hathaway Inc. and JPMorgan Chase & Co. What can be inferred about their investment in innovation?
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