Warren Buffett’s annual letter to Berkshire Hathaway shareholders (.pdf) was released over the weekend. Readers will find plenty of investing lessons among the twenty-three pages. Warren began this letter as he begins each letter, by stating Berkshire’s change in per-share book value:
Our gain in net worth during 2005 was $5.6 billion, which increased the per-share book value of both our Class A and Class B stock by 6.4%. Over the last 41 years, (that is, since present management took over) book value has grown from $19 to $59,377, a rate of 21.5% compounded annually.
Some may wonder why Buffett opens by announcing the change in per-share book value rather than the earnings per share number. Over long periods of time, the change in per-share book value should nicely approximate the returns to owners. You may remember that, in my analysis of Energizer Holdings (NYSE:ENR), I applauded the company for reporting comprehensive income within the income statement. Although a company’s net income is often referred to as its bottom line, net income is, in fact, a (sub)component of comprehensive income. Energizer Holdings literally reports comprehensive income as its bottom line.
FASB merely requires that “an enterprise shall display total comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements that constitute a full set of financial statements