Devoted to Managers and those that seek to improve their management skills

General accounting practices don’t always accurately represent Berkshire’s consolidated earnings statement.

Here's one of those areas that can get someone going, but we'll look at it objectively. When considering accounting practices, it is something that must be carefully scrutinized by leaders. Number can be misleading, and reports looked at from angles that see only the side we want to see.

Buffett understands this with Berkshire Hathaway (BRK-A), so when he give reports on the company's businesses, he'll break them down individually so they can be seen as they are.

The comment above that general accounting practices aren't representative of a consolidated earnings statement is an important one to understand. Bringing everything together in one statement bears little resemblance to individual company numbers. The report could make things look better at some and worse at others.

This doesn't in any way mean it's done intentionally here, or necessarily anywhere else. It's that there are some limitations in general accounting practices that must be taken into account when we go over our business statements. To not understand this could cause a person to miss out on what the accounting story is really telling them. I've seen people misinterpret or misunderstand their numbers' story, and make terrible decisions based upon those misguided interpretations.

We need to allow the objectivity of numbers tell the real story and listen to it. This is one of Buffet's great strengths, not only in his businesses, but in the numbers of businesses he uses to evaluate them. He reads the religiously and probably knows what they mean better than those running the businesses do.

Even if we are operating one business, we need to go through categories in a way that empowers us to understand the parts that make up a whole. They will help to guide us in a way that nothing else really can. General accounting can distort the picture if we don't accurately evaluate the parts that make up the entirety of the business or businesses we run.

Other Buffett Resources:

Wisdom of Warren Buffett

Warren Buffett, investor

Warren Buffett: The trouble with being a legend

Warren Buffett: 'I told you so'

Company growth

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