OMAHA, Neb. (AP) — Quarterly profits at Berkshire Hathaway Inc., Warren Buffett's company, are likely to be hurt again by the paper value of its derivatives that are tied to several stock-market indexes.

The bottom line net income that the company reports Friday for the second quarter could present a much different picture than its operating earnings, so investors will have to examine the report carefully.

Investors will also be looking for clues about what Buffett might invest in next and whether the economy will improve.

WHAT TO WATCH FOR: The paper value of Berkshire's investments and derivative contracts can vary greatly from quarter to quarter. That can lead to wide swings in the company's reported profit.

Last year, the paper value of Berkshire's derivatives improved from 2010's $1.4 billion in pretax paper losses, and the company recorded a $120 million paper loss on them.

Stifel Nicolaus analyst Meyer Shields said he is expecting Berkshire to report an $816 million paper loss on its derivatives this year, which will weigh down the results.

Andy Kilpatrick, the stockbroker-author who wrote "Of Permanent Value: The Story of Warren Buffett," said he agrees that the derivatives are likely to hurt quarterly profits because stock markets worldwide were down in the second quarter.

"I think the derivatives are going to be a hit," Kilpatrick said.

The true value of the derivatives won't be clear for at least several years, because they don't mature until nearly a decade from now. But Berkshire is required to estimate their value every time the company reports earnings.

Buffett has told investors he believes the contracts — some of which are tied to equity markets and some of which are tied to credit defaults — will ultimately be profitable because the premiums are being invested.

Buffett himself has said the company's operating earnings are a better measure of how the company is performing in any given period because those figures exclude its derivatives and investment gains or losses. Buffett says Berkshire's investment and derivative gains or losses can be misleading because the company rarely sells its investments.

The value of Berkshire's investment portfolio was also likely down in the second quarter.

Apart from its investments, Berkshire also owns more than 80 companies, including insurance, clothing, furniture, utility and the Burlington Northern Santa Fe railroad.

In recent interviews, Buffett has said that he is finally seeing improvement in Berkshire's companies that have ties to residential housing like Acme Brick, Shaw Carpet and Home Services of America real estate. But business at many of Berkshire's other companies has slowed, suggesting the overall economy was slowing down.

WHY IT MATTERS: Berkshire is watched closely because of Buffett's remarkable investing track record, and because the conglomerate's results offer a glimpse into an assortment of industries.

WHAT'S EXPECTED: The three analysts surveyed by FactSet expect Berkshire to report earnings of $1.19 per Class B share, on average.

LAST YEAR'S QUARTER: Last August, Berkshire reported net income of about $1.38 per Class B share. Those results were helped by a one-time gain of $1.25 billion from Goldman Sachs' repayment of an investment Buffett's company made at the height of the financial crisis in 2008. Excluding investment and derivative gains, Berkshire earned $1.09 per Class B share last year.