Harley Davidson Financial Analysis
Essay by ankurchandra • January 30, 2019 • Case Study • 969 Words (4 Pages) • 715 Views
a.
History of the firm
Harley Davidson Inc is an American manufacturer of eponymous motorcycles. The company was founded in 1903. Since then it has gone on to become one of the most well-known motorcycle brands in the world. The brand enjoys strong loyalty among its customers. The motorcycles of the company are in the premium segment. They are sold across the world. The manufacturing facilities of the company are located in United States, Brazil and India. The company is listed at New York Stock Exchange. It is a component of S&P 500. This means that it is among the 500 biggest companies, in terms of market capitalization, listed at New York Stock Exchange (NYSE).
Is Harley Davidson financially viable
Going by its current performance the company does not look financially viable in the long term because of declining sales, declining profits, declining cash flows and use of very high level of debt, especially short term debt. It needs to turn its performance in order to remain financially viable in the long term. It needs to find a way to increase its sales. And it also needs to find cheaper manufacturing locations in order to cut down costs. Currently a large part of the manufacturing of the company is located in United States. Due to high cost of labor in United States, the production costs of the company are also high. This has resulted in low net profit margins. In order to achieve lower cost of production, the company has started manufacturing facilities in lower cost locations such as India and Thailand.
Financial analysis
Net profit margin of Harley Davidson has gone down from 12.55% in 2015 to 9.24% in 2017. Average annual growth rate in sales of the company in the last 10 years is -1%. Compound annual growth rate in sales in this period of the company is -.53%.
YEAR | SALES | Year-on-year growth in sales |
2017 | 5647224 | -6.18% |
2016 | 5996458 | 0.02% |
2015 | 5995402 | -3.89% |
2014 | 6228508 | 5.28% |
2013 | 5899872 | 5.41% |
2012 | 5580506 | 4.82% |
2011 | 5311713 | 8.52% |
2010 | 4859336 | 1.59% |
2009 | 4781909 | -24.54% |
2008 | 5955384 | |
Average year-on-year growth in sales in the period | -1.00% |
Compound annual growth rate in sales | -0.53% | Compound annual growth rate in sales = (Sales in 2017/ Sales in 2008)^(1/10)-1 |
Sales revenue forecast
We can use the CAGR rate of sales over the last 10 years to forecast sales in the near term. In 2018 the sales of Harley Davidson will grow at -.53% over sales in 2017. This means that its sales will go down in 2018 when compared to that in 2017.
Regression Equation
All figures in 000s
Sales | Net income | |
2014 | 6228508 | 844611 |
2015 | 5995402 | 752207 |
2016 | 5996458 | 692164 |
2017 | 5647224 | 521759 |
Slope | 0.557500872 | |
Intercept | -2623865.591 | |
Regression equation | Y (Net income) = .5575*X - .2623865 | |
The regression equation shows that for a 1 unit change in sales, net income changes by .5575 units.
Period Ending | 12/31/2017 | 12/31/2016 | 12/31/2015 | 12/31/2014 | ||
Total Cash Flow From Operating Activities | 1,005,061 | 1,174,339 | 1,100,118 | 1,146,677 | CAGR in total cash flow from operating activities | -4.30% |
Change In Cash and Cash Equivalents | -72,463 | 37,775 | -184,471 | -159,932 | CAGR of change in cash and cash equivalents | -23.19% |
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