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Harley Davidson Financial Analysis

Essay by   •  January 30, 2019  •  Case Study  •  969 Words (4 Pages)  •  111 Views

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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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