Harley-Davidson Financial Analysis Factors Resulting

Harley-Davidson Financial Analysis

Factors Resulting in Net Income Increases

Balance Sheet 2004-2007

Decrease in Net Income

EPS, Return on Assets and Return on Equity

Ratio Analysis

HARLEY-DAVIDSON FINANCIAL ANALYSIS

Harley-Davidson, Inc. is the parents company to companies that form a group and do business as Harley-Davidson Motor Company. Harley-Davidson manufactures heavyweight motorcycles as well as a complete line of parts, apparel, and accessories for motorcycles. There are five lines of motorcycles manufactured by Harley Davidson, which has its headquarters in Milwaukee Wisconsin. This company is the employer of approximately 9,000 individuals. Harley Davidson reports for business and foreign operations are segmented in that there are two business segments: (1) the motorcycle; and (2) the financial segments of the Harley Davidson Company. Because there are differences of a fundamental nature in the two operations these two are managed separately. The Harley-Davidson company is divided geographically into five segments: (1) United States; (2) Europe; (3) Japan; (4) Canada; and (5) Other

I. FACTORS RESULTING in NET INCOME INCREASES

Between the period of 2004 and 2005, changes are noted and are accredited to three factors, which resulted in an increase in net income for Harley Davidson which are the factors of: (1) net revenue increase; (2) financial services income increase; and (3) expenditures decrease. (2008) Financial services income increased by 8.63% and the net revenue increase for Harley Davidson was by 6.52% with a drop in expenditures for 2005 at 1.12%. Income increased in 2005 by $353,457,000.00, which was offset, by an increase in expenditures. Investments are noted to have fallen off by $1.32 billion in 2005 and is accredited to the negative impact of the cost of goods increase as well as an increase in expenses for the financial services division of Harley Davidson accompanied by increases in expenses related to sales, administration and engineering. April 2005 is the largest drop in a decade in shares for Harley Davidson. During 2005, Harley Davidson shipments were 33.5% comprised by the higher priced touring model..

II. BALANCE SHEET 2004-2007

The following is a balance sheet for the years 2004 through 2007 for the Harley-Davidson Company.

Balance Sheet 2004-2007 Harley-Davidson

ASSETS

Current assets:

Cash and cash equivalents

Marketable Securities

Accounts receivable, net

Finance receivables, net (2003)

Finance receivables held for sale (2004, 2005, 2006, 2007)

Finance receivables held for investment, net (2004, 2005, 2006, 2007)

Inventories

Deferred income taxes

Prepaid expenses and other current assets

Total current assets

Finance receivables held for investment, net

Property, plant and equip, net

Goodwill

Other assets (incl. Prepaid pension costs)

Total assets

LIABILITIES and SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

Accrued & other liabilities

Current portion of finance debt

Total current liabilities

Finance debt

Deferred income taxes

Postretirement health care benefits

Other long-term liabilities (incl. Pension liability)

Shareholders' equity

Common stock

Additional paid in capital

Retained earnings

Accumulated other comprehensive income (loss)

Treasury stock

Unearned compensation

Total shareholders' equity

Total liabilities and shareholders' equity

The work of Curtis (2008) states that or the period ending March 30, Harley-Davidson earned $187.6 million, which is $.79 per share however the Harley Davidson company did not reach the projected earnings due to difficulties that Harley Davidson and car manufacturers are coping with. According to Curtis (2008) both receivables and inventory balances have risen sharply and are "more than double the $147.7 million" reported last year.

The work of Anderson, Thakur and Wochos entitled: "A Real Options Analysis: Statistical Process Control at Harley-Davidson" states that traditional analysis of the Harley-Davidson Company renders the following:

NPV of the expansion = $217,941 (discount rate = 13%)

Payback Time = just under 2 years

ARR of the expansion = 41%

IRR of the expansion = 52.8% (nd)

III. DECREASE in NET INCOME

Harley Davidson made an announcement in October 2007 that included results for the third quarter, which ended September 30 with a stated revenue at $1.54 billion as compared to last year's same quarter of $1.64 billion, which is a 5.8% decrease. Overall income decreased by 15.3%.

IV. EPS, RETURN on ASSETS, and RETURN on EQUITY

Harley Davidson's 'Earning Per Share' (EPS) has grown at a strong rate for over ten years and from 2004 to 2005 "EPS grew from $3.00 to $3.41, an increase of 13.7%." (Melief, Bundgaard, and Hathaway, 2006) Harley Davidson is stated to have a "much better return on assets than any of its competitors." (Melief, Bundgaard, and Hathaway, 2006) the return on assets has been increased by Harley through use of "excess cash in stock buy-back program.

Return on Assets Harley Davidson Honda Suzuki Yamaha

15.50% 5.60% 2% 3.50%

16.40% 5.60% 2.80% 8.50%

18.20% 5.20% 3.60% 3.90%

Source: Melief, Bundgaard, and Hathaway, 2006

Harley Davidson further has the "highest return on equity of the group" of the four major manufacturers of heavyweight motorcycles." (Melief, Bundgaard, and Hathaway, 2006)

Return on Equity Harley Davidson Honda Suzuki Yamaha

2003 25.70% 16.20% 4.80% 8.6%

2004 27.60% 16.20% 6.30% 18.4%

2005 31.10% 14.80% 8.10% 7.40% Source: Melief, Bundgaard, and Hathaway (2006)

V. RATIO ANALYSIS

Valuation Ratios

Company

Industry

Sector

S&P 500

P/E Ratio (TTM)

P/E High - Last 5 Yrs

P/E Low - Last 5 Yrs

Price to Sales (TTM)

Price to Book (MRQ)

Price to Tangible Book (MRQ)

Price to Cash Flow (TTM)

Price to Free Cash Flow (TTM)

Owned Institutions

Dividends

Dividend Yield

Dividend Yield - 5 Yr Avg