The intent of this analysis study is to discourse the solvency and profitableness of Harley-Davidson. Inc. ( HOG ) and explicate a measuring for is fiscal standing and profitableness by comparing to the Industry in which it resides. Solvency is determined from informations collected in the 2012 SEC Harley-Davidson. Inc. 10K study. and calculated based upon the solvency ratio ; Solvency peers After Tax Net Net income plus Depreciation divided by Long Term Liabilities plus Short Term Liabilities.
Harmonizing to Investopedia. com the general regulation of pollex is that a company with a solvency ratio greater than 20 % is considered a financially healthy entity and this will be the baseline for this study since the mean solvency ratio for the Heavy Weight Motorcycle market is unknown. Profitableness can be determined by several different methods to include ratios such as direction effectivity measuring like. Return on Investments. Return on Equity. and Return on Assets.
However. profitableness at its simplest. and most complete signifier. can be measured by gross less disbursals or by Gross Profit Margin which is calculated by Gross saless minus Cost of Goods Sold divided by Gross saless. All extra informations for industry comparings for profitableness are derived from the Factiva Company Report: Ratio Comparison Report and the 2012 SEC Harley-Davidson. Inc. 10K study. H-D is divided into two major sections which are Motorcycles & A ; Related Products. and the Financial Services sections.
The bike section physiques and sells bikes wholesale in add-on to accoutrements. parts. ware. and trades in licensing of the companies hallmarks. H-D entirely builds street legal heavy weight bikes intended for expressway usage with engines runing from 883 cc’s to 1803 cc’s ( Heavy weight bikes make up a specific market type and are define as street legal bikes with an engine supplanting of 651 three-dimensional centimetres or greater ) .
H-D is known for open uping touring and patrol car otorcycles. is presently the international market leader in this genre of bikes. and reportedly makes up 62 % of all United States heavy weight bike gross revenues. H-D bikes are sold through an independently owned retail merchant web that are predominately insured and financed by the fiscal section of H-D Inc. The fiscal section. which is known as Harley-Davidson Financial Services ( HDFS ) . provides sweeping and retail funding every bit good as insurance merchandises and related plans both to retail merchants and clients of H-D.
The North American Industry Code for which H-D falls under is 33699 ; Motorcycle. Bicycle. and Parts Manufacturing. Analysis: Harley-Davidson. Inc. is a really stable company with a loyal followers of consumers. HD has built a name and repute that allows them to bask success and remain profitable in a reasonably consistent market – even in times of economic down bend. Despite reduced gross revenues in 2009 the company had besides found ways to increase their net income borders. The company sites that they were able to increase their net income borders by happening ways to streamline procedures to cut down cost.
In 2011 retail gross revenues increased by about 3. 5 % . international gross revenues by 11. 3 % and the entire gross from bike gross revenues increased by 2. 5 % . Additionally. HD announced that they increased their net income by about 73. 5 % as a consequence from additions in quarterly net incomes. Currently HD has stayed with the position quo of ruling the market that they created. By comparing to other entities in their industry HD is taking the battalion. The 5 twelvemonth norm of HD’s Gross Profit Margin is 41. 04 % to the industry norm of 15. 51 % .
The ground HD enjoys such a higher net income border can be correlated to the company’s high solvency per centum. HD has comparatively low long term and short term debt and their ability to pay the debt they have is really high. The solvency ratio for HD is calculated at 41. 5 % which would by definition sort them as a really healthy entity. It could be speculated that one ground HD has such a high ratio is because they are non puting in the growing of their company and one might come to the decision that they are dead when in actuality this is non the instance.
When you look at their growing rates you have to take into consideration optimal public presentation degrees. HD is lacking in every Growth Rate Ratio across the board. Revenue Growth. Net incomes Per Share. Capital Spending Growth all significantly lower than that of their rivals. However. my sentiment is that the ground behind this is that they are already a well-established company who are already runing at the optimal degree at which their market demands.
All of the other companies in HD’s shadow are seeking to play catch up so they have larger per centums of growing by comparing ; nevertheless they suffer in profitableness as a consequence of their growing rate. This theory is farther corroborated by analysing all of the profitableness ratios. direction effectives ratios and the disparity those Numberss reflect between HD and its rivals. The 5 twelvemonth norm for Operating Margins is 15. 61 % over the industry norm of ( -2. 22 % ) .
I would one time once more mention that the operating borders are high because of HD’s pes clasp in their industry which is besides echoed in their Net Net income border ratio of 7. 86 % over the industry comparing of ( -0. 48 % ) . Comparisons for Pre-Tax Margin Ratios are 12. 5 % to the industries ( -0. 46 % ) . This is a good indicant that HD in contrast to its rivals is bring forthing larger net income borders. The higher the pre-tax border the higher the pre-tax net incomes. Additionally this ratio reiterates that the operating cost is low plenty to let for HD to accrue healthy net incomes.
However a caution that I would wish to advert is that HD like many other companies does maintain long term debt which allows HD to besides maintain their revenue enhancement borders lower. Keeping debt over equity when managed decently can be an effectual manner to increase hard currency flow in a company since lower revenue enhancements equal higher hard currency flow. To repeat HD’s high quality in net income borders over its rivals we see that the Tax Rate Margin is 39. 32 % over the industry 29. 41 % . one time once more this is an indicant that they are taking their market in profitableness.
When analysing the Management Effectiveness informations to include ROA. ROI. and ROE we find that HD is by no surprise in front of the curve in all countries except for ROE. HD’s Return on Assets is 4. 71 % to its industry norm of 3. 29 % ; the Return on Investment is 7. 18 % to the industry norm of 4. 10 % ; and the Return on Equity is 16. 86 % to the industries 23. 66 % . It is no surprise that the ROA and ROI of HD are higher than the industry norms. and it is besides evident that stockholders ROE is low as a correlativity to HD’s decelerate growing rate.
However HD’s ROE is non declarative to their overall profitableness. Decision: Because HD is a really steady company they would non be one of the companies you would desire to put in to acquire rich overnight but they would be a really safe company to put in long term. Historically they have increased systematically in individual figure per centums yearly on the stock market. Additionally across the board HD displays reflecting Numberss that indicate that they are a well-managed and profitable company.
There are no indicants that HD will see any down bends in profitableness or solvency in the foreseeable hereafter. HD continues to turn out itself as the conceiver and industry leader in the industry and wholesale of Heavy Weight Motorcycles. Despite what I see as market restrictions HD continues to happen ways to increase net income borders by using or open uping industry best patterns and streamlining procedures to finally profit its long term standings in the industry every bit good as benefit the stockholders that hold equity in its being.
Additionally historically HD has merely catered to the older coevalss of consumers do to the high cost of its luxury merchandises. HD is happening ways to offer more low-cost entry degree merchandises that cater to the stylisation that are appealing to a younger market and I foresee that they will go on to see higher degrees of profitableness as these market schemes mature.