Harley Davidson 8

Harley Davidson 8

Harley Davidson Evaluation

Harley Davidson is a very reputable company that has made its name through a long history, exceptional quality, and cost-effective motorcycles. Harley Davidson is a manufacturer of motorcycles. This company is an American manufacturer. These motorcycles are known for its unique and distinctive designs and exhausts. Harley Davison was thought up by William S. Harley in 1901 when he drew up some plans for a small engine. This unique engine was made for the use in a regular pedal bike. Harley Davidson has provided over 100 years of excellent service and motorcycles. (Wikipedia) One of the most astounding facts that show Harley Davidson’s durability is that the Harley Davidson survived the great depression. Harley Davidson is one of the leaders in sales of motorcycles. Harley Davidson has been continually transforming itself to be more globally integrated and customer-driven in the world market which is very competitive. Over the past few years, competition has been very strong, especially because of the current economic hardship. One of those hardships is the price of gas. Because of the increase in the cost of gas, there have been struggles to make their motorcycles more gas efficient while still being cost-effective. Overall, income and profits have gone down for most recreational vehicle makers and motorcycle makers because of the current economic slump we are in, which have left these companies fishing for ways to attract buyers. Throughout all this, Harley Davidson has stayed strong and is still finding creative ways to stay at the top for many years to come.

Just looking at the numbers for 2007 and 2006 it is obvious that there were deficits in comparison to each year. The economic crisis that is happening in the United States has put this industry in a difficult predicament. Profit numbers have dropped tremendously compared to the previous years profits. Compared to 2006, Harley Davidson has loss 11.2 billion dollars in net income. In 2006 Harley Davidson has earned 1.4 billion dollars in net income compared to 2007 where a total of 12.6 were lost in net income. Harley Davidson’s sales and revenue went down from 176.9 billion in 2006 to 160.1 billion in 2007. Of course with these decreases, the shareholder’s value went down as well from .40 per share in 2006 to .25 per share in 2007. For Harley Davidson it was not a good year overall. Although the 2008 numbers are not out yet, it is safe to say that because of the current economic slump and gas price increases that we can expect the numbers for 2008 to be even worse than 2007.

In comparison to 2006, 2007 was not a good year for the Harley Davidson Motors Company. In comparing the current assets to the current liabilities, the current ratio, it shows that the current ratio is .99 to 1 with the current assets being 278,554 million and the current liabilities being 280,860 for 2007. The same analysis for 2006 shows that the current ratio is 1.06 to 1 with the current assets being 269,459 million compared to the liabilities being 254,895 million. The quick ratio, which considers a more reliable indicator of the Harley Davidson’s ability to meet its short-term financial obligations, for 2007 was .95 to 1 which included the current inventory of 11,578 million. For 2006 the quick ratio was 1.02 to 1 which included the current inventory of 10,271 million. This information shows how the Harley Davidson was able to better handle their short-term obligation in 2006 compared to 2007 when they were close to being even with the current and quick ratios but were still not as ready to handle those obligations as they were in 2006. In comparing the inventory turnover ratio it is also clear that more inventory was held in 2007 than in 2006. The ratio for 2006 was 17.22 to 1 compared to 13.83 to 1 in 2007. The Net sales for 2006 was 176,896 million and the total inventory was 10271 compared to the 2007 net sales which was 160,123 million and the inventory which was 11,578 million. This shows me that Harley Davidson was holding on their inventory more than they were in 2006. This is obviously because of the decrease in sales because of the economic slump that we are in and were in then. Compared against the industry averages, there truly are not too many differences because the whole recreational vehicle industry has suffered because the demand is down. Almost every recreational vehicle maker has a negative profit posted for the 2007 year compared to the previous year for the same reasons. This demand being down has increased supply. Because the 2006 ratio was high, it implies that Harley Davidson had strong sales; on the other hand, the low ratio for 2007 implies that there were poor sales which left excess inventory.

Harley Davidson relies partly on debt to help execute their everyday sales. In analyzing the debt that they are using, it was seen to be similar in comparison to 2006 and 2007. The total debt for 2006 was 133.4 billion compared to 139.7 billion in 2007. The total assets for 2006 were 269,459 million compared to the total assets for 2007 which were 278,554 million. The Debt to Asset ratio for both years was 50%. This does not tell us too much about the debt management in comparison to each year. This does tell us that in comparison to the 2006 years that the company held steady in terms of assets compared with debt. This can be somewhat deceiving since the debt did increase by 6.3 billion dollars. Taking a look at the 2004 year where the debt was 142.4 billion, there was a significant drop in debt from then to 2006 of 9 billion dollars, which implies that the company was doing well. The increase of 6.3 billion from 2006 to 2007 indicates that there were complications that called for more debt to be obtained. This number should continue to go down in order to implicate that the company is doing well. Since creditors look at these ratios in order to see if a company will make good on their business loans and obligations, it is imperative that Harley Davidson continues to bring those numbers down.

The ratios and numbers for the calculations that use the total net income for Harley Davidson are difficult to determine because of the loss that was recorded for the 2007 year in comparison with the 2006 year. The Net Profit Margin is negative for the 2007 year because the net income was -12,613 million and the total revenue was 160,123 million. The net profit margin ratio for 2007 was -.08 to 1. In 2006 the total net income was 1.4 million and the revenue was 176,896 million which made a ratio of .01 to 1. This ratio is important for investors because it tells how much profit is made per $1 of revenue. Because the income was negative in 2007 it is obvious that the profit that was generated was a negative profit, moreover, there was no profit. The ROI was also negative for 2007 because of the net income. The return on assets ratio was -.5 to 1 for 2007 compared to .01 to 1 in 2006. The ROI is used to show how well the management at Harley Davidson is doing to generate income. It is obvious that in 2007 this job was not done well. Although 2007 was not better than 2006, 2006 was not much better. For any investor it is important to know how the management of the company is doing, and it is obvious that the management at Harley Davidson Motor Companies needs to evaluate their plans. The ROE for Harley Davidson was also not much better. For the 2007 year the return on equity was negative at -106.8% compared to the ROE for 2006 which was 12.3%. In comparison, the 2006 year was much better than 2007 because of the net profits. This comparison shows that the 2006 shareholders earned a decent amount of return on their investments compared to the 2007 shareholders who lost quite a bit on theirs. The current price per share as of 02/02/2009 for Harley Davidson (HOG) is $11.50 with the earnings per share currently being 3.24. This makes the price per earnings ratio, or P/E, not applicable. If the calculations were done the P/E would be 3.50 which is not applicable. This would usually show how much a shareholder can expect to earn per share, but the numbers are generating negative earnings at the moment. WACC for 2007 is 12.64; WACC for 2006 is 13.27. The difference is only about 1 point, but it is obvious that the difference of the economic crisis has affected the numbers for 2007. This is noted because all of the numbers for 2007 are higher such as the Shareholder Equity and the amount of debt that this company has. Working capital for 2007 is $ 1,562,235 and for 2006 was $ 1,954,956. The Operating and Cash cycles are not optimized at the current time, most likely because of the current economic crisis that we are in that is affecting any automobile makers and recreational vehicle makers. The Working capital has decreased by nearly 500,000 in the past year, although sales have been decent compared to the industry averages. This shows some duress.

Overall, the Harley Davidson is an admirable and customer-worthy business. They have been in business for over 100 years. Harley Davidson has survived the changes in trends and times, successfully surviving the great depression. Although the Harley Davidson has ideas and goals in place they are still struggling as is other recreational vehicle makers. The economy has made it difficult for recreational vehicle makers to make a decent profit because of numerous reasons including gas prices and the demand being low. Nonetheless, Harley Davidson has found different ideas towards trying to overcome this slump. The current stock price for Harley Davidson is $5.22 with the 52 week low being $11.54 and the 52 week high being $48.14. The 2008 year has not been any different from the 2007 year in terms of the economy and the selling of motorcycles. It might have been worse. Although the current price of the stock is near the 52 week low, it would still be risky to invest in this stock because of how much Harley Davidson lost in 2007 compared to 2006. The economy has a direct effect on this industry. If the economy starts to get better, this stock could be an exceptional investment, but at the current moment it would not. Moreover, with 2007’s numbers mostly being negative and 2008’s economic standing not getting any better compared to 2007’s economic standing, I would have to suggest that an investor not buy this stock yet, but to watch it for any changes in sales and economic changes throughout the year.

References

Harley Davidson (2008). Wiki. Retrieved on March 16, 2009 from

http://en.wikipedia.org/wiki/Harley-Davidson

Harley Davidson 2007 Annual Report (2008). Retreived on March 16, 2009 from

www.harley-davidson.com/en_US/Media/downloads/Annual_Reports/2007/HD_Annual2007.pdf?locale=en_US&bmLocale=en_US