3. Financial Analysis
Balance Sheet
Total Assets Increased by 3.9%, from $9.17 billion
-$9.53 billion
Shareholders Equity increased by 13.75%, from
$2.56 billion - $2.91 billion
Income Statement
Net Income increased 35.37%, from $624 million -
$845 million
Gross Profit Margin increased by 13.9%
Operating Profit Margin increased by 28.08%
4. Financial Analysis
Liquidity/Trend Analysis
Current Ratio declined from
2.70 to 1.65.
Quick Ratio declined from .9 to
.50
Total Operating Cycle
averaged 61 days
Profitability Analysis
Net Profit Margin increased
35.37%
Honda grew 271.47%,
Yamaha 914%
Return on Assets decreased
from 13.7% to 8.99%
Return on Equity is 29.03%
All three companies
increases ROE year-over-
year
0.00%
20.00%
40.00%
2012 2013 2014
Return
Year
ROE
Harley Yamaha Honda
0.00%
5.00%
10.00%
15.00%
2012 2013 2014
%
Year
Net Profit Margin
Harley Yamaha Honda
5. Financial Analysis
Leverage Analysis
Debt Ratio is 69.47%,
remaining fairly stable
over three years
Debt to Equity Ratio is
well above 2.0
Yamaha and Honda
consistently stay
below 2.0
Times Interest Earned
is 307.78, beginning
21.72 in 2012
Interest Expense
decreased
dramatically in 2014
0.00
1.00
2.00
3.00
2012 2013 2014
Debt/EquityRatio
Year
Debt/Equity
Harley Yamaha Honda
0.55
0.60
0.65
0.70
0.75
2012 2013 2014
DebtRatio
Year
Debt Ratio
Harley Yamaha Honda
6. Financial Analysis
Industry Comparison
Recreational Vehicle Industry
Return on Equity is 28.80%, industry average is
29%
P/E Ratio of $15.91, industry average is $18.60
Dividend Yield is 1.78%, industry average is
1.68%
Net Profit Margin is 13.56%, industry average is
9.4%
7. Financial Analysis
Capacity and Covenants:
The Harley Davidson Financial Services (HDFS) agreement provides a bailout by
the parent company to keep a fixed-charge coverage ratio of 1.25 and $40mm of
Net Income in HDFS.
Regarding the financial and operational covenants, the parent company, Harley,
has limited capacity to borrow funds. These limitations make the following
restrictions, “assume or incur certain liens; participate in certain mergers,
consolidations, liquidations or dissolutions; and purchase or hold margin stock.”
In addition, they are required to have debt/equity ratio of 10.0 to 1.0 and debt
ratio between .65 and 1.0 at quarter-end. The company has reported that they
have complied with all covenant and capacity requirements.
The company has $3.7 billion in long-term debt with interest rates between
1.15% and 6.8%. In 2013, the rate was as high as 15% for senior unsecured
notes, but has been paid-off.
Harley’s current debt ratio if .69 and their debt/equity ratio is 2.28 for 2014,
staying within required financial covenants.
8. SWOT Analysis
Strengths:
• Harley has 54.9% of the US market
share for the motorcycle industry, a
5% increase from prior year.
• Days sales in A/R is 14.5110.
• The Times Interest Earned ratio is
307.
Weaknesses
• Harley had underfunded pensions,
$205.9 million, and postretirement
healthcare, $218.6 million, in 2013.
• Harley’s quick ratio is .5071.
• Harley’s Operating Asset ratio is
.6537.
Opportunities
• Overtook Brazil and Japan as first in
market share.
• Growth of finance and insurance
products.
• Test of Electric Motorcycle.
Threats
• Harley has floating interest.
• The working capital of Harley is $1.5 billion
while their competition is nearly 1/3 to 3
times higher.
• Harley has an opportunity to expand their
businesses in Canada, Australia and
Europe.
9. Conclusion
Loan request for $1.5 billion
Moody’s, Standard and Poor’s and Fitch Rating
Times Interest Earned ratio is 307
Working Capital is $1.5 billion
Treasury Stock
Growth rate between 4-6% for 2015
Debt Ratio Increase .69 to .85
It is recommended to……
