Financial Analysis of Harley Davidson:
This company is the manufacturer of the motor cycle. The company is having very advanced manufacturing plants across the world but the company’s performance as far as financials are concerned is not bright. First, let’s discuss the profitability ratios of the company of last three years:
Profitability Ratios: means the percentage at which the company is earning a profit. Higher the profit, better it is for the company. So, the company should give its focus on the profitability of the company. In 2014, the Gross profit ratio was 20.57% which declined to 19.28% in 2015 and again lowered to 17.49 % in 2016.This declining trend shows that the Gross margin of the company is reducing. In other words, the profitability of the company is in declining trend. So, at the end the profitability of the company is poor, and it should try to improve its profitability.
Similarly, the Net profit of the company is also in declining trend as in 2014 it was 13.56% whereas in 2016 it lowered down to 11.54% which is very lower. So the company should make plans to improve it.
The amount invested in the assets of the company is not giving a proper return as it is also in declining trend. Moreover, the return on equity is also in declining trend which shows that the shareholders return on the amount invested in the company is also in reducing trend.
On comparison of the ratios with the industry ratios, Harley Davidson has underperformed which can be evident from the fact the gross profit ratio of the company is 17.49% whereas per industry standards it should be 23.20 %.
Liquidity Ratios: These ratios define the liquidity condition of the company. More liquid the company, better it is. The Current ratio of the company is 1.35:1 which is lower as per the industry standards. This means that the current assets of the company are only 1.35 times of the current liabilities which is lower. This should be at least 2:1.
Solvency Ratios: This company is the highly leveraged company as the debt to equity ratio of the company is 2.43 which means that the debt of the company is 2.43 times of equity which is very high. As per industry standards, this should be below one because equity should be higher than debt otherwise there will fix interest liability to be paid by the company and higher the interest liability lower will be the profit for equity share holders.
Account Receivable Collection Period: This period of the company is also high as it has raised from 15.06 days to 17.35 days. This means that the company has started giving more credit period and for that, the company has to bear interest cost for extra two days.
EPS: Earning per share. This means that how much amount an investor will earn by investing in one share. Higher the ratio better it is as more and more investor will invest in the company which will be good for the company.
Recommendation: The company should improve its operations and management with which the profitability of the company gets improved and should also adopt latest technology to reduce its operating expenses which will improve the gross margin and overall all the ratios will get improved along with profitability.