Harley Davidson's Gross Profit Margin For 2002 example essay topic

Harley Davidson incorporated celebrated their one-hundredth year in 2003 and continues to grow. From the brink of bankruptcy, to the current industry, and looking into the future, Harley Davidson has had an interesting past, present, and future. In July 8, 1986 if you had invested $100 in Harley-Davidson common stock and reinvested all dividends, the value of your investment on December 31, 2001 would have been approximately $16,630, as shown in Table 1. In fact Harley Davidson stock continues to climb regardless of the performance of the S&P 500 (Harley-Davidson. com).

Harley Davidson's future is dependent upon growth and refinement, while complacency could retard their growth and status as an iconic brand. Sales and Profits With the boom of baby boomers so has the sales revenue for Harley Davidson. In 2002 sales totaled $4.090 billion with $3.161 billion or 77.3% of total sales coming from the sales of Harley Davidson motorcycles. Building motorcycles isn't the only way they make money. The other $930 million comes from Parts and Accessories - 15.4%, General Merchandise - 5.7%, and Be ull Motorcycles - 1.6%.

Parts and accessories along with the general merchandise are integral part of the Harley Davidson image. Sales revenue for the Harley Davidson Incorporated and the sales of Harley Davidson grew 20.1% and 18.3%, respectively. In 2002, 83.5% of their net revenue was made in 2002. Followed by a measly 8.2% in Europe, 3.5% in Japan, and 3.0% in Canada (Harley-Davidson. com). The lack of worldwide diversity of Harley Davidson is a weakness. While Haley Davidson primary focus is in the United States, other competitors such as Honda can benefit from their lack of interest in other areas in the world.

Harley Davidson's gross profit margin for 2002 was 32.04%, which has been growing the past 3 years. The gross profit of Harley Davidson in 2002 was $1.4 billion, an over 10% increase from the $1.2 earned in 2001. The net income was $580 million up from $438 million equaling the 17th straight year of significant profits (marketguide. com). Since their brink of bankruptcy in the 80's, through gains in technology, productivity, and vision they have turned past weaknesses into one of their strengths.

Harley Davidson has continued to grow and learn in a weak economy. Market Share Harley Davidson posted a 46.2% share of the North American 651+CC heavyweight motorcycle market. Harley also controls 21.3 percent in the Asia / Pacific market along with 6.6% in the European market. Honda, Harley Davidson's closest competitor posted 20.2%, 21.0%, and 19.1% in those same markets.

Worldwide Harley Davidson accounted for 28.0% of the motorcycle industry and increase from 27.1% in 2001. Table 2 2002 Market Shares 651+CC North American European Asia / Pacific Harley-Davidson 46.4% 6.6% 21.3% Honda 20.2% 21.0% 19.1% Suzuki 9.9% 14.8% 10.1% Yamaha 9.3% 17.7% 13.6% Kawasaki 7.1% 8.5% 15.8% BMW 2.5% 15.1% 7.3% Other 4.6% 16.2% 12.8% Figures courtesy of web The 6.6% market share in Europe is Harley Davidson's greatest weakness. But the corporation has addressed this issue and in September of 2002 a new 32,000-square-foot facility was built in Oxford, England as the new European headquarters. The American market is one their of their greatest strengths. With a 46.5% market share in America, Honda's 20.2% share is a distance second. But being an American company in the Asia / Pacific market Honda's 19.1% is not far away from Harley Davidson's 21.3% (Harley-Davidson. com).

Financial Conditions To help determine how successful Harley Davidson is or isn't, it is important to look at the company's financial condition. It is important to look at past years when analyzing a firm's financial ratios. The company's ratios pull financial data from the companies balance sheet and income statement. The financial ratios of a corporation can be divided into four categories; profitability, liquidity, leverage, and activity. Table 3 Financial Ratios 2000 2001 2002 3 Year Avg Net Profit Margin 11.4% 12.9% 14.2% 13.0% Return on Assets 15.3% 15.8% 16.6% 15.9% Current Ratio 2.61 2.33 2.09 2.34 Quick Ratio 2.22 1.97 1.78 1.95 Debt Ratio 42% 44% 42% 43% Debt to Equity 35% 40% 44% 40% Total Asset Turnover 1.21 1.09 1.06 0.86 Inventory Turnover 15.3 18.8 18.7 17.7 Figures courtesy of web Profitability The profitability ratios of a corporation represent their ability to generate profits. Net profit margin is the net income divided by net sales.

The profit margin tells you how much profit a company makes for every $1 it generates in revenue. This number is an indication of how effective a company is at cost control. The higher the net profit margin is, the more effective the company is at converting revenue into actual profit. Harley Davidson's net profit margin in 2002 equaled 14.2%. That is higher than the 13.0% Harley Davidson posted over the past 3 years. The net profit margin is a good way of comparing companies in the same industry, since such companies are generally subject to similar business conditions.

For example the net profit margin for the past twelve months from Honda and Kawasaki the top 2 of Harley Davidson's U.S. heavy weight market competitors, are 4.45% and 0.47% respectively. However, the net profit margins are also a good way to compare companies in different industries in order to gauge which industries are relatively more profitable (investorwords. com). Net Profit Margin = Net Income / Sales. 142 = 580.2 / 4091.0 Return on assets or ROA is a measure of a company's profitability, equal to a fiscal year's earnings divided by its average total assets, expressed as a percentage.

In other words ROA shows how much profit a company generated for each $1 in assets. The ROA figure is also a sure-fire way to shows the activity level of the current assets of a corporation. Companies such as telecommunication providers, automotive manufacturers, and railroads are very require big, expensive machinery or equipment to generate profits. Advertising agencies and software companies on the other hand, require very little expensive assets to generate profits (such as a software company, who once a program has been developed, employees simply copy it onto a cheap disk, throw an instruction manual in the box, and mail it out to stores) (beginnersinvest. about. com).

The ROA figures can be manipulated to look better than they really are, by buying assets as soon as they are needed. Harley Davidson's 16.6% ROA are good when compared to Honda's 4.93%. Withholding manipulation, the higher a company's return on assets the better off they are. Harley Davidson's 16.6% is higher that the 15.3% in 2000 (marketguide. com). Return on Assets = Net Income / Average Total Assets.

166 = 580.2 / 3,489.9 Liquidity Ratios The liquidity ratios of a corporation represent their ability to meet short-term financial obligations. Too much liquidity inhibits profitability through concentration in shorter term, lower return investments. The current ratio is obtained by taking the total current assets and dividing them by the total current liabilities. The higher the current ratio, the more liquid the company is. It is one of the most common indications of a company's ability to meet short-term debt obligations. The current ratio goal varies by industry, with 1.5 being the most commonly acceptable current ratio.

A company with a value around 1 need to have inventories that can be quickly turned into cash (investorwords. com). In general a manufacturing company such as Harley Davidson should not have a value close to 1. Their current ratio of 2.09 in 2002, which is much better than Honda's 1.06, has been decreasing the past 3 years from the 2.61 achieved in 2000 (marketguide. com). Current Ratio = Total Current Assets / Total Current Liabilities 2.09 = 2,066.59 / 990.1 Also called the acid-test ratio, the quick ratio is used to measure a firm's liquidity. It is just like the current ratio except that you add cash and short term investments to accounts receivable, which is like subtracting the inventory from the current assets, which is then often called, "quick assets". And then you take the quick assets and then divide them by the total current liabilities (beginnersinvest. about. com).

Harley Davidson's 1.78 is down from past years such as the 2.22 in 2000. But when compared to Honda's. 66, Harley Davidson is still in a better position to meet its short-term financial obligation. Quick Ratio = (Cash and Short Term Investments + Accounts Receivable) / Total Current Liabilities 1.78 = (795.7 +964.5) / 990.1 Leverage Ratios Leverage ratios are the way a corporation measures their ability to meet long-term financial obligations by degree of leverage, through the use of debt versus equity.

The debt ratio is calculated by dividing the total liabilities with the total assets of the company. This will tell you how much the company relies on debt to finance assets (investorwords. com). Harley Davidson's 42% means that less than half of their assets are financed by debt. Honda's 62% on the other hand means that if both companies were to hit hard times, Harley Davidson would have an easier time getting rid of their debt (marketguide. com). Debt Ratio = Total Liabilities / Total Assets 0.42 = 1628.3 / 3861.2 Debt to equity is calculated by dividing total current liabilities by total common equity. A company with a higher debt / equity ratio can offer greater returns to shareholders but be riskier.

Harley Davidson's 44% in 2002 is higher than the 35% in 2000. In other words investing in Harley Davidson is a little riskier than 3 years ago, but industry wise are in a good position as they are the most evenly balanced. Debt to Equity = Total Current Liabilities / Total Common Equity 0.44 = 990.1 / 2,232.9 Activity Ratios Activity ratios measure a corporation's operational efficiency by making sales, collections, and use of productive assets. Excessively high values may signal problems. Total asset turnover is calculated by taking sales and dividing it by total assets. This is a measure of how well assets are being used to produce revenue (investorwords. com).

Harley Davidson has a total asset turnover of 1.06, which is down from the 1.21 in 2000. That means Harley Davidson turns every 1 dollar of asset into 1.06 worth of sales (marketguide. com). Total Asset Turnover = Sales / Total Assets 1.06 = 4091.0 / 3,861.2 Inventory is the number of times inventory is used to make sales, in general the higher the value the better. It is calculated by dividing sales by inventory (investorwords. com). In 2002 Harley Davidson posted an inventory turnover rating of 18.7 which is on par with the 18.8 in 2001, which are both better than 11.4 Honda achieved in 2002 (marketguide. com).

Inventory Turnover = Sales / Inventory 18.7 = 4091.0 / 218.2 At one time during the mid to late eighties Harley Davidson was on the brink of bankruptcy. But survived and now has been in business for 100 years. The corporation is the industry leader, eclipsing Honda their number 1 competitor easily in almost all benchmarks. This is an overwhelming strength of Harley Davidson, because with their financial stability they will have plenty of opportunities to maintain and grow from their current position. While they are in a great position financially, they must continue to maintain their position on top, which at times is harder to do than getting there. Complacency is could be a weakness, as there is plenty of competition waiting for the giant to slip.

Strengths With continued growth in all areas of gross profit and net income. Their consistency in this area through strong and weak economies is considered a vital and positive strength. Weaknesses The lack of worldwide diversity of Harley Davidson is a weakness. The 6.6% market share and their 6th rank in European market is one of Harley Davidson's greatest weakness.

Harley Davidson has taken a step in the right direction starting with the new plant in England. But being an American company in the Asia / Pacific market Honda's 19.1% is not far away from Harley Davidson's 21.3% and is definitely a potential weakness. Complacency is could be a weakness, as there are plenty of competition waiting for the giant to slip.