Colt Stout & Les Cano

Harley Davidson Analysis

7/11/2015

HOG is not tracking pork belly future that is the symbol Harley Davidson. I pulled up
a 10 year stock chart for HOG and overlaid the S&P 500 and the two have about the
same trends. In Feb of 2009 Harley Davidson and the S&P 500 both bottomed out
and they both have been on a steady bullish trend since. In April of 2014 is where
HOG hit the top while the S&P 500 has been still up trending. The high in 2014 was
~ $74 and HOG is currently trading in the $55 range. Harleys beta is .98, that is
pretty darn close to the market, which is not surprise because a luxury product
typically does better in a good economy and worse in a struggling one granted all
other things equal. That is why when you overlay the market and HOG on a stock
chart they tend to show the same trend.

All number related the financial statements are in K dollars

Taking a look at the Income Statement there is a trend for net income from 2012
through 2014 on Harley Davidson, it has increased every year. Harleys income
statement show operating income has grown every year from 1,000,176,000 in
2012 to 1,280,983,000 in 2014. I want to look at net income and or operating
income to give me a picture of what Harleys core business activities have been
doing. The trend has been steady growth. The consolidated statement of
comprehensive income is a little different story and that is why you cant just look at
the comprehensive income by itself. Harleys other comprehensive gains or losses
do not have a trend and does not tell me a lot trend wise about what is going on
with the health for this company. Net income is trending nicely and has increased
just like operating income from 2012-2014. To see continual steady growth from a
companys operation income is a really good sign of health.
Balance sheet:

The balance sheet from 2012-2014 was pretty darn close to being the same. Total
assets went from $9,170,773 to $9,528,097, Liabilities went from $6,613,149 to
$6,618,811 and stockholders equity went from $2,528,094 to $2,881,534. An
interesting thing to note is that net income as we talked about in the previous
paragraph has been trending up while the balance sheet, has stayed pretty much
level. A company could have down tending or flat net income and still be a healthy
growing company if their balance sheet was to show increased assets. Or vice versa
a company could show increasing net income and decreasing assets on the balance
sheet because they were selling off assets. That is why I looked at operating income
and net income instead of just net income on the income statement. The Property
Plant and Equipment has increased approxemently 8% in the last 3 years, and long
term debt has decreased by approxemently 16%. Harley is investing into their own
operations and that is always a good sign. If a company does not think that they can
make money with expanding and growing their business you will see a decline in
PP&E and that is never a good sign.

Cash flow:

Lets see if some of the items that I had talked about when looking at the income
statement and balance sheet show up in the statement of cash flows. The first item
that I want to point out is that total cash flows from operating activities have
increased from $801,458 in 2012 to $1,146,677 in 2014. That confirms what I talked
about operating income increasing, Harleys core business has been growing and
they have strong core business. From 2012 to 2014 cash flows from operating
activities has increased ~43%, this really show the strength of their business.
Capital expenditures have steadily been on the rise from 2012-2014, in 2012 Harley
invested $189,000 in capital expenditures and in 2014 they expended 232,319. The
increase in capitol expenditures shows very clearly what I was talking about on the
balance sheet where PP&E had increased, if a company is not healthy they will not
be increasing capitol expenditures. Another thing looking at 2014 cash flow
statement Harley paid a dividend of $238,300, the dividend paid was increased
from 2012 to 2013. A company can increasing the amount of dividends paid is a
sign of health. One of the last things that I though was noteworthy and want to
point out on the statement of cash flows is that Harley has been purchasing its
stock, in 2012 they purchased $311,632, 2013 they purchased $479,231, and in
2014 they repurchased $615,602. There is a lot of different view about what
purchasing of common stock is telling us but most see this as a strong indicator for
a company. A side note I want to point about on Harleys cash flow, looks like they
redistributed some money this year, they issued $991,835 in notes probably
because they were able to secure a faberarale rate, paid of some debt and bought
some stock.
For Harley Davidson operating leases that are owed but dont show up as a liability
on the balance sheet total of $55,402.

2015 $ 12,309

2016 9,342

2017 6,983

2018 5,535

2019 5,278

After 2019 15,955

Total operating
$ 55,402
lease payments

The ratio analysis should just confirm what I have found in the financial statements,
but maybe it will help point out a specific item that might not have been as visible.

2014 2013
Liquidity Ratios Liquidity Ratios
Current = 1.652416245 Current = 1.589426702
Quick Ratio = 1.464547986 Quick Ratio = 1.420272507
NWC to Sales = 0.250270049 NWC to Sales = 0.250720185
Cash Flow = 0.607555144 Cash Flow = 0.532823741

Liquidity ratios are trying to determine if a company can pay short term debt with
liquidable assets. Current ratios is the current assets / current liabilities, Harley has
a current ratio of 1.65 which means they have more current assets than liabilities, if
this was close to 1 then I would want to take a closer look. The Quick Ratio basically
is a fancy way to calculate the current ratio, utilizing cash, short term investments
and AR in the place of current assets. Harley has 1.46x liquidable assets as it does
current liabilities. Net Working Capitol (NWC )to Sales is calculated by current Assets
current Liabilities / Revenue. Working Capitol to sales lets us know how what % of
working capitol need to make a sale. Industrys that have quick sales might have
less than others. We can also compare this ratio to the current or quick ratio, if the
NWC to sale ratio +1 was close the either the current or quick ratio there could be a
cash flow problem. Another thing that can be done with this ratio is compare it to
the NWC to Sales of that industry.

Cash flow is calculated by AR + Marketable securities + income from operations /

current liabilities. What does this mean
The other that I want to point out is from 2013 to 2014 do the liquidity ratios make
sence with what I already know from the financial statements, and they do. These
ratios are not pointing out anything to take a deeper look at something.

2014 2013
Activity Ratios Activity
Inventory TO = 7.892247439 Inventory TO = 7.999674917
Acct. Recieve TO = 3.410902145 Acct. Recieve TO = 2.811533526
Tot. Asset TO = 0.088644249 Tot. Ass TO = 0.078042518
Fixed Asset TO = 0.956440945 Fixed Asset TO = 0.871232093
Payable TO = 7.884413454 Payable TO = 7.946734997

Activity Ratios are used to measure relative efficiency of a firms resources. We

calculated inventory turnover ration by cost of goods sold / Inventory. This formula
is geared to be compaired against the industry, or competitors in that industry. If
the firm has a low turn over ratio in comparison then items may be sitting to long,
or could be an indication of poor sales or poor execution. Harley has no true
competitor that is publicly traded to compare with, Harleys biggest competitors all
sell other iteams and a compairsion might not tell us anything. We will not use this
except to compare how we have done in previous years. In 2010 the Inventory ratio
was 7.33, that does not this does not tell us much.

Account receivable turnover ratio tells how many times a year the firm receives
accounts receivables. This tells how a company is extending credit sales and being
able to collect on credit lent a higher number is better but if its to high a company
may not be extending enough credit sales.