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Analysis of Annual Report-Harley-Davidson


Prepare a paper that includes performance ratios based on the company's last two annual reports and data available on the company's Web site.

o Compute the eight ratios listed below for two consecutive years. Discuss their significance for management and compare them to industry averages.

? Current Ratio
? Quick Ratio
? Inventory Turnover Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Sales to Inventory)
? Debt Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Total Liabilities to Net Worth)
? Net Profit Margin Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Sales)
? ROI (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on
? ROE (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on
? Price-to-Earnings Ratio (P/E) Ratio

o Analyze the company's working capital management. Explain why the company's operating and cash cycles are currently optimized. If you think they are not optimized, explain why.

o Based on the company's financial statements, list the long-term debt held by the corporation, maturity dates and yield to maturity. List the types of stock issued by the company, the stocks' current selling price, and the 52-week average selling price.

o Compute the weighted average cost of capital (WACC) for both years and discuss your findings.

o Write a brief analysis that summarizes the data you've gathered throughout the weeks and evaluates how your company compares to industry averages.

o Write your recommendations on whether as an investor you should buy this co

Solution Preview

Please see the Excel file attached.

2007 2006
Current ratio current asset/current liabilities 1.820037 2.225158

Current ratio shows the how the company can meet its short term requirements.

Quick ratio liquid assets/current liabilities
liquid assets=current assets-stock 1.636476 2.044797
2007 3117617
2006 3262835

Inventory turnover ratio sales/inventory 16.3766 20.15541

Debt ratio Total liabilities/net worth 2.381237 2.006775
net worth=equity capital + reserves-losses incurred
total liabilities
2007 5656606
2006 5532150
net worth
2007 2375491
2006 2756737

Net profit margin ratio net income/sales
net income
2007 933843 0.163064 0.179833
2006 1043153
2007 5726848
2006 5800686

Return on assets net income/total assets 0.165089 0.188562
net income
2007 933843
2006 1043153
total assets
2007 5656606
2006 5532150

P/E ratio market value per share/earnings per share 15.788 15.70178
market value per share
2007 59.205
2006 61.865
earnings per share
2007 3.75
2006 3.94
Market value of share. I have taken average of highest of high and lowest of low of particular year

Significance of ratios

Current ratio: It shows the company can manage to meet the short term liabilities from the current assets. The standard ratio is 2:1. The current ratio for the year 2006 is 2.2 as against the ratio of 1.8. The liquidity position of the company has been slightly reduced. The company should take steps to increase the current ratio.

Liquid Ratio: It shows the liquidity position of the company. Liquid assets are current assets minus stock. Liquid assets denote assets which can be easily converted into cash. The standard ratio is 1:1. The company has got sound liquid position as liquid more than the standard ratio.

Inventory turnover ratio: This denotes how fast the inventory has been sold. The ratio for the year 2007 (16) is decreased from the year 2006(20).A lower turnover implies poor sales and higher ratio implies strong sales or ineffective buying. Here, in the year 2007, the company had poor sales compared to the year 2006.It needs to be compared to the industrial average. If the industrial average (assume) is 15, then the company is in better position.

Debt ratio: This ratio shows the relation between the total liabilities of the firm and the equity. It shows the leverage of the company along with its potential risk interims of debt load in its capital structure. The debt ratio is ...

Solution Summary

The answer contains analysis of financial performance of Harley-Davidson by computing liquidity ratios,profitability ratios,working capital and computing weighted average cost of capital, factors that should be considered by the investors while investing in Harley-Davidson