Analysis of the Harley-Davidson Motorcycles Firm

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Harley-Davidson Motorcycle is among the world’s largest manufacturers and traders of heavyweight motorcycles, as well as motorcycle parts, accessories, and related services.

This is an analysis of the company. The research shows areas in which Harley-Davidson performs well and areas of weaknesses. Moreover, it also shows how such strengths and weaknesses have affected credit worthiness and investment potential. The report also presents details of the firm, management, competitive environment, economic outlook, a review of current financial statements, financial ratios, profitability, and the company’s capital structure.

The research concludes that Harvey-Davidson is a credit worthy company, which has good investment opportunities due to its strong performances in the last three years.


Harley-Davidson history dates back to 1903. Harley and Davidson incorporated the company in 1907. Since then, the production and sales of motorcycles at the company has grown exponentially. Its motorcycle brands are the most recognized in the US and other parts of the world. Harley-Davidson sells its motorcycles, parts, and related services to retail customers through established networks of independent dealers. The business is on a global basis across Europe, Middle East, Latin America, and Asia-Pacific region. It has many models of motorcycles and continues to introduce new models to the market.

Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). HDFS offers financing and insurance services to its dealers and customers (ADVFN, 2013).

The company has several shareholders that consist of major institutional and concentrated shareholders. Some of the major shareholders are in the below table.

Table 1: Institutional shareholders, 2012 (Top five)

Holder Shares % Held
The Vanguard Group, Inc. 14.46m 6.42%
T. Rowe Price Associates, Inc. 13.15m 5.10%
Capital Research & Management Co. (Global Investors) 11.17m 4.94%
BlackRock Fund Advisors 9.78m 4.14%
Fidelity Management & Research Co. 8.25m 4.02%
NOTE: 40.08% Per cent of shares held by top holders

Harley-Davidson targets high-end consumers of high social status. Some of the company’s competitors also make motorcycles of the same quality. However, Harley-Davidson charges premium prices because of its strong brand. Harley-Davidson is successful because of its loyal customers.

Description of firm and management

In 2009, Interbrand noted that the value of Harley-Davidson brand declined by 43 percent to $4.34 billion. This happened because of the recession in the US. Sales in the US declined by -26 percent while in Canada sales dropped by -37 percent. The recession also affected international markets.

The North America markets suffered due to weaknesses of the American dollar. However, Harley-Davidson brand maintained its premium status in the international market. Harley-Davidson conducts direct sales of motorcycles and their accessories to various retailers and dealers across the globe. In addition, it also provides financial aid to prospective buyers. However, the collapse of the mortgage market in the US affected “HDFS that normally accounts for 15 percent of the company’s income” (GlobalData, 2012). The company also recorded a decline in shipment during 2009 and retrenched 25 percent (2500 workers) of its workforce.

Apart from other roles of the management team, Harley-Davidson management team has significant roles in critical accounting estimates. Harley-Davidson has based its financial statements on the selection and the use of fundamental accounting policies. These policies require management to perform critical estimates and assumptions about financial statements. The team believes that making critical accounting estimates is a critical judgment in the use of accounting policies, which affect Harley-Davidson financial conditions and business results. The management team must discuss the development, selection, and application of such accounting practices with the Audit Committee of the Board of Directors.

Over the years, the Audit Committee has reviewed, discussed, and approved the management team assessments of accounting policies and practices. Therefore, the internal control systems are effective in Harley-Davidson. The company’s independent auditor is Ernst & Young.

Discussion of competitive environment, economic climate, and outlook

Harley-Davidson has a strong brand image. This has enabled the company to attract and retain customers. The company’s brand has achieved iconic status in the global markets. Harley-Davidson controls 55.7 percent of the US heavyweight market and usually takes position one or two across European markets. The company obtained its status in the market because of high quality products that reflected “traditional styling, design simplicity, durability, quality, best design, and robust performance” (GlobalData, 2012). Such qualities have attracted “unflinching customer confidence, loyalty, and trust of in products and services of Harley-Davidson” (GlobalData, 2012). Harley-Davidson brand has remained strongest and created favorable investment opportunities.

The company also has various products and services. It has two business segments that offer motorcycle sales, related services, and financial services. Therefore, it can cater for various consumers. In 2011, the company shipped “233,117 motorcycles that comprised of 39.5% Touring motorcycle units, 39.2% Custom motorcycle units, and 21.3% Sportster motorcycle units” (GlobalData, 2012).

Harley-Davidson has also diversified into financial services through its HDFS. Therefore, it can provide both wholesale and retail financial services to its customers. This strategy has enabled Harley-Davidson to have a competitive edge in its operation of the US and Canada. In the fiscal year 2011, HDFS financed “51 percent and 30.4 percent of the new Harley-Davidson motorcycles through independent dealers in the US and Canada respectively” (GlobalData, 2012). It also offers wholesale financial services to its dealers for opening and planning floors for the business. The company aims to increase its market share and increase customer base.

Harley-Davidson also engages in continuous and focused research and development practices. The aims of R&D are to enhance innovation and attract consumers’ attention. The company’s Product Development Center (PDC) performs development of new and advanced products. Harley-Davidson spent “$145.4 million, $136.2 million, $143.1 million, and $163.5 million in the fiscal years ended December 2011, 2010, 2009 and 2008 respectively on research and development activities” (GlobalData, 2012). R&D has enabled the Harley-Davidson to maintain its leading position in the motorcycle markets. The company has innovative products with effective operational performance. These features have attracted new customers, which resulted into growth in revenues in the past three fiscal years.

On the other hand, Harley-Davidson has faced some challenges that could affect its market share, sales volumes, and profitability. For instance, the company has recalled some its products due to technical failures. Harley-Davidson conducted a campaign in order to fix its faulty brakes in over 1,228 motorcycles in 2012. In 2011, the company had to initiate a global recall of 308,000 motorcycles of various models. Such cases have affected customer confidence in the brand and reduced sales volumes.

Harley-Davidson has a weakness of dependence on the domestic market. Most sales and revenues ($4.67 billion) originated from the US market. This represented 67.7 percent of the revenue. It also recorded 16.8 percent from Europe, 3.3 percent from Canada, 4.9 percent from Japan, three percent from Australia and 4.3 percent from other parts of the globe. The trend is similar in 2011 in which the company recorded 95.3 percent from the US, four percent from Canada, and 0.7 percent from Europe. Such high-levels of concentrations in the US markets make “Harley-Davidson prone to a possible economic downturn in the US” (GlobalData, 2012).

Some of the company’s major competitors consist of Kawasaki, Yamaha, Suzuki, and Honda. These are direct competitors from Japan. They provide lightweight and cheap motorcycles in comparison to Harley-Davidson. Moreover, other manufacturers of motorcycles also compete with Harley-Davidson.

There are also new forms of custom chopper. These products have gained recognition in the US market due to exposure and advertisement. Consequently, they pose serious threats to heavyweight motorcycles from Harley-Davidson.

Evaluation of financial statements


Harley-Davidson has posted strong financial results for the past three years as it continues to make changes to its long-term business strategies. In fiscal year of 2011, the company recorded a growth of 9.31 percentage increment than in the previous year. In the same period, the company had operating profit of $829.97 million (GlobalData, 2012). This represented a growth of over 74.59 percent as compared to the previous year.

Such positive results are due to four pillars of the business strategy, which are “growth, leadership development, continuous improvement, and sustainability” (Harley-Davidson, Inc., 2012). The aim of this strategy is to drive profitability, enhance productivity, and strengthen the brand. The company also adopted flexible and customer-led production. It also embarked on international expansions in Asia-Pacific and Latin America regions. There were also new dealers in the US market.

In 2011, the company recorded improved sales worldwide by 5.9 percent and a further 5.8 percent increment in the US market. As a result, Harley-Davidson believes that its products still have strong appeal in the market.

Both motorcycles and financial services of the company recorded high performance. The motorcycle business grew operating income by 10.7 percent, which represented $182.4 million compared to the fiscal year of 2010. In addition, financial services recorded an increment of $86.9 million with a significant credit performance.

Management Effectiveness

Company Industry Sector
Return on Assets (TTM) 6.62 5.91 8.78
Return on Assets – 5 Yr. Avg. 5.03 4.88 7.19
Return on Investment (TTM) 8.52 8.80 12.66
Return on Investment – 5 Yr. Avg. 6.79 8.39 11.19
Return on Equity (TTM) 25.07 13.04 13.93
Return on Equity – 5 Yr. Avg. 19.32 13.83 13.1

Financial leverage (debt ratios) & Profitability Ratios from 2003 to 2012

Profitability 2003-12 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 TTM
Tax Rate % 34.74 35.50 35.50 35.78 35.50 36.68 60.46 33.50 30.86 35.11 35.11
Net Margin % 16.46 17.74 17.96 16.86 16.31 11.70 -1.15 3.02 11.28 11.18 11.18
Asset Turnover (Average) 1.05 0.96 1.00 1.15 1.02 0.83 0.56 0.52 0.56 0.59 0.59
Return on Assets % 17.32 17.10 17.87 19.34 16.69 9.71 -0.65 1.58 6.27 6.62 6.62
Financial Leverage (Average) 1.66 1.70 1.70 2.01 2.38 3.70 4.34 4.27 4.00 3.59 3.59
Return on Equity % 29.32 28.81 30.45 35.72 36.39 29.16 -2.61 6.79 25.90 25.07 25.07
Return on Invested Capital % 21.57 20.67 21.27 23.85 19.73 8.86 -3.68 -1.21 5.08 7.52 7.52
Liquidity/Financial Health 2003-12 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 Latest Qtr
Current Ratio 2.86 2.79 3.60 2.23 1.82 2.07 1.91 2.02 1.68 2.70 2.70
Quick Ratio 2.55 2.51 3.22 1.97 1.54 1.81 1.49 1.59 1.36 2.11 2.11
Financial Leverage 1.66 1.70 1.70 2.01 2.38 3.70 4.34 4.27 4.00 3.59 3.59
Debt/Equity 0.23 0.25 0.32 0.32 0.41 1.03 1.95 2.05 1.59 1.71 1.71

Income statement Analysis

Fiscal year ends in December
USD in Millions except per share data
2008-12 2009-12 2010-12 2011-12 2012-12 TTM
Revenue 5,594 4,782 4,859 5,312 5,581 5,581
Cost of revenue 3,663 2,901 2,749 3,106 3,418 3,418
Gross profit 1,931 1,881 2,110 2,205 2,162 2,162
Total operating expense 902 1,685 1,549 1,375 1,162 1,162
Operating income 1,029 196 561 830 1,000 1,000
Net income 655 (55) 147 599 624 624

Company’s capital structure (In millions of USD)

Fiscal data as of Dec 31 2012 2012 2011 2010
Total current assets 4,051 4,542 4,067
Total assets 9,171 9,674 9,431
Total current liabilities 1,503 2,699 2,014
Total liabilities 6,613 7,254 7,224
Total equity 2,558 2,420 2,207
Total liabilities & shareholders’ equity 9,171 9,674 9,431

Solvency Ratios

Short-Term Solvency Ratios (Liquidity)

Net Working Capital Ratio 27.78
Current Ratio 2.7
Quick Ratio (Acid Test) 2.1
Liquidity Ratio (Cash) 0.93
Receivables Turnover 2.8
Average Collection Period 129
Working Capital/Equity 99.6
Working Capital pS 11.27
Cash-Flow pS 3.90
Free Cash-Flow pS 2.08

Financial Structure Ratios

Altman’s Z-Score Ratio 2.61
Financial Leverage Ratio (Assets/Equity) 3.6
Debt Ratio 72.1
Total Debt/Equity (Gearing Ratio) 2.00
LT Debt/Equity 1.71
LT Debt/Capital Invested 73.8
LT Debt/Total Liabilities 66.1
Interest Cover 5.0
Interest/Capital Invested 3.16

Outlook for performance (Investment potential and credit assessment)

Harley-Davidson has a good outlook for the coming years. For instance, the company announced that it would ship between 240,000 and 245,000 in 2012. It also accounted for limitation from macro-economic elements, strong performance in the domestic markets, ongoing restructuring, near-term production issues, and business strategy (Harley-Davidson, Inc., 2012).

The company expects to grow its gross margin in 2012 by 34.75 percent and 35.75 percent. This will come from savings, productivity, restructuring, and increase in prices of new models. In addition, the US dollar will gain strength in 2012.

Harley-Davidson believes that it will fund “all its initiatives and capital expenditures with cash flow generated from business operation in 2012” (Harley-Davidson, Inc., 2012).

The credit worthiness and investment potential

The company has shown strong growth after the recession of 2009. Revenues and profitability have grown steadily. The revenue grew by 5.06 percent from 5.3 billion to 5.58 billion while the net income improved by 4.14 percent from 599.11 million to 623.93 million (Financial Times, 2013). Based on improvements of the company, it has good credit worthiness.

Dividends per share and earnings per share have grown significantly. Not many companies in this industry pay a dividend. The debt to capital ratio at Harley-Davidson declined significantly from 158.82 percent to 66.61 percent in 2012.

Therefore, Harley-Davidson provides good investment opportunities for investors. It also has sound accounting practices that protect investors.

Summary and conclusion

The Consensus Forecast among some 18 companies indicated that Harley-Davidson performance would outperform the market (Financial Times, 2013). Some previous predictions also advised investors to hold their shares in the company. The company has reacted to positive sentiments in the market by posting steady and strong growth in profitability and revenues.

However, the company must watch out for threats that relate to competition and recall of products due to failures in technical parts.


ADVFN. (2013). Harley-Davidson Inc: Visual Financials. Web.

Financial Times. (2013). Harley-Davidson Inc. Web.

GlobalData. (2012). Harley-Davidson, Inc. – Financial and Strategic Analysis Review. Web.

Harley-Davidson, Inc. (2012). Harley-Davidson, Inc.10-K: Annual report (2011). New York: Thomson Reuters.

Morningstar, Inc. (2013). Harley-Davidson Inc. Web.

Thomson Reuters. (2013). Financials: Harley-Davidson Inc (HOG.N). Web.

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