Koss and Harman: Investment and Portfolio Management

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Introduction

The paper carries out an analysis of Koss Corporation and Harman International Industries Incorporated for investment purposes. Both companies operate in the audio/video industry. It is a segment of the home entertainment industry. Specifically, the companies produce and sell stereo headphones (Hoover’s Inc. 2013). They sell a wide range of high-quality “stereo headphones, speakerphones, computer headsets, telecommunications headsets, active noise canceling stereo headphones, wireless stereo headphones, and compact disc recordings of American Symphony Orchestras under the Koss Classics label” (ABC News Network 2013b).

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The companies sell their products both in the US market and other foreign markets. The foreign markets include Europe, the Middle East, Latin America, Canada, and Mexico among others. A large number of net sales emanate from the US market. Harman International Industries Incorporated is larger than Koss Corporation.

Comparison of financial statements of the two companies

Analysis of the income statement for Koss Corporation shows that the financial status of the company increased from 2010 to 2011. However, there was a decline in performance between 2011 to 2012. This can be seen in the change of various values such as gross profit margin, net profit margin, and other values in the income statement. The trend can also be seen in the items of the statement of financial position. On the other hand, there was growth in the financial statements of Harman International Industries Incorporated through the three years. There was an increase in the values of all the financial statements.

Financial ratios

The table below summarizes some ratios for the two companies for the three years.

Koss Corporation Harman International Industries Incorporated
Efficiency ratios 2010 2011 2012 2010 2011 2012
Days Sales Outstanding 57.96 44.96 54.66 50.61 53.04 48.6
Days Inventory 140.13 120.8 135.02 50.56 50.87 48.82
Payables Period 50.8 62.44 64.5 45.96 56.12 56.2
Cash Conversion Cycle 147.29 103.33 125.18 55.2 47.78 41.23
Receivables Turnover 6.3 8.12 6.68 7.21 6.88 7.51
Inventory Turnover 2.6 3.02 2.7 7.22 7.18 7.48
Fixed Assets Turnover 12.55 15.16 13.01 7.15 8.46 9.69
Asset Turnover 1.5 1.56 1.35 1.33 1.34 1.4
Liquidity/Financial Health 2010-06 2011-06 2012-06 2010-06 2011-06 2012-06
Current Ratio 1.55 2.03 1.88 1.94 2.01 1.53
Quick Ratio 0.54 0.84 0.63 1.35 1.43 1.02
Financial Leverage 2.11 1.77 1.68 2.25 2.15 2.07
Debt/Equity 0.1 0.32 0.27
Interest Coverage -11.55 33.47
Profitability 2010-06 2011-06 2012-06 2010-06 2011-06 2012-06
Net Margin % -8.8 10.53 7.77 4.72 3.6 7.55
Asset Turnover (Average) 1.5 1.56 1.35 1.33 1.34 1.4
Return on Assets % -13.18 16.45 10.47 6.29 4.84 10.58
Return on Equity % -19.94 31.65 18.07 2.25 2.15 2.07
Return on Invested Capital % -20.13 31.65 17.52 15.06 10.62 22.32

The total number of employees at the Koss Corporation is 60 while at Harman International Industries Incorporated is 11,366. This comparison indicates that Harman International Industries Incorporated is larger than Koss Corporation. The total revenue for Koss Corporation amounted to $36.68 million while revenue for Harman International Industries Incorporated totaled $4.24 billion. EBITDA for Koss Corporation amounted to $1.88m while for Harman International Industries Incorporated amounted to $405.04 million.

Similarly, the net income for Harman International Industries Incorporated ($323.96 million) is greater than the net income for Koss Corporation ($2.53 million). In terms of percentages, the results are contrary. For instance, the gross profit margin for Koss Corporation (37%) is greater than the gross profit margin for Harman International Industries Incorporated (27%) by 10%. However, the operating profit margin for Koss Corporation (3%) is lower than that of Harman International Industries Incorporated (7%). This implies that the management of Koss Corporation is in a position to manage pricing and cost of sales decisions to generate high gross profit but is not in a position to manage the cost of operations to generate a high net profit.

The profitability of a company has a direct effect on the market share prices of the company. For instance, the earnings per share of Koss Corporation amounted to 0.34 while that of Harman International Industries Incorporated amounted to 4.58. This implies that the earnings attributable to shareholders of Harman International Industries Incorporated were higher than shareholders of Koss Corporation.

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Further, the price-earnings ratio for Koss Corporation (14.53) was higher than that of Harman International Industries Incorporated which has a ratio of 9.49. However, financial results for both companies are less than the industry average as indicated by EBITDA. Liquidity ratios for Harman Corporation are higher than those of Koss Corporation as indicated by the current and quick ratio. Finally, the efficiency ratios for Koss Corporation are higher than those of Harman Corporation. This implies that Koss is more efficient than Harman. The financial performance of Harman International Industries Incorporated is better than that of Koss Corporation in absolute terms (Collier 2009).

Share prices

The share prices for Koss Corporation were fairly stable during the three years. It ranged between $4.68 and $5.41 for the past year. It shows that the prices for the company ranged by a small margin of $0.73. Further, the company paid a total annual dividend amounting to $0.24 paid quarterly. The shares of Harman International are trading at a price close to the intrinsic value (ABC News Network 2013). The shares of Harman International Industries Incorporated are trading at a higher price than those of Koss Corporation. The shares had a larger range than those of Koss Corporation. The highest share price was $48.99 while the lowest was $37.53.

This creates a range of $11.46. Further, the amount of dividend paid by Harman International Industries Incorporated ($0.6) was higher than that of Koss Corporation (0.24) by $0.36. The shares of Harman International Industries are trading at a price higher than the intrinsic value. From the above comparison, it is clear that the shares of Harman International Industries Incorporated are performing better than those of Koss Corporation (Morningstar 2013). The share prices for Koss Corporation were fairly stable during that period while the prices for Harman International Industries Incorporated had some variations. A potential investor should consider investing in the shares for Harman International Industries Incorporated since there is a high potential for growth and better performance in the future. The graph below shows the chart for the share prices of the company.

Share prices and dividends

Date Koss Corporation Date Harman International
01-Feb-13 5 7-Feb-13 0.15 Dividend
02-Jan-13 4.93 1-Feb-13 43.46
12-Dec-12 0.06 Dividend 2-Jan-13 44.63
03-Dec-12 4.75 3-Dec-12 44.49
01-Nov-12 4.74 7-Nov-12 0.15 Dividend
01-Oct-12 5.08 1-Nov-12 39.43
26-Sep-12 0.06 Dividend 1-Oct-12 41.64
04-Sep-12 4.93 4-Sep-12 45.84
01-Aug-12 4.84 16-Aug-12 0.15 Dividend
02-Jul-12 4.68 1-Aug-12 45.71
27-Jun-12 0.06 Dividend 2-Jul-12 39.94
01-Jun-12 5.2 1-Jun-12 39.2
01-May-12 5.16 8-May-12 0.15 Dividend
02-Apr-12 5.21 1-May-12 38.82
28-Mar-12 0.06 Dividend 2-Apr-12 48.99
01-Mar-12 5.22 1-Mar-12 46.25
01-Feb-12 5.41 15-Feb-12 0.15 Dividend
03-Jan-12 5.34 1-Feb-12 48.55
30-Dec-11 4.77 3-Jan-12 41.64
30-Dec-11 37.53

Share prices chart

References

ABC News Network 2013a. Koss Corporation. Web.

ABC News Network 2013b. Harman International Industries Inc. Web.

Collier, P. 2009. Accounting for managers, John Wiley & Sons Ltd, London.

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Hoover’s Inc. 2013. Koss Corporation company information. Web.

Morningstar. 2013. Harman International Industries Inc. Web.

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BusinessEssay. (2022, November 27). Koss and Harman: Investment and Portfolio Management. Retrieved from https://business-essay.com/koss-and-harman-investment-and-portfolio-management/

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BusinessEssay. 2022. "Koss and Harman: Investment and Portfolio Management." November 27, 2022. https://business-essay.com/koss-and-harman-investment-and-portfolio-management/.

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BusinessEssay. "Koss and Harman: Investment and Portfolio Management." November 27, 2022. https://business-essay.com/koss-and-harman-investment-and-portfolio-management/.