Harley-Davidson ATC Project
Chapter 1
1. What was Harley-Davidson’s net income for 2010 and what name do they provide for
the “Income Statement”? The net income was $146,545. They call the income
statement a Consolidated Statements of operations.
2. Did their income increase or decrease from 2009 to 2010, and by how much? Yes it did
increase by $201,661
3. What was Harley Davidson’s accounting equation for 2010?
Assets= Liability + Equity, 9,430,740= 7,223,874 + 2,206,866
4. What were the company’s earnings per share for 2010?
1.11
5. What is the company’s price-earnings ratio YE 12-31-2010 and what does that mean?
Chapter 2
1. Who are the independent auditors for Harley Davidson?
Earnst and Young LLC
2. What type of opinion did the independent auditors issue?
It was an “Unqualified” opinion, In conformity with US G.A.A.P.
3. Who actually prepared the financial statements for Harley-Davidson and who is in
charge of maintaining adequate internal control over financial reporting?
Harley-Davidson Inc.-Mgmt.
4. Does the auditors’ report tell the reader that the audit was concerned with materiality
rather than absolute accuracy in the financial statements?
Yes, Auditors do not guarantee that financial statements are absolutely correct only that
they are materially correct.
Chapter 3
1. What was the company’s debt to asset ratio for 2010 and 2009? What is “good” for this
ratio… higher or lower and explain why.
Total Liabilities/ Total Assets= 7,223,874/ 9,430,740= .765 and lower is better because
the higher the ratio the more debt the company has.
2. What was the company’s return on assets ratio for 2009 and 2010? What is “good” for
this ratio… higher or lower and explain why.
146,545/9,430,740= .01 and higher is better because that means a higher return on
money invested. The ROA gives us an idea as to how efficient the company’s
management is at using its assets to generate earnings.
3. What was the company’s return on equity ratio for 2009 and 2010? What is “good” for
this ratio… higher or lower and explain why.
7,223,874/2,206,866=3.27 and higher is better as it means a better return for investors.
4. What is the company’s Revenue Recognition Policy for Motorcycles and Financial
Services?
Sales are recorded when products are shipped to wholesale customers (independent
dealers).
5. What is the company’s return on sales for 2009 and 2010? What is “good” for this
ratio… higher or lower and explain why.
146,545/4,859,336=.06 and higher is better as it reflects more sales in the company.
Chapter 4
1. Refer to Harley-Davidson’s Consolidated Statements of Shareholders’ Equity and explain
the changes in Ending Retained Earnings for 2009 to Ending Retained Earnings for 2010.
6,324,268+146,545 – 40,597 – 94,145= 6,336,077 it is our beginning balance plus net
income minus adjustments minus dividends which gives you the change.
2. Refer to Harley-Davidson’s Consolidated Statements of Shareholders’ Equity and
determine the following:
Balances in Common Stock = Credit Balance
Balances in Retained Earnings = Credit Balance
Balances in other comprehensive income = Debit
Balances in Treasury Stock = Debit
Chapter 5
1. What was the company’s gross margin percentage for 2009 and 2010? What is “good”
for this ratio… higher or lower and explain why.
For 2009 it is the sales revenue 4,287,130 minus cost of goods sold equals a gross
margin of 1,386,196 divided by sales revenue equals a gross margin percentage of 32%
for 2009. For 2010 a sales revenue of 4,176,627 minus a cost of goods 2,749,224 equals
a gross margin of 1,427,403 divided by sales revenue equals a gross margin percentage
of 34%. For this ratio a higher number is better as it means a larger percent of profit.
2. What was the company’s return on sales percentage for 2009 and 2010? What is “good”
for this ratio… higher or lower and explain why.
Net income divided by net sales equals the company’s return on sales percentage. For
this ratio higher is better, it means lower expense and greater profit percentage.
3. Why did Revenues drop so much for Harley=Davidson from 2008 to 2010?
They sold MV
Chapter 6
1. What is the company’s inventory turnover ratio and average days to sell inventory for
2009 and 2010?
For 2009 the turnover ratio is 8.98 and the average days to sell the inventory are 40.65.
For 2010 the turnover ratio is 8.42 and the average days to sell the inventory are 43.35.
For this ratio lower is better as that means they sale their product faster.
2. Is the Company’s management of their inventory getting better or worse?
It is getting worse as it took longer to sell their product in 2010 than 2009.
3. What cost flow method(s) and generally accepted accounting principles does Harley
Davidson use for their inventory?
Inventories are valued at the lower of cost or market. In the U.S. they use LIFO outside
of the U.S. they us FIFO.
Chapter 7
1. What is the company’s current ratio for 2010 and 2009? What is “good” for this ratio…
higher or lower and explain why.
For 2010 it’s a 2.02 and 2009 it is 1.91, for this a higher number is better because that
means it’s easier for them to pay off their current liabilities.
2. What is the company’s acid-test or quick ratio for 2010? What is “good” for this ratio…
higher or lower and explain why.
For 2009 it is 1.77 and for 2010 is 1.86, for this a higher number is better because that
means it’s easier for them to pay off their current liabilities.
3. What percentage of the company’s total assets consists of current assets?
In 2010 it was 43%
4. What do “Cash and cash equivalents” as shown on the balance sheet include?
The company considers all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
5. Explain the difference between “Liquidity” and “Solvency”.
Liquidity is how quickly you can sale assets to pay current liabilities and solvency is the
ability of a business to pay liabilities off in the long run.
Chapter 8
1. How long did it take the company to collect receivables for 2009 and 2010?
For 2009 the turnover ratio was 15.92 and the average days to collect was 22.93. In
2010 the turnover ratio was 15.92 and the average days to collect again was 22.93. For
this ratio lower is better, the lower the number the faster it was to collect.
2. Approximately what percentage of accounts receivable as of December 31, 2010 does
the company think they will not be able to collect?
2.8%
3. How much estimated warranty liability is included in Accrued Liabilities on the balance
sheet?
For 2010 it is 54,134
4. Discuss Harley-Davidson’s Warranty Policies.
They have a standard two year parts and labor, estimate based on historical claims.
Chapter 9
1. What method of depreciation does Harley-Davidson use?
They use the straight line basis.
2. What are the estimated lives that the company uses for the various types of long-term
assets?
Buildings last 30-40 years, building equipment and land improvements 7-10 years, and
Machinery and equipment are depreciated over 3-10 years.
3. What types of intangible assets does Harley-Davidson have?
Goodwill
4. How does Harley-Davidson define “Goodwill” in the notes?
Goodwill represents excess of acquisition cost over fair value of not assets purchased,
less impairment.
5. Has there been any impairment to Goodwill over the past years for the company?
Yes
Chapter 10
1. What is the company’s time-interest earned ratio for 2009 and 2010? ? What is “good”
for this ratio… higher or lower and explain why.
For 2009 the ratio was 5.32 and for 2010 9.24. Lower is better for this ratio as that
means they are more likely to pay their interest.
2. List what is included in the company’s liabilities.
Accounts payable and accrued liabilities, derivatives, unsecured commercial paper,
credit facilities, medium-term notes, senior unsecured notes, and term asset-backed
securitization debt.
3. What is the range of interest the company is being charged on their debt?
1.38% - 15% and the range is so big because they have some unsecured long term, high
risk investments.
Chapter 11
1. Does the company’s common stock have a par value and if so how much? How can you
tell?
The par value is 1 cent and it is on the front page.
2. How many shares of the company’s Treasury Stock were Outstanding as of December
31,2010?
235,521,693
3. The dollar balance in the company’s treasury tock account is larger than the balance in
its Common Stock and Additional Paid-In-Capital accounts. How can this be?
Inflation, they sold some at a lower value years ago and have sense baughtsome shares
back at a higher value.
4. What was the highest and lowest price per share selling on the stock exchange for the
company during the most recent 12 months?
A low of $30.89 and a high of $46.88
5. Did the company pay any dividends for 2010? On which Financial Statement will you
find that information?
They paid 94,145,000 and it was found on the Statement of Stock Holders Equity page.
Chapter 12
1. Does the company use the Direct Method or the Indirect Method for reporting Cash
Flows from Operation? How can you tell?
They use the Direct Method, the indirect method starts with Net income.
2. There are 3 Major Sections in the Cash Flow Statement for the Company. In which of
those sections did the company get their largest INFLOW of cash for 2010? Discuss if this
is good/bad or indifferent for the company.
The three major sections are Financing, Operating Activities, and Investing. The most
money came from Operating Activities which is a good thing because anywhere else
would mean the company is most likely failing.
3. Discuss whether the company appears to be expanding or contracting their operations
based on the Cash Flow Statement for 2010.
Based on the Cash Flow Statement they are expanding.
4. Based on your analysis of the Cash Flow Statement for 2010, does it appear that the
company is borrowing more debt or repaying debt?
They are paying off more debt.
5. How much cash did the company use to pay dividends during 2010?
94,145
6. Did the company’s Cash and Cash Equivalents increase or decrease in 2010 based on
what you see on the Cash Flow Statement and by how much?
They decreased by 614,563
Rob Thorn
Professor Jaydene Love
ACCT-2010-006
12/08/2011
Harley Davidson Financial Statement Analysis
This is an analysis of the financial stability of Harley-Davidson Inc. based on current year
to prior year trend data. This analysis will take into account financial ratios that measure the
company’s liquidity, solvency, and profitability. These ratios are then compared to the industry
average in order to give a better understanding as to where Harley-Davidson stands fiscally.
Finally these elements are summarized to provide a risk assessment on investing with Harley
based on its financial health.
Liquidity is a term any investor needs to be familiar with. Liquidity is a measure of a
company’s ability to convert assets into cash quickly in order to meet short term obligations or
liabilities. This measurement is given in the form of a ratio called the company’s current ratio or
their working capital ratio. This ratio is derived from taking the company’s current assets and
dividing it by their total current liabilities. In 2009 the company’s ratio was 1.91 and by the end
of 2010 it had increased to 2.02. This higher number is better as it means the company’s access
to quickly convertible assets that can be used to pay off current debt is more realistic. This ratio
is somewhat volatile and can be affected by a company’s average days to collect on receivables
and average days it takes to sell inventory. The current industry average for days it takes to
collect on receivables is 33.2 and the average days to sell inventory is 53.1. In 2010 Harley’s
average days to collect on receivables was much less at 22.93 and average days to sell
inventory was only 43.3 days. This results in Harley-Davidson’s current ratio of 2.02 which is
excellent especially compared with the industry average ratio of 1.63.
While Harley Davidson’s liquidity is rather good, their solvency should not be
overlooked. Solvency, which is a company’s ability to pay back long term loans, is essential in
order for a company to grow and to be successful in the long term. The first ratio of interest for
this would be the debt to asset ratio. This ratio is the total liabilities divided by the company’s
total assets. Harley Davidson’s debt to asset ratio decreased from .767 in 2009 to .765 in 2010
which is a little higher than the industry average of .68. A rule of thumb for this ratio is if the
ratio is under 1 it means a majority of assets are financed through equity, above 1 means they
are financed more by debt. Since Harley’s is below one, creditors shouldn’t be nervous about
loaning them money. The next ratio to look at when determining a company’s solvency is the
times interest earned ratio. This ratio will tell you how likely a company is to pay off their
interest. Harley Davidson’s time interest ratio went from 9.24 in 2009 to 5.32 in 2010. This is a
dramatic decrease and a good sign for the company considering the industrial average is at 6.2.
Lastly we want to look at the company’s debt to equity ratio. This ratio indicates what
proportion of equity and debt the company is using to finance its assets. This is expressed as
total liabilities divided by total equity. Harley’s ratio decreased from 3.34 in 2009 to 3.27 in
2010. While this is above the industry average of 2.56, the decrease from 2009 to 2010 shows
that the company is paying off more debt than it is taking on.
This payoff is due to the company’s profitability which can be measured by, several
ratios. First the return on sales ratio which tells us the percent of profit increased substantially
from a dismal -1.15% in 2009 to 3.03% in 2010. While 2009 looked bleak, 2010 exceeded the
industry average of 2.10%. Next let’s look at the company’s return on assets percentage which
is measured by dividing the net income by the average assets. For 2010 Harley’s ratio was 1%
which is very comparable with the industry average of 1.1%. Harley’s return on equity ratio for
2010 was 3.27% which is quite a bit lower than the industry average of 5.2%. However the gross
margin percentage was 34% which provided a better return than the industry average of 31.5%.
The price to earnings ratio which tells us how much income the stock is producing is at 30.63%
in 2010 which is much higher than the industry average of 24.6%. These ratios indicate that as a
whole Harley is doing better than it was the year before, outperforming the industry, and
providing investors a good return for their money.
In conclusion Harley-Davidson is not only a leader in its industry but has proven to be a
solid investment during a time of national recession. Despite the economy Harley has continued
to expand, pay off more debt than it has taken on, and increase their profitability. From an
investors viewpoint Harley remains a great long term security with limited volatility.