Harley Davidson Performance Analysis There are many ways to analyze the performance of a company, some more popular than others. According to the Barney text the accounting method is the most popular way of measuring a firm's performance (Barney, 2002). Some of the reasons for the popularity could include the fact that accounting measures of performance are publicly available on many firms and they communicate a great deal of information about a firm's operations. Other methods of performance analysis include firm survival and the multiple stakeholder approach. The first method we will review is the accounting method. Through this accounting approach we will analyze specific ratios and their possible impact on the company's …show more content…
Accounts receivable turnover measures the average time it takes for a firm to collect on credit sales. Harley Davidson's accounts receivable turnover rate is 6.75 times for 2001 and 8.74 times for 2000. This accounts receivable turnover rate seems low and would indicate that Harley Davidson is able to turn their receivables into cash quickly. Another ratio we will look at is total asset turnover rate. Total asset turnover rate measures how efficiently a company uses its assets to generate sales. In 2001 the total asset turnover rate was 1.079 and in 2000 it was 1.193. The fixed asset turnover ratio is similar to the total asset turnover ratio but includes only fixed assets. The fixed asset turnover rate measures the capacity utilization and the quality of fixed assets and was 3.771 for 2001 and 3.854 for 2000. The final ratio we will analyze is the average collection period which measures the time it takes a firm to receive payments after a sale has been made. The average collection period was 55 days for 2001 and 42 days for 2000. While these numbers seem to be very high the reader needs to remember that they are dealing with a large ticket item and financing is usually arranged and payments from the finance company could take more time than cash payments that are normal in the traditional retail marketplace. While the accounting method is popular and widely accepted it does have some limitations. There are three
For the assets management, we are looking for receivable turnover, payable turnover, inventory turnover. Turnover ratios measure how many times per year a given resource is consumed. Management’s objective is to stretch out the accounts payable period (low accounts payable turnover) and shorten the periods for accounts receivable and inventory (high accounts receivable and inventory turnover). The average of 2001 to 2003 was 10, 9.2 and 5.1 times respectively. And according to horizontal analysis from 2001 to 2003, the assets and liabilities were keeping increasing.
To consider this we need net credit sales and average receivable balance. This ratio indicates average collection period should be consistent with corporate credit policy. An increase suggests a decline in financial health of customers.
In order to ascertain how well a company is performing, analyses must be done in regard to the business being stable, including its’ ability to pay debts, how much cash or other liquid assets are available, and whether the organization is viable enough to continue operations. These analyses typically look at income statements, balance sheets, and statements of cash flow, where current and past performance will be studied with the goal of predicting how the company will perform in the future.
The inventory turnover ratio "measures the number of times on average the inventory sold during the period; computed by dividing cost of goods sold by the average inventory during the period" (Kimmel et al, 2007, p. 292). This indicates how quickly a company sells its goods and a high ratio "suggests that management is reducing the amount of inventory on hand, relative to sales" (Kimmel et al, 2007, p. 287).
5. Inventory Turnover: This ratio is rendered by taking the cost of goods sold, for a time period, divided by average inventory. This shows how many times a firms inventory is sold and replaced during the period of time that it is calculated for.
Accounts receivable turnover measures how many times a company can turn its accounts receivables into cash. This ratio shows how well the company is collecting credit sales from its customers. The equation for accounts receivable turnover
Collection period is a key measure of accounts receivable quality. Increases in the average collection period of receivables may indicate increases in acceptance of poor credit risks or less energetic collection efforts. Inventory turnover measures how quickly inventory is sold. Decrease in inventory turnover may indicate problems such as slower-moving merchandise or a worsening coordination of buying and selling functions. Interestingly, Southwest’s average collection period is the best in the
The debtor collection period is the time taken for a business to collect its trade debts. It is the number of days the the debtor has to pay back the business who they we money to. The formula for debtor collection period is debtor / sales revenue multiplied by 365.
The account receivable turnover ratio (A6) measures how efficiently a company uses it assets. In this case Pinnacle has a declining turnover ratio that indicates that Pinnacle should re-evaluate its credit policies to ensure timely receivable collection. Looking at the
Importance: It helps is getting information about how sufficiently company can use its assets to generate sales.
Inventory turnover ratios are the number of times a business sells and replaces its inventory. The inventory turnover was four times above industry average, but has since decrease below industry level for 2013 through 2016.
The proportion of the total dollar amount receivable I included in the confirmation request is in “Account Receivable Aging Analysis” by diving the total amount that is collectible “C” by the total amount of sales. The result is 82% ($9,803,430/$11,920,028) of the total dollar balance in accounts receivable.
As for South America, Harley-Davidson Inc. HOG +0.31% opened a permanent Latin America headquarters, joining a growing list of U.S. companies looking to tap into the emerging market. (By Melodie Warner in Market Watch) South America has a growing economy and a huge acceptance for an icon in the motorcycle industry like Harley Davidson. In the same way Japan embraced Harley “Their economy is a fast growing luxury market” p.c11.
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The current ratio for the years 2011, 2012 and 2013 is 1.19, 0.89 and 0.88 compared to standard ratio of 2:1. This ratio is lower which shows low short term liquidity efficiency at the same time holding less than sufficient current assets mean inefficient use of resources. Quick Ratio has also decreased over the