Harley-Davidson, an American motorcycle manufacturer, has gained a worldwide following due to its legendary status (Wahlen et al., 2022). Even with this, the company has had significant difficulties maintaining its market position recently. Especially considering the declining interest in motorcycles among the younger generation. This study aims to get a more thorough understanding of Harley-present Davidson’s financial health potential for the foreseeable future by analyzing the company’s financial statements and projections.
Financial Statements and Projections
The financial statements prepared by Davidson give an overview of the company’s status as of a specific date. The company reported revenues of $4.05 billion for 2020, a decrease of 24% from 2019. The COVID-19 pandemic caused a precipitous drop in motorcycle sales, accounting for most of the revenue shortfall. The company’s net profit of $531 million was 40% lower than the previous year’s total. Reduced revenue and increased restructuring costs due to the company’s cost-cutting initiatives led to a decrease in net income.
The company has $6.46 billion in assets and $3.21 billion in liabilities, as shown on the balance sheet. There is now $3.25 billion in stockholder equity. Reduced inventory and receivables are the primary reasons for the 7% drop in the company’s total assets compared to the beginning of 2019. The decline in motorcycle production contributed to supply shortages and was primarily attributable to the pandemic. Accounts payable and accrued liabilities have decreased the most, bringing the company’s total liabilities down by 3% from 2019.
According to projections made for the fiscal year 2021, Harley-Davidson anticipates sales of $4.53 billion. It is a 12% boost from their 2020 sales projections. The company’s expansion strategies include concentrating on its most valuable customers and introducing new models targeted at younger riders. Despite facing significant market challenges, the company is taking proactive measures, as evidenced by its forecasts, to improve its financial performance. Despite facing many challenges still, it has come this far.
Income Projection Statement
Harley- Davidson’s financial forecast statement succinctly outlines the company’s expected revenues and expenses for the next fiscal year. Based on projected sales of $4.53 billion and operating expenses of $3.88 billion, the company projects an operating profit of $654 million for 2021. As a result, revenue from the activities will start coming in gradually. This is a significant increase above the corporation’s operating income of $159 million in 2020.
The launch of brand-new models and expanded marketing initiatives will be the main drivers of the anticipated growth in revenue for the company. The company intends to consolidate its manufacturing facilities throughout the globe as part of its continuing restructuring efforts to decrease expenses and the number of people it employs globally (Reddipalli, 2020). Nonetheless, it is projected that rising reorganization expenses and expenditures in the company’s electrification plan would continue to harm the business’s profitability.
Forecasted 12-Month Profit and Loss
The revenue and costs anticipated to be incurred by Harley-Davidson over the next year are broken out in great depth in the company’s projected profit and loss statement for the next 12 months. The anticipated revenue for the firm is in the amount of $4.53 billion, while the anticipated gross profit is in the amount of $1.36 billion. The firm anticipates generating a net income of $370 million after deducting all of its operational expenditures and taxes. It is mainly owing to the launch of new models and improved prices that the firm anticipates achieving a gross profit margin thirty percent greater than its average during its whole existence. Compared to the year 2022, it is anticipated that the operational expenditures of the corporation will be lower, principally due to attempts to minimize costs. Nevertheless, the company’s net income is still anticipated to be affected, both positively and negatively, by more significant investment in the company’s electrification plan as well as by higher restructuring expenses.
4-Year Profit and Loss Projection
Harley- Davidson’s projected income and expenditures over the next four years illuminate the company’s long-term financial health. New product lines and enhanced advertising are expected to boost yearly sales by 4 to 6 percent over the next four years. The corporation is specific that implementing its reorganization plans would result in considerable cost savings and increased earnings. The projections assume the company will keep pouring money into research and development to maintain a culture of innovation and stay in pace with consumer demand. By 2021, the business hopes to have released its first electric motorbike and will offer a more comprehensive selection of electric cars. The business’ electric vehicle selection will grow over the next several years. The company’s profit goals for the next four years are a 30% gross profit margin and a 5-8% net income margin. The company forecasts a rise in net income from $370 million in 2021 to $560 million in 2025, a CAGR of about 10%.
Sales Forecast
The sales estimate that Harley-Davidson provides an overview of the company’s anticipated motorcycle unit sales for the following yeaComparedson to the sales it anticipates making in 2020, the business anticipates making 170,000-185,000 motorbike sales in the next three years, representing an increase of 30-40%. This expansion is something that the firm hopes to do by concentrating on its most valuable customers and developing new models that appeal to younger riders. The sales projection made by the corporation is based on the assumption that the COVID-19 pandemic will continue to affect the market but that the vaccine distribution will progressively restore consumer confidence and buying power. The firm believes that it will also profit from its brand’s widespread familiarity and the dedication of its consumer base.
Cash Flow Projection
Harley-Davidson estimates that in 2021 it will earn $3.8 billion, spend $3.5 billion, and generate $328 million in positive free cash flow. An increase in projected revenues and improvements in working capital management is driving the company’s cash inflows. A variety of things may increase revenue. Due to Harley-increasing Davidson’s global reach and the release of several new models, market demand is predicted to rise. The expanding customer base of the business should be advantageous for General Goods and Parts & Accessories.
The business anticipates that reducing inventory levels, optimizing the supply chain, and boosting production efficiency would improve working capital management. These steps are being made to reduce the amount of money utilized in the company’s daily operations, enabling more of it to be reinvested in the company. Dividend payments, debt service, and capital expenditures are the firm’s key sources of cash outflow. Harley-Davidson anticipates investing $450 million in the capital in 2021 to support its growth goals. The company wants to broaden its selection of electric bicycles and improve its ability to produce them. The company also plans to repay $200 million in loans soon to reduce its current debt and improve its financial flexibility. After all this, Harley-Davidson will distribute $140 million in dividends to its stockholders. This is a crucial technique for paying back investments.
Projected Balance Sheet, Income statement for the Next 3 Years
The income statement and balance sheet projections for Harley-Davidson for the next three years provide valuable insight into the company’s predicted financial health and performance. The projections assume the firm will go on as planned, generating the anticipated income and cutting expenses as planned. In the next 3 years, the revenue for the company will increase by 5-6% annually, and henceforth it is expected to be $20 billion. In addition, by bolstering its growth efforts, the business will realize considerable cost savings, which would, in turn, enhance profitability over time.
The business expects its net income to grow from $370 million to $1 billion during the next three years. According to the balance sheet, the firm expects to generate positive free cash flow over the next three years, which will boost liquidity and strengthen the financial situation (Ahlers, 2019). In the following three years, the company’s total assets are expected to rise from $7 billion to $9 billion. On the other hand, we anticipate a reduction in overall liabilities from $4 billion to $2 billion over the next three years. In the next three years, shareholder equity will grow from $3 billion to $6 billion, signaling more robust financial health and a higher equity-to-assets ratio.
Payback Calculation
The payback calculation for Harley-Davidson determines how long it will take the firm to recover its investment in its restructuring strategy. In order to realize considerable cost reductions and boost its long-term profitability, the firm anticipates investing around $200 million in restructuring expenses over the following years. By 2023, it is anticipated that the reorganization plan will save the corporation $160 million annually in costs, according to forecasts made by the company. Applying for these numbers, the estimated payback time for the restructuring investment is 1.25 years, which means the business will recover its investment in slightly over a year. This payback time highlights the company’s commitment to long-term financial performance improvement and the possible financial rewards of its restructuring efforts. The firm hopes to achieve continuous development and provide value for its shareholders by lowering expenses and boosting profitability.
Conclusion
In conclusion, due to younger generations’ decreasing interest in motorcycles, Harley-Davidson has had considerable difficulties recently, including decreased sales and net profits. Nonetheless, the business has taken aggressive measures to enhance its financial performance, including concentrating on its core clientele, launching new models to draw in younger riders, reorganizing to generate cost reductions, and investing in electrification. The firm still has many market obstacles to overcome, but its financial statements and predictions show it is improving its financial health. A longer-term look at the company’s anticipated financial performance is provided by its four-year profit and loss forecast, which projects revenue growth of 4-6% yearly, a gross profit margin of 30%, and a net income margin of 5-8%. The company’s sales prediction for 2021 predicts a rise in motorcycle unit sales of 30–40%, while the cash flow projection predicts $328 million in positive free cash flow.
References
Ahlers, T. J. (2019). The Impact of Emotions on Consumer Decision-Making: A Consumer Behaviour Analysis of Hedonic Consumption as Related to the Harley-Davidson Brand (Doctoral dissertation, Queen Margaret University, Edinburgh).
Reddipalli, R. (2020). Report on Analysing consumer’s Psychological association with the brand-Harley Davidson, comparing with Triumph Motorcycles and understanding Attitude formation leading to Strategic Branding Decisions in India. Available at SSRN 3745730.
Wahlen, J. M., Baginski, S. P., & Bradshaw, M. (2022). Financial reporting, financial statement analysis, and valuation. Cengage learning.
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