Chapter 9 Problem 16 Harley-Davidson Inc. produces motorcycles, motorcycle parts
ID: 2778436 • Letter: C
Question
Chapter 9 Problem 16 Harley-Davidson Inc. produces motorcycles, motorcycle parts and related accessories and merchandise in the United States and internationally. It is headquartered in Milwaukee, Wisconsin. Use the following information on Harley-Davidson and five other similar companies to value Harley-Davidson as of December 31, 2004. Harley-Davidson Inc. 2004 ($ millions) Net income $ 889.77 Number of common shares, millions 294.31 Earnings before interest and tax $ 1,506.16 Tax rate 35.0% Book value of equity $ 3,218.47 Book value interest-bearing debt $ 1,295.44 Total Sales $ 5,320.45 Total Assets $ 5,483.29 Harley- Arctic Polaris Marine Winnebago Davidson Cat Brunswick Industries Products Industries Comparison of Timberland with Comparable Companies: Growth Rates, Financial Risks, Size, Returns 5-year growth rate in sales (%) 15.5 6.2 4.1 6.1 15.5 10.8 5-year growth rate in eps (%) 28.1 11.1 47.1 15.9 25.1 17.2 Interest coverage ratio (x) 60.9 * 8.9 85.1 * * Total liabilities to assets (%) 0.4 0.3 0.6 0.5 0.2 0.5 Total assets ($ millions) 5,483 286 4,346 793 110 395 Indicators of Value Price/earnings (x) 16.9 17.8 27.8 28.6 18.6 MV firm/EBIT(1-tax rate) (x) 17.3 19.4 24.3 29.0 17.6 MV equity/BV equity (x) 2.8 2.8 8.0 7.7 6.5 MV firm/BV firm (x) 2.8 2.3 7.7 7.7 6.5 Price/sales (x) 0.8 0.9 1.6 2.7 1.2 MV firm/sales (x) 0.8 1.1 1.7 2.7 1.2 * These companies have little or no interest-bearing debt outstanding. Chapter 9 Problem 16 Harley-Davidson Inc. produces motorcycles, motorcycle parts and related accessories and merchandise in the United States and internationally. It is headquartered in Milwaukee, Wisconsin. Use the following information on Harley-Davidson and five other similar companies to value Harley-Davidson as of December 31, 2004. Harley-Davidson Inc. 2004 ($ millions) Net income $ 889.77 Number of common shares, millions 294.31 Earnings before interest and tax $ 1,506.16 Tax rate 35.0% Book value of equity $ 3,218.47 Book value interest-bearing debt $ 1,295.44 Total Sales $ 5,320.45 Total Assets $ 5,483.29 Harley- Arctic Polaris Marine Winnebago Davidson Cat Brunswick Industries Products Industries Comparison of Timberland with Comparable Companies: Growth Rates, Financial Risks, Size, Returns 5-year growth rate in sales (%) 15.5 6.2 4.1 6.1 15.5 10.8 5-year growth rate in eps (%) 28.1 11.1 47.1 15.9 25.1 17.2 Interest coverage ratio (x) 60.9 * 8.9 85.1 * * Total liabilities to assets (%) 0.4 0.3 0.6 0.5 0.2 0.5 Total assets ($ millions) 5,483 286 4,346 793 110 395 Indicators of Value Price/earnings (x) 16.9 17.8 27.8 28.6 18.6 MV firm/EBIT(1-tax rate) (x) 17.3 19.4 24.3 29.0 17.6 MV equity/BV equity (x) 2.8 2.8 8.0 7.7 6.5 MV firm/BV firm (x) 2.8 2.3 7.7 7.7 6.5 Price/sales (x) 0.8 0.9 1.6 2.7 1.2 MV firm/sales (x) 0.8 1.1 1.7 2.7 1.2 * These companies have little or no interest-bearing debt outstanding.Explanation / Answer
Harley davidson has higher sales growth and highest total assets, but its interest coverage ratio is less than 1 of the compititors this indicates it will have to increase on its ebit or decrease its debt to become indystry leader.
Its price earnings ratio is least among competitors, so it indicates a good investing option fot the investors, its stock price is going to increase a good percent from current levels.
Also its price sales ratio is least it indicates company can increase the price of its product and increase its revenues.
Thus increasing its market value which is less as compared to its competitors.It must reduce its debt and ussue more equity to raise money.
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