Running head: EXAMINING FINANCIAL STATEMENTS 1

Examining Financial Statements

Sandra Atchison

Brandman University
EXAMINING FINANCIAL STATEMENTS 2

Overview

There are three primary financial statements that show the complete picture of a company’s

finances, the balance sheet, the income statement, and the statement of cash flows.

The balance sheet shows what the company’s “book value” is. It consists of assets, liabilities,

and stockholder’s equity. Assets must equal liabilities plus stockholder’s equity.

The income statement will show whether the company is making a profit or a loss. The final

calculation of this statement is revenue minus expenses. If the company is operating at a profit,

the final number will be positive; if they are operating at a loss, the amount will be negative.

The statement of cash flows shows where cash coming into and going out of the company comes

from and goes to. It shows this in three categories: Operations, investing, and financing.

Harley Davidson uses the LIFO method of inventory for all inventories located in the U.S.. All

other inventories use the FIFO method. Depriciation is calculated on the straight-line basis over

the estimated useful life of the asset. “The Company periodically evaluates the carrying value of

long-lived assets to be held and used when events and circumstances warrant such review. If the

carrying value of a long-lived asset is considered impaired, a loss is recognized based on the

amount by which the carrying value exceeds the fair value of the long-lived asset for assets to be

held and used. The Company also reviews the useful life of its long-lived assets when events and

circumstances indicate that the actual useful life may be shorter than originally estimated. In the

event that the actual useful life is deemed to be shorter than the original useful life, depreciation

is adjusted prospectively so that the remaining book value is depreciated over the revised useful

life” (Olin, 2019).

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Revenue for the year, as of March 31, 2019 is $1,195,637,000, gross profit is, $347,439,000, and

net income is, $127,945,000 (Olin, 2019).

Common Size Balance Sheet

Harley Davidson
2018 and 2019 Balance Sheet
( Horizontal Analysis)

2019 2018 $ Chg. % Chg.

Current Assets
Cash and Cash Equivalents $ 749,600 $ 1,203,766 -454166 -37.7%
Marketable Securities $ 10,003 $ 10,007 -4 0.0%
Accounts Receivables, net $ 353,541 $ 306,474 47067 15.4%
Finance Receivables, net $ 2,443,899 $ 2,214,424 229475 10.4%
Inventories $ 595,806 $ 556,128 39678 7.1%
Restricted Cash $ 43,471 $ 49,275 -5804 -11.8%
Other Current Assets $ 177,761 $ 144,368 33393 23.1%
Total Current Assets $ 4,374,081 $ 4,484,442 -110361 -2.5%

Finance Receivables, net $ 4,994,693 $ 5,007,507 -12814 -0.3%

Other Long-Term Assets $ 1,211,839 $ 1,173,715 38124 3.2%
$ 10,580,613 $ 10,665,664 -85051 -0.8%

Liabilities:
Accounts Payable and Accrued Liabilities $ 1,025,089 $ 885,991 139098 15.7%
Short-Term Debt $ 1,192,925 $ 1,135,810 57115 5.0%
Current Portion of Long-Term Debt, net $ 1,372,050 $ 1,575,799 -203749 -12.9%
Total Current Liabilities $ 3,590,064 $ 3,597,600 -7536 -0.2%

Long-Term Debt, net $ 4,744,694 $ 4,887,667 -142973 -2.9%

Pension and Postretirement Healthcare Liabilities$ 192,759 $ 202,229 -9470 -4.7%
Other Long-Term Liabilities $ 255,485 $ 204,219 51266 25.1%

Shareholder's Equity $ 1,797,611 $ 1,773,949 23662 1.3%

Total Liabilities and Shareholders' Equity $ 10,580,613 $ 10,665,664 -85051 -0.8%

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Statement of Cash Flows

The cash flows are: operating 32,671, investing (77,200), and financing (415,679). Investing

activities include capital expenditures and acquisition of business, among others. Financing

activities include proceeds and repayments from medium-size notes.

A negative amount from financing activities reflects the reduction of long-term debt, which is a

positive sign of the company's ability to pay off their debt, and a negative amount from investing

reflects the purchase of assets, which is a positive sign of the company expanding their holdings.

MD&A

Three interesting topics in management’s discussion and analysis (MD&A) relays are: “During

the first quarter of 2019, retail sales of Street motorcycles were adversely impacted by limited

availability following a recent recall” , “Unionized workers at the Company’s operations in the

Milwaukee area and Tomahawk, Wisconsin ratified new five-year labor agreements in April

2019. The Company believes the new contracts will enable it to compete in a challenging

business environment and advance its strategy to build the next generation of riders globally”,

and “The Company’s net income was $127.9 million, or $0.80 per diluted share, for the first

quarter of 2019 compared to $174.8 million, or $1.03 per diluted share, in the first quarter of

2018. Operating income from the Motorcycles segment decreased $64.5 million compared to last

year’s first quarter and was impacted by lower shipments, unfavorable mix and incremental

tariffs, partially offset by lower operating expenses. Operating income from the Financial

Services segment in the first quarter of 2019 was $58.7 million, down 7.6% compared to the
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year-ago quarter on a higher provision for credit losses and higher operating expenses. (Olin,

2019).

This last item reflects the information and ratios found on the common size balance sheet.
EXAMINING FINANCIAL STATEMENTS 6

References
Olin, J. (2019, May 9). SEC filing: Harley-Davidson USA. Retrieved from https://investor.harley-

davidson.com/node/18056/html#s84D4243E892962DEE51CBAE7DC55FCE3