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Financial Accounting for MBAs 8th Edition Easton Solutions Manual
Solutions Manual
Financial Accounting for MBAs 8th
Edition Easton Solutions Manual
Solutions Manual Directly From The publisher, 100% Verified Answers.
, Financial Accounting for MBAs 8th Edition Easton Solutions Manual
Appendix C
Comprehensive Case
Comprehensive Case
Reviewing the Assessing Profitability Valuing
Financial Statements and Creditworthiness Forecasting Equity Securities
■■ ■■
Accounting Numbers
■■ ■■
Income Statement ROE Disaggregation Forecasting Discounted Cash
■■ Balance Sheet ■■ RNOA Assumptions Flow Valuation
■■ Off-Balance-Sheet Disaggregation ■■ Forecasting Financial ■■ Residual Operating
Items Analysis Statements Income Valuation
■■ Statement of Cash ■■ Disaggregation of
Flows Margin and Turnover
■■ Audit Opinion ■■ Credit Analysis
Net income: $752 mil
PREVIEW
This appendix consists of a comprehensive case that presents a financial accounting analysis and interpretation of
Harley-Davidson’s performance and position. We illustrate many of the key financial reporting topics covered in the
book. We review the company’s financial statements and notes, forecast key accounts, and conclude with estimates
of Harley-Davidson’s equity value.
Harley-Davidson
Operating Cash Flow Investing Cash Flow Financing Cash Flow Net Income (Loss) Operating Cash Flow Market Cap
$14B $1.4B $15B
2018
$13B
2017 $1.2B
$12B $13B
2016 $1.0B
$11B
2015 $11B
$10B $0.8B
2014
$9B
$0.6B
2013 $9B
$8B
2012 $0.4B
$7B
$7B
2011 $0.2B
$6B
2010
$5B $0.0B $5B
$(2.0)B $(1.5)B $(1.0)B $-0.5B $0.0B $0.5B $1.0B $1.5B 2010 2011 2012 2013 2014 2015 2016 2017 2018
Cash Flow by Type Net Income, Operating Cash Flow and Market Cap
C-1
, Financial Accounting for MBAs 8th Edition Easton Solutions Manual
Road Map
LO Learning Objective | Topics Page eLecture
C-1 Explain and illustrate a review of financial C-3 eC–1
statementsand their components.
Income Statement :: Balance Sheet :: Statement of Cash
Flows ::Audit Opinion
C-2 Assess company profitability and creditworthiness. C-23 eC–2
ROE Disaggregation :: RNOA Disaggregation :: Credit Analysis
C-3 Forecast financial statements. C-27 eC–3
Income Statement :: Balance Sheet :: Statement of Cash Flows
C-4 Describe and illustrate the valuation of firm equity. C-30 eC–4
Discounted Cash Flow Valuation :: Residual Operating
IncomeValuation :: Assessment
, Financial Accounting for MBAs 8th Edition Easton Solutions Manual
C-3 Appendix C Comprehensive Case
Reviewing Financial Statements
LO1 This section reviews and analyzes the financial statements of Harley-Davidson.
MBC Explain and
illustrate Business Environment for Financial Reporting
a review of
financial statements Harley-Davidson is a Fortune 500 company and has been the historical market share leader in the
and their components. U.S. 601+cc motorcycle market. The company’s products are sold through a network of independent
dealers, of which the majority sell Harley-Davidson motorcycles exclusively. These dealerships stock
and sell the company’s motorcycles, parts and accessories, general merchandise and licensed products,
and perform service on Harley-Davidson motorcycles. In 2018, Harley reported 1,535 dealerships, 691
(45%) of which are located in the U.S.
Harley reports two business segments: the manufacturing company and the financial services
subsidiary. Harley-Davidson Financial Services is engaged in the business of financing and servicing
wholesale inventory receivables and retail consumer loans, primarily for the purchase of Harley-
Davidson motorcycles. Its wholesale activities include financing for its dealers for the purchase of
motorcycles for display, and its financing activities provide loan and lease financing to customers. This
financial services subsidiary operates like a bank, borrowing money at a given rate to fund the lease
receivables and setting a higher rate on its loans and leases. As is common for all lenders, managing
the spread between lease income and interest expense and minimizing credit losses are core activities
for Harley-Davidson Financial Services.
In the MD&A section of its 10-K, Harley-Davidson describes its competitive environment as
follows.
Competition in the segments of the motorcycle market in which the Company currently competes is
based upon a number of factors including product capabilities and features, styling, price, quality,
reliability, warranty, availability of financing, and quality of the dealer network that sells the product.
The Company believes its motorcycles continue to generally command a premium price at retail
relative to competitors’ motorcycles. The Company emphasizes remarkable styling, customization,
innovation, sound, quality and reliability in its products and generally offers a two-year warranty for
its motorcycles. The Company considers the availability of a line of motorcycle parts & accessories
and general merchandise, the availability of financing through HDFS and its global network of inde-
pendent dealers to be competitive advantages.
Although dominant in the U.S. market (accounting for approximately 50% of new motorcycle regis-
trations), Harley-Davidson faces stiff competition outside of the U.S. where it has only a 10% market
share. With this as background, we begin the accounting analysis of Harley-Davidson by discussing
its financial statements.
Income Statement Reporting and Analysis
Harley-Davidson’s income statement is reproduced in Exhibit C.1.
Net Sales
Exhibit C.1 reveals that total revenue (product sales and financial services revenue) increased by 1.2% in
2018 to $5,716.9 million. However, revenues in 2018 are 4.7% lower than in 2016. In its MD&A report,
management describes its results as follows.
Retail sales of new Harley-Davidson motorcycles in the U.S. were down 10.2% in 2018. Overall, U.S.
retail sales of new Harley-Davidson motorcycles were adversely impacted by the continued weak
U.S. industry, which was down 8.7% compared to 2017. The Company believes that sales of new
motorcycles continued to be adversely impacted by soft used motorcycle prices and a shift in rider
preferences toward smaller displacement motorcycles.
The Company’s U.S. market share of new 601+cc motorcycles for 2018 was 49.7%, down 1.0
percentage points compared to 2017 (Source: Motorcycle Industry Council). The Company’s U.S.
continued
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