Professional Documents
Culture Documents
Punda
Kittipat
Agenda
Company Background
Situation Analysis
Issues
Recommendation
Financial Justification
Conclusion
Company Background
3 Divisions:
Heavyweight Motorcycle
•few competitors
•current market share = 55.7%
Holiday Rambler
•Intense competition
•low market share
Performance Motorcycle
•few competitors
•acquired 49% of shares in ‘93
Situation Analysi
owever,
• Stock price has slumped 7 percent
• Inability to meet demand may be jeopardizing
relationship with customers
Issue Identificatio
Issue I
Strategies:
Issue II
Strategy:
Managing Resources
Allocation To Maximize
Overall Performance Portfolio Management
I. Harley-Davidson
I. Capacity Expansion
Production Capacity
Year 1999
Current Plan
Growth plan = 7% annually
Market Growth = 15% annually • Reduce lead time by
Decrease in Market Share 4 months
• Reduction in excess
Proposed Plan
demand
Increase Capacity
1995-1997 = 20%
1998-1999 = 17%
Result
Justification for Price Increase
•Still excess demand after expansion
• Reduce Lead Time by
•Demand Inelastic
“Capture Opportunity” 1 month
• Net Income Increases
Proposed Plan: by 9%
Price
10% Increase
Predicted Demand
5% Decrease
I. Harley-Davidson
Price Increase + Capacity Expansion
Goal: Reduce Lead Time and Increase Market Share
Excess Demand
1995 1996 1997 1998 1999
Without
Recommendations 96,200 119,830 140,362 163,789 190,487
Lead Time
1995 1996 1997 1998 1999
Without
Recommendations 10.04 11.69 12.79 13.95 15.16
Market Share
1995 1996 1997 1998 1999
Without
Recommendations 55.70% 51.83% 49.51% 47.30% 45.19%
Grow
Competitive Strength
Harley-Davidson
Medium
Buell Hold
Low
Rationale:
1. Not core business
2. Large capital Investment
3. Low Market Share
4. At a disadvantage relative to competitors
• Economies of Scale
• Lack of management expertise
in market
5. Limited Human Resource Must allocate
to best maximize the company’s profitability
Strategy:
Divest to use capital and focus
management’s attention on more promising
projects
II. Portfolio Managemen
Harley Davidson
Harley-Davidson
“Investment Priority”
•Main issue: unmet demand
Trademark Licensing
•High Margin
•Stimulate Demand For Motorcycles
•Lay Ground For International
Growth
“Continuous Expansion”
Time Line
Activities 1995 1996 1997 1998 1999 2000
Harley Davidson
Existing Existing
expansion plan Expansion Plan Complete
Capacity
Portfolio
$70,000,000
Holiday Rambler Selling Process
Grow @ 20%
Trademark Licensing Trademark Licensing
Financial Justificatio
Growth Rate
Net Sales
3,500,000
2,605 ,025
2,500,000
2,357 ,326
2,216 ,418
2,000,000
1,805 ,023
1,500,000 1,541 ,796
1,000,000
500,000
0
1994 1995F 1996F 1997F 1998F 1999F
Financial Justificatio
Growth Rate
1994 1995F 1996F 1997F 1998F 1999F
26.64% 17.07% 30.60% -5.98% 17.53% 17.69%
Net Income
600,000
546 ,800
500,000
457 ,498
400,000
378 ,637 373 ,131
300,000
200,000
0
1994 1995F 1996F 1997F 1998F 1999F
Financial Justificatio
Cost Estimation
1995F 1996F 1997F 1998F 1999F
Capacity Expansion
Factory and machinery
(100,000,000.00 (100,000,000.00 (100,000,000.00 (100,000,000.00
) ) ) )
Sales of TVD
Sources of fund
Internal generated fund
Financial Justificatio
Cost Estimation
1995F 1996F 1997F 1998F 1999F
Capacity Expansion
Factory and machinery
(100,000,000.00 (100,000,000.00 (100,000,000.00 (100,000,000.00
) ) ) )
Operational
Quality
Efficiency
Efficient
Supplier
Distribution
Relationship Of Resources
Issues Are Solved
Current Issues
Issue I
Strategy I:
Issue II
Strategy II
Managing Resource
Allocation To Maximize Portfolio Management
Overall Performance • Divest Holiday Rambler
•Heavyweight motorcycle
-Investment Priority
- Licensing expansion
THANK YOU
Historical Ratio Analysi
Ratios Analysis
1992 1993 1994
Liquidity ratio
current ratio (times) 1.57 1.75 1.88
Quick ratio (times) 0.81 0.86 0.94
Leverage ratio
Debt ratio (%) 44.30% 68.93% 41.39%
Interest coverage (times) -19.79 -84.00 3643.34
Profitability ratio
Net Profit Margin (%) 4.87% -0.98% 6.76%
Return on asset (%) 10.30% -2.04% 14.11%
Return on equity (%) 16.04% -3.66% 24.07%
Activity ratio
Account receivable (times) 11.86 14.15 10.75
Average collection period (days) 30.77 25.79 33.95
Inventory turnover (times) 8.57 6.28 6.46
Average sale period (days) 42.61 58.11 56.50
Fixed asset turnover (times) 4.31 4.88 4.62
Total asset turnover (times) 2.12 2.09 2.09
Sales by Division
Balance Sheet
1,994 Avg.%of sales Avg.%changed 1995 1996 1997 1998 1999
A/R 143,396.00 8.27% 29.50% 9.50% 9.50% 10.00% 10.00% 10.00%
Inv. 173,420.00 10.43% 36.08% 11.25% 11.25% 11.25% 11.25% 11.25%
Prepaid expense 9,424.00 0.76% -1.01% 0.76% 0.76% 0.76% 0.76% 0.76%
Other current asset 20,111.00 1.72% -8.38% 1.72% 1.72% 1.72% 1.72% 1.72%
Liabilities & Equity 0.00%
A/P 63,988.00 4.68% 5.35% 4.10% 4.00% 4.00% 3.90% 3.90%
Salaries Payable 62,882.00 3.26% 56.75% 3.00% 3.00% 3.00% 3.00% 3.00%
ST debt/current LTD 18,303.00 1.49% 5.81% 1.00% 1.00% 1.00% 1.00% 1.00%
Other CL 71,105.00 5.57% 1.81% 4.00% 4.00% 4.00% 4.00% 4.00%
Pro Forma Financial Statemen
Leverage ratio
D/E ratio (%) 70.63% 33.33% 24.75% 21.01% 15.75% 13.86%
Interest coverage (times) 3643.34
Profitability ratio
Net Profit Margin (%) 6.76% 6.62% 16.06% 16.83% 17.56% 17.83%
Return on asset (%) 14.11% 14.41% 30.59% 22.60% 21.87% 20.40%
Return on equity (%) 24.07% 21.61% 40.66% 28.60% 25.97% 23.68%
Activity ratio
Account receivable (times) 10.75 12.32 13.75 10.34 12.93 12.95
Average collection period (days) 33.95 29.62 26.55 35.29 28.23 28.19
Inventory turnover (times) 6.46 7.54 7.60 5.98 7.42 7.43
Average sale period (days) 56.50 48.38 48.04 61.08 49.21 49.14
Fixed asset turnover (times) 4.62 5.25 6.07 4.68 4.66 4.76
Total asset turnover (times) 2.09 2.18 1.90 1.34 1.25 1.14
NPV Analysis
Price Promotion
Harley-Davidson: premium • Dealer promotions
•
Holiday Rambler: midrange- Customer events
premium • Magazine ad
Buell Motorcycle: premium• Public Relations
Long Term Issue
nternational Expansion
Where? Management’s Misunderstanding
?
Taiwan
#’s of motorcyclist
=
Potential Customers
Purchasers = Recreational oriented
Key Considerations
Focus on Europe •Culture
And Australia •Income
•Vision
International Expansion Criter
Criteria
• Market Research
– Existing Customer
– Potential Customer
• New Marketing Scheme
– PR, Licensing
Why Keep Buell?
DECREASING
GE Matrix
Justification for Divestin
Capacity Expansion
• Increase Supply to Match Demand
• Increase Market Share
• Reduces Lead Time
• Increase NPM (in value)
Price Increase
• Increase Margin
- inelastic demand
- demand greatly > supply
• Reduces Demand
- help balance supply and demand
- customer’s willingness to buy at current price exceeds company’s
ability to supply
• Reduces Lead Time
Why Not Increase Capacit
to Fully Match Demand?
uality Issue
increase too fast, can jeopardize
uality of product.
0% represents highest practical rate