PowerPoint Presentation

[Virtual Presenter] Good morning everyone. Today, we will discuss Harley-Davidson's capital structure and the impact of repaying its debt on the company's debt to equity ratio. We will evaluate how this has allowed the company to remain competitive and maintain a low credit standing. Let's begin..

[Audio] The capital structure of this company has been carefully evaluated, seen in the significant drop in the debt to equity ratio from 2020 to 2021. This conscious decision was due to the Trade-Off Theory, which implies finding a balance between debt and equity. However, this decision had implications on the company’s credit standing; it had to reduce its debt to equity ratio in order to remain competitive. Fortunately, the company managed this while sustaining overall performance..

[Audio] The company's 2021 financial statements showed a significant decrease in its debt to equity ratio. According to the Modigliani-Miller theorem, finding the optimal capital structure is a key strategy companies take to ensure greater value and lower risk. As such, the company's 2021 annual report disclosed that the debt to equity ratio dropped from 8.98b in 2020 to 6.88b in 2021. This was a result of the company's decision to pay off its outstanding debt so that it could stay competitive in the market. By doing so, the company secured its optimal capital structure, which will permit it to access external financing effectively in the future and remain profitable..

[Audio] Evaluating a company's capital structure can be critical, as it can affect the firm's market value and profitability. The table provides an overview of the available sources of financing and how the capital structure is performing. It is evident that the debt to equity ratio for the company has decreased dramatically, as seen in the 2021 annual report, indicating that the company has been able to remain competitive and profitable through sound evaluation and management of its capital structure..

[Audio] An evaluation of the company's capital structure has shown that the debt to equity ratio has greatly decreased in the last year. This suggests the company is committed to staying competitive in the industry and up to date with current standards. Examining the data from the annual report, the debt to equity ratio has decreased from 8.98b in 2020 to 6.88b in 2021. This suggests that the company has taken proactive steps to decrease its debt in order to stay ahead of its rivals. Comparing the company's financial metrics to those of its competitors, it can be seen that the company has taken several steps in the right direction with regards to its capital structure management. Ultimately, reducing the debt to equity ratio is likely to be advantageous for the company in the long run..

[Audio] Harley-Davidson's current capital structure, as shown by a Debt to Equity ratio of 239.33% and a Debt to Capital ratio of 70.53%, takes the Trade-off Theory into account, balancing the tax benefits of debt financing with the potential bankruptcy costs. As the debt to equity ratio is high, the debt to capital ratio remains below 50%, suggesting that potential bankruptcy risk for the company is low. By analyzing this data, firms can gain a better understanding of their optimal capital structure..

[Audio] Signalling theory posits that managers can employ particular sources of financing to communicate signals to investors. Selling equity may indicate that the shares may be overvalued while issuing debt may signal that the shares may be undervalued. Below is a summary of the appraisal of capital structure sources of financing..

[Audio] The evaluation of a company’s capital structure is a critical task for any investor. It is the mix of debt and equity that a company has access to and chooses to use for financing its assets. In the slide, you can see Harley-Davidson’s debt to equity ratio and outstanding debt from 2020 to 2022. By analyzing these figures, we can tell that Harley-Davidson repaid large amount of debt during 2021 after its credit rating dropped from “BBB” to “BBB-” (S&P Global, 2021). This indicates that the company has more unused debt capacity now. This is a useful reminder for any investor looking to evaluate a company’s capital structure..

[Audio] Agency cost theory posits that when a firm has surplus capital, it must take into account the agency costs related to it. This concept is meant to examine the different sources of corporate financing and capital structure to discover which source to utilize. Examples of these sources are equity, debt, retained earnings, and other financial products. This theory facilitates us to estimate the total cost of the firm's capital structure..

[Audio] Taking a look at our evaluation of the capital structure, it is clear that the company has a high Debt/Equity and Debt/Capital ratio. This indicates the high bankruptcy risk the company faces and also implies that managers are pressured to obtain high profits to cover the high interest expense. The agency cost in this case is not significant. The solution to reduce this excess cash flow is to give shareholders higher dividends, stock repurchase and borrow more money..

[Audio] Harley-Davidson's current capital structure consists of debt and equity. The debt is mainly sourced from long-term loans, with the company's current liabilities including short-term debt and accounts payable making up a small portion of its capital structure. Upon evaluating its capital structure, we can see that Harley-Davidson has a higher debt-to-equity ratio and debt-to-capital ratio than its competitors, indicating that the company is more heavily leveraged. Its higher EPS also appears to be supported by this higher debt-to-equity ratio. Therefore, Harley-Davidson's current capital structure can be seen as having a positive effect on its long-term profitability..

[Audio] This slide provides an overview of Harley-Davidson's debt-to-equity and earnings per share from 2012 to 2022. The table introduces the different sources of financing and evaluates the capital structure of the company. It shows that debt has remained relatively steady over the past decade despite consistent fluctuations in the company's EPS. This should give shareholders a better understanding of Harley-Davidson's financial position and how it has evolved over time." Harley-Davidson's debt-to-equity ratio and earnings per share from 2012 to 2022 have been evaluated in this slide. Through the table, we can introduce different sources of financing and gain an understanding of the company's capital structure. As this data suggests, debt has been generally consistent despite the fluctuations in the company's EPS. By understanding the company's financial position over the past decade, we are able to get a better picture of how Harley-Davidson has grown and developed as a business..

[Audio] MOTOR's capital structure shows a high Debt to Equity ratio of 239.33%, and a Debt to Capital ratio of 70.53% along with an elevated Earnings Per Share of 5.009, which suggests that the company is able to pay off the interest expenses and increase the financial leverage. Comparing to its competitors, MOTOR has a significantly higher Debt to Equity and Debt to Capital ratio, and a better Earnings Per Share. From the assessment of MOTOR's capital structure, it can be determined that the company has a solid capital base. Nevertheless, the excessive financial leverage that comes along with a high Debt to Equity ratio also highlights the risk of default..

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