June 14, 2016

GAAP-Based ROA Severely Understates Harley-Davidson’s Profitability


  • Using Adjusted Earnings and Assets, Harley-Davidson’s Adjusted Return on Assets was 19% in 2015 – significantly higher than the 7% ROA most financial databases report.
  • This difference is primarily caused by the exclusion of HOG’s finance segment, which is not part of the firm’s core operations.
  • Also of note is the difference between HOG’s Adjusted Value to Earnings ratio of 23.2x versus the firm’s traditional forward P/E of only 11.4x.


Performance and Valuation Prime™ Chart

Under GAAP, the as-reported financial statements and financial ratios of HOG do not reflect economic reality. The traditional ROA computation understates the company’s profitability by incorrectly including certain items. The distortion of both profitability measures and valuation metrics of HOG is primarily driven by the inclusion of the firm’s finance segment in traditional valuations, which is not a part of the core operations of the firm.

After adjusting for these issues and a host of other GAAP-based miscategorizations, Valens calculates HOG’s Adjusted Return on Assets as 19% in 2015. In contrast, most financial databases show a traditional ROA of only 7%. Additionally, our analysis shows that HOG has an Adjusted Value to Earnings ratio of 23.2x, compared to the firm’s traditional P/E of 11.4x. The profitability of HOG’s operations and their equity’s true value are therefore not what traditional metrics originally indicate.

Click here to read the article in its entirety at Seeking Alpha.