Polaris Industries manufactures snowmobiles, neighborhood electric vehicles, and ATV and sells them in the United States (“Polaris About Us” par. 2). The current paper evaluates the financial performance of Polaris Industries.
Rational and Interpretation of Ratios
The analysis of financial performance of Polaris is based on liquidity, solvency, profitability, and investor ratios. The liquidity ratios indicate the capability of Polaris Industries to pay off its creditors, and the results show that the liquidity of the company increased during 2014-15. The long-term debt paying ability of the company indicates the effectiveness of its capital structure. The results indicated that the company was more focused on equity financing in 2015 as compared to the previous two years. On the other hand, the equity multiplier decreased in 2015 due to the increase in debt financing (“Polaris 2015 Annual Report” 32).
The analysis of profitability shows that the company had strong profitability. The values of net profit margin, total asset turnover, return on equity, and return on assets declined in 2015. The primary reason for the decrease in the return on equity ratio was the increase in debt financing (“Polaris 2015 Annual Report” 35). Finally, the investor analysis ratios indicate the company’s ability to provide high return on investment to its shareholders. High values of price-earnings ratio indicated that the market had positive views about the company and its stocks. Moreover, the company had a high dividend payout ratio that could be the management’s strategies to keep investors hold their investments in the company’s stocks. The inventory turnover declined in 2015, and the company needed to take steps to accelerate its sales in the next period.
Horizontal Analysis and Vertical Analysis
Horizontal analysis and vertical analysis are carried out to investigate the operational efficiency of Polaris Industries (Rich et al. 592-594). The horizontal analysis indicated that the company’s profitability increased in 2014 and 2015 as compared to the previous year. Furthermore, the company’s sales increased in 2015. However, the cost of sales also increased substantially. The management report indicated that the company’s management was concerned about the rising cost of sales that could affect the business in 2016. The gross profit of the company increased by 19.46% in 2015. The company’s operating income also increased in 2015 that indicated the business managed its operations effectively. The basic net income per share increased by 25.23% that was a positive indicator for investors. The company’s total assets increased by almost 41% in 2015 due to the increase in the company’s inventory and property and equipment (“Polaris 2015 Annual Report” 44).
The vertical analysis indicated that the company had high gross profit margin in 2015. However, operating income and net income declined in 2015. The analysis suggested that Polaris Industries should focus on reducing its cost of sales. The company’s cash and cash equivalents remained low in all the three years of analysis. It could create financial problems for the company in the next period.
- The management decided to pursue an aggressive strategy to reduce its cost of sales and operating expenses (“Polaris 2015 Annual Report” 16).
- The company wants to take advantage of the global expansion and expand its business internationally (“Polaris 2015 Annual Report” 7).
- The primary focus of the management was to increase the company’s marketing expenditure to increase its market penetration (“Polaris 2015 Annual Report” 9).
- The company aimed to increase its investment in property and equipment in 2016 to meet the expected increase in the demand for its products (“Polaris 2015 Annual Report” par. 21).
Based on the analysis of Polaris Industries, it can be concluded that the business did not perform as expected by the management. Overall, the financial results indicated the company’s profitability reduced in 2015 that could be a major concern for shareholders. The management’s plans for 2016 clearly indicated that the company faced several challenges related to high cost of sales and inability to fulfill market requirements.
Polaris About Us 2016. Web.
Polaris 2015 Annual Report 2015. Web.
Rich, Jay, Jeff Jones, Maryanne, Mowen and Don Hansen. Cornerstones of Financial Accounting. Boston: Cengage Learning, 2012. Print.