5-1 Working Capital Management : Tesla

FIN 320: 2-2 Journal – Tesla 6

FIN 320: 2-2 Journal – Tesla

Jennifer Moore

Southern New Hampshire University

September 13, 2021

TESLA Inc is an American-based Energy and Automotive firm used for developing, manufacturing, and designing of electric vehicles plus batteries (Energy-storage systems) from its headquarters in Palo Alto. The company also specializing in the maintenance, operation, and installation of renewable-based energy storage systems for both commercial and residential customers. Tesla engages in manufacturing through ventures such as Solar Roof, Powerpack and Powerwall that enables utilities, businesses, and homeowners for management of renewable energy consumption, storage, and generation plus the support of energy and automotive products.

Financial statement are the quantitative reports issued by company managerial staff that gives the stakeholders important information regarding about the business performance. These statements include Stockholder’s equity, balance sheets, cash-flows, and income statements. The aim of these statements is giving pertinent data about the changes, performance, and financial position of a commercial firm for making economical decisions. The features of the statements include comparability, reliability, relevancy, and understandability. They explain the financial capability of the organization from the expenses, income, equity, liabilities, and assets. Cash flow management is the organizational process which maintains the outflow and inflow of funds. The fundamental aim is in ensuring an optimum incoming fund’s flow higher compared to the outflow to ensure that firms remain at surplus.

The assessment of TESLA’s financial health relies on the information from the financial information that illustrates its business performance. This includes the analysis of the firm’s profitability using various metrics such as working capital, profit margins, return on assets and the return on the invested capital. The financial reports generated from the analysis serve as relevant tool for understanding the current and future business health. Other metrics like the stock price fluctuation to $ 383 in 2017 compared to $151 in 2016 also points to the investor’s relations that affects the business performance among its rivals. The change in revenue in Tesla seems to increase at a rate equivalent to 81% from the period between 2015-2018. The historical statistics helps in the estimation of the future cash flows with the firm’s performance in the automotive industry that explains the plausible business financing options.

Figure showing the Financial Outlook of Tesla Inc from Yahoo finance (2021).

The financial ratios are the quantitative metrics used to gauge how the firm performs in generating profit among its global competitors. These ratios include the return on equity, return on assets, profit margin, return on investment capital. Additionally for better analysis, this financial statement includes the debt-equity ratio and the debt ratio that helps in understanding the influence of short and long-term liability relative to the invested capital.

In the balance sheet, the debt-equity ratio is 0.000209115 is very low indicating a higher financial capability of the firm to handle the long-term and short-term debts. In the manufacturing or automobile industry this is quite normal compared to financial institutions with a higher ratio because their profits rely on their ability facilitate debt with interests. The debt ratio explains the solvency ability of the company with the total liabilities relative to the cumulative assets. Tesla currently has a debt ratio of 0.000209115 which is very low indicating that it has more assets compared to the total liabilities. The firm has a return of assets equal to 8.335%, the general rule a value below 5% is more asset-comprehensive businesses while a value higher than 20% is for asset-light businesses. This value indicates the enormous financial activities present in Tesla, extensive business operations and a higher profitability.

Metric	Value
Debt-Equity Ratio	0.000209115
Debt Ratio	0.000209115
Return on Assets	0.083354051
Gross Profit Margin	0.9727
Cash Ratio	21221609.81
Current Ratio	21221612.18

In summary, Tesla is a fast-growing firm with an innovative and youthful nature which explains the sustainable business performance. There is an overvalued share price in the firm from the Yahoo finance reports which explains the good financial health of the firm : heavy capital investments in the automobile industry gives it a higher return gain in the future. The financial ratios from the return on assets, investment capital and equity show that the firm is currently operating at a good pace. But there is a concern to improve the current and cash ratio to ensure that the working capital is at its optimum value to avoid liquidity challenges for the firm. A good alternative is to secure other plausible financing options.

REFERENCES

Jean, F. and Andy, S (2021). Investopedia. What is considered a High Debt-to-Equity Ratio. Accessed on 9th September 2021. Retrieved from What Is Considered a High Debt-To-Equity (D/E) Ratio? (investopedia.com)

Petro, S. (2019). Business and financial analysis of Tesla Inc. Tallin University of Technology. Business Administration, Financing.

Yahoo Finance (2021). Tesla, Inc- TSLA Stock Price, Quote, History & News. (2019, April 20). Accessed on September 9, 2021. Retrieved from https://finance.yahoo.com/quote/TSLA/