Financial Analysis for Tesla Motors - Case Study Example

Financial Analysis for Tesla Motors Student’s Name Institution Company Summary Founded in 2003 by Martin Eberhard and Marc Tarpenning, Tesla Motors is a United States of America based company, which is in the business of designing, manufacturing and selling electric cars as well as electric vehicle power trains components. It is headquartered in Palo Alto, California and headed by Elon Musk who doubles up as the chairman of the firm’s board (Tesla Motors, 2012). The company is named after a popular electric engineer and physicist Nikola Tesla. Some of the notable electric cars from the firm include; Model S, X and The Tesla Roadster, which is the first high-performance electric sports car in the United States of America car industry. In the period between 2008 and 2012, the firm produced and sold more than 2000 Roadsters in more than 30 countries across the globe. Currently, the firm enjoys a massive employee base of about 6,000 (Tesla Motors, 2012). In 2010, the firm filed the Form S-1 with the US SEC for the placement of an IPO. The IPO was underwritten by such notable companies like Goldman Sachs, Morgan Stanley and J.P Morgan (Tesla Motors, 2012). Subsequently, a strategic partnership was formed with Toyota Incorporation where $ 50 million worth of common stock was purchased for purposes of creating electric vehicles original designed and manufactured by Toyota like RAV4 EV. The IPO was able to raise about $226 million hence making history as being the first American car company to gone public and raise such a massive amount (Tesla Motors, 2012). For purposes of enhancing technology into reaching a larger part of the globe, the company has been able to enter into partnerships with such giant car manufacturers like Daimler AG, Toyota and Mercedes-Benz. It also relies on Panasonic battery developments to design effective and efficient car models in the future (Tesla Motors, 2013). Situation Analysis Year: Ratio: 2011 2012 2013 Current ratio= current assets/current liabilities 372,838/191,339=1.9 524,768/539,108=1.0 1,265,939/675,160 = 1.8 Accounts receivables= sales/accounts receivables 204,242/9,539 =21.4 413,256/26,842=15.4 2,013,496/49,109= 41 Average collection period= 365/(accounts receivables turnover) 365/21.4=17 days 365/15.4=23 days 365/41= 8 days Inventory turnover ratio= COG/Inventory 142,647/50,082=2.8 383,189/268,504=1.4 1,557,234/340,355=4.6 Average sale period= 365 days/(inventory turnover) 365/2.8=130 days 365/1.4= 260 days 365/4.6= 79 days Times interest expense= EBIT/Interest Expense (251,488 )+255/43= (5842)X (394,283 )+288/254= (1,551)X (61,283)+189/ 32,934 = (1.85)X Debt-to-equity ratio=total liabilities/ total stockholder’s equity 489,403/224,045= 2.18 989,490/124,700= 7.93 1,749,810/667,120 = 2.62 Working capital=current assets- current liabilities 372,838-191,339 = 181,499 524,768-539,108 =(14,340) 1,265,939-675,160 =590, 779 Gross margin percentage= gross margin/ sales 61,595/204,242 = 0.3*100%, 30% 30,067/413,256 = 0.073*100%, 7.3% 456,262/2,013,496 =0.23*100%, 23% ROE= net income/total assets (254,411 )/ 713,448 =(0.36) (396,213 )/ 1,114,190= (0.36) (74,014 )/ 2,416,930 = (0.03) Analysis, The current ratio increases in the period between 2011 and 2012 from 1.9 to 1.0 before escalating to 1.8 in the financial year ending 2013. The standard ratio is placed at 2:1 hence the company’s ratios falls below it. However, the industry average is placed at 1.5 in 2013 meaning that the company is still above average and is able to pay for its short-term obligations as and when they fall due (Yahoo Finance., 2014). The accounts receivable ratio decreases significantly in the period between 2011 and 2012 from 21.4 to 15.4 respectively and later increases to 41. The increase is an indication that the firm has improved on its capacity to translate accounts receivables into cash resource. The company’s average collection period increases significantly in the period between 2011 and 2012 from 17 to 23 days respectively before decreasing to 8 days in 2013. This is a positive phenomenon since it postulates that the firm has been able to reduce the number of days taken to collect cash for goods sold on credit. The company’s inventory turnover ratio decreases significantly from 2.8 to 1.4 in the period between 2011 and 2012 respectively but later increases to 4.6 in 2013. The ratio postulates that the firm has been able to increase the number of times it is able to convert inventories into sales. The company’s average sale period doubles up from 130 to 260 days in the period between 2011 and 2012 and later drops to 79 days. The decrease in the number of days is healthy since it signifies that the firm has been able to reduce the period taken to sale all of inventories. The company’s times interest expense drops significantly in the three year period and although they depict negative values they still above the industry average. This means that the firm is able to pay interest payments as and when they fall due in comparison to other competitors in the industry. The company’s debt-to-equity ratio increases from 2.18 to 7.93 in the period between 2011 and 2012 respectively and later drop to 2.62 in 2013. This drop is a positive indication as it postulates that the firm has been able to offset funds provided by creditors and those provided by investors. The working capital increases significantly from $181,499M to $590, 779M in the period between 2011 and 2012 respectively. This is an indication that the company’s capacity to pay off current liabilities using the current assets has been strengthened over the three year period. The gross margin percentage decreases from 30% to 7.3% in the period between 2011 and 2012 respectively and later improves to 23%. This percentage margin is above the 19% industry average, which is an indication of increased profitability over the period (Yahoo Finance., 2014). The ROE is negatively positioned within the three year period but improves t -0.03 up from -0.36 in the two years. This is an indication that the firm has been able to devise effective ways of utilizing assets to post significant profits. Recent News Analysis In a news article dated, July 31, 2014, Tesla and Panasonic have signed an agreement for the construction of gigafactory that would focus on production of large scale battery in the United States of America. This is positive news for Tesla stakeholders since it guarantees of future low cost manufacturing of components hence massive profits. Potential investors should use this news feature to make positive investment decisions. In much recent news article dated October 2014, the firm took to hiring Apple VP Doug to oversee the vehicle programs. This is also a positive news feed for investors as it postulates that the firm is ensuring to set up a management team that is effective in achieving optimal production. The immediate benefit of this hiring is increasing the ROE of the firm since assets would now be put into effective utilization to post favorable profits. Some of the notable competitive advantages as postulated by the firm rests with its ability to sale most of inventories within a very short period of time. This ensures that the firm is able to post significant profits within a single financial year. Consequently, the firm has been able to post significant gross profits, which is an indication that the company has adopted effective marketing strategies and campaigns to aid with the sale of its electric cars. References Tesla Motors 2012 Annual Report. Retrieved from http://files.shareholder.com/downloads/ABEA-4CW8X0/3675428995x0xS1193125-13-96241/1318605/filing.pdf Tesla Motors 2013 Annual Report. Retrieved from eholder.com/downloads/ABEA-4CW8X0/3675428995x0xS1193125-14-69681/1318605/filing.pdf Tesla. (2014). Panasonic and Tesla sign agreement for the Gigafactory. Retrieved fromhttp://files.shareholder.com/downloads/ABEA-4CW8X0/3675428995x0x772531/eba89a76-0843-47ca-a885-1a1ec66643fa/TSLA_News_2014_7_31_General_Releases.pdf Tesla. (2014). Tesla hires Apple VP Doug field to lead vehicle programs. Retrieved from0x699879/74f64617-5f4e-44d5-96b7-1232d1cb8f87/TSLA_News_2013_10_24_General_Releases.pdf Yahoo Finance. (2014). Tesla Motors. Retrieved from http://finance.yahoo.com/q/ce?s=TSLA Appendix Read More