The considered company is Tesla Motors Inc. Tesla Motors is an American company established in 2003 in California, United States of America. Under the command of Elon Musk, the company manufactures and markets vehicles as well as components and batteries for other manufacturers such as Daimler or Toyota group. Taking the name of the physical and engineer Nikola Tesla develops induction motors and compact systems with a lower number of a conventional heat engine moving parts. Also, the company has its patents for manufacturing, which have been released to the public since 2014 (Bloomberg, 2016).
The main objective of Tesla Motors is to market all-electric vehicles, including sedans, sports compact and affordable. The Tesla Roadster was the first company vehicle, a sport all-electric car, a pioneer in the use of lithium-ion batteries with the autonomy of over 300 kilometers per charge. The first prototypes were shown to the public in 2006 and currently hold the world record for electric vehicle autonomy in mass production with 501 kilometers. Between 2008 and 2012, the company puts into circulation more than 2000 units worldwide.
After finishing the production of the Roadster, Tesla still presents in the market with vehicles that combine the latest technology in development and design, quality, and representation. The company is a public corporation listed on the Nasdaq Stock Exchange having a net loss in the previous three years (Tesla Motors, Inc., 2016), according to Table 1.
With the previous values, it is possible to calculate financial ratios to determine the financial health of the company. One of the most important financial ratios to analyses a corporation is the Return of Equity , that is, the relation between the net incomes of the organization against the equity. That allows comparing different companies of the same industry no matter the size, sales, and some employees. ROE = Net_loss / Equity
For the case of Tesla, the value of ROE is negative, because there is a net loss in the last three years of operations. In Table 3, the values of ROE.
The dividend payout ratio (Tesla Motors Inc TSLA, 2016) is the percentage of annual earnings paid to the shareholders every year. In the last three years, the company did not pay dividends to shareholders Table 4, shows the values of dividend payment ratio in the last two years.
The sustainable growth rate is the product of the return on equity and the profits that return to the organization (difference of net profits and payment to shareholders. Mathematical the SGR is: SGR = ROE * (1- DPR)
For the case of Tesla Motors Inc., the values of SGR are showed in Table 5.
In this case, the Sustainable Growth Rate is the same Return on Equity of the company, because the company did not pay dividends to shareholders.
The growth rate of total profits of Tesla Motors Inc. had a continuous increase from 93% in 2014 from 456,262 to 881,671 thousand dollars and 4.74% in 2015 to 923,503 thousand dollars. The company had a continuous growth in sales, due to the success of its car models, but the expenses due to the liabilities and investments in new warehouse facilities difficult the company to have a net income in the previous years, giving the company a continuous net loss in the previous three years. The difference between the growth rate and the sustainable growth rate creates a problem in the long term to the company to maintain the level of growth of the previous years. The company is far away from its sustainable growth rate because of the continuous increase of the financial leverage of the consolidated balance sheet. The company has a ratio of liabilities to assets of 86.02%, a higher ratio compared with the average value of the car maker industry.
When a company has a growth higher than the sustainable growth rate, the company will need in the long term to increase the liabilities to finance their operations and assets. The key to success for a company is to increase the ability of the company to grow without increase the liabilities. An increase of the sustainable growth rate is possible with a reduction in the dividends payout, an increase of net income and a reduction of equity.
Reference List
Tesla Motors Inc TSLA. (2016). Retrieved from Guru Focus: http://www.gurufocus.com/term/payout/TSLA/Dividend-Payout-Ratio/Tesla-Motors-Inc
Annand, D. (2016). Introduction to Financial Accounting. Athabasca, Alberta: Athabasca University.
Bloomberg. (2016). TSLA:NASDAQ GS Stock Quote. Retrieved from Bloomberg: http://www.bloomberg.com/quote/TSLA:US
Boundless. (2015). Finance Boundless. Retrieved from Boundless: https://www.boundless.com/finance/search/?q=sustainable+growth+rate
Tesla Motors, Inc. (2016). FORM 10-K. Retrieved from Tesla Motors, Inc.: http://ir.tesla.com/secfiling.cfm?filingID=1564590-16-13195&CIK=1318605#TSLA-10K_20151231_HTM_CONSOLIDATED_BALANCE_SHEETS
