The company considered for the financial analysis for the last three years is Tesla Motors Inc. the United States of America automaker that produces 100% electric cars. The headquarters of Tesla are located in Palo Alto, California between the most important companies of high technology in the world and with a new warehouse facility in New Mexico, United States of America.
The company had a constant growth since its foundation in July 2003, but with a high proportion of liabilities in its assets, giving the company a caution condition between the investors. The following are the most important financial ratios evolution in the last three years:
■ Total Revenue: The total revenue for Tesla Motors Inc. comes from different sources. The cars sales, leasing, spare parts and components and licensing. The car sales are the main sources of revenues having the most important participation the S Class model of the company. The company has its most important markets United States of America, Canada, Europe and the Middle East (Tesla Motors Inc., 2016). The leasing is a new business model when the company with its local partners and allied bank lease in a monthly or yearly payment a car with distance and use limitations to the clients, having the company a constant cash flow and owning the car. The spare parts are sold although to car owners and other companies like Daimler, Mercedes-Benz, and Toyota which uses Tesla components for their new electric cars. The licensing applies to other car makers that manufacture and uses Tesla components under authorization. In Table 1, the values of total revenue:
The total revenues of the company had a consistent growth in the last three years with a 59% growth from 2013 to 2014 and 27% from 2014 to 2015.
■ Net income: The net income is the result of subtracting the costs of the business process of the company to the total revenue. The net income is affected by expenses, depreciation, interests and taxes. The net income for the company may be positive or negative. In the case of Tesla Motors Inc., the net income is negative; it this case, the net income is called net loss (Investopedia, 2015). The most important concept that affects the net income is the automotive cost; automotive costs subtract more than 50% of the total revenue. In Table 2, the values of net income:
The total revenues of the company had a consistent decrease in the last three years giving the investors a warning about the current financial conditions of the company. The executives of the company consider this situation a temporary situation thanks to the important investments of the company in research and development, the Gigafactory in New Mexico and a moderate increase in sales compared to research investment.
■ Profitability ratio: The profitability ratios are financial indicators that compare results of sales of the company with other indicators of the balance sheet or financial statement. The three most important profitability ratios are gross profit margin, net profit margin and return on assets (Sparks, 2015). The gross profit margin shows the relation between the total revenue and the cost of goods sold. For Tesla Motors Inc. case the cost of goods sold has two components: automotive and services. The net profit margin shows the relation between the net income (or net loss) and the total revenue. The Return on Assets or ROA is the relation between the net income and the total assets of the organization.
□ Net profit margin = Net Income / Total Revenue. Table 4 shows the values of net profit margin
■ Liquidity ratio: The liquidity ratios show the capacity of the company to pay its liabilities and compromises in the short term. The considered ratio for the Tesla Motors Inc. case is the current ratio which is the relation between the current assets and current liabilities. The idea is to show in numbers the ability of the company to use all its current assets to pay all the current liabilities (Investopedia, 2015).
□ Current Ratio = Current Assets / Current Liabilities. Table 6 shows the values of Current Ratio
■ Market ratio: The market ratio is financial metrics that compares the performance of the company with the market valuation. The considered market ratios for Tesla Motors Inc. are the earnings per share and the price to earnings ratio. The earnings per share or EPS are the ratios between the net income and the number of available shares.
□ Earning per share: EPS = (Net_income – dividends) / Number_Shares. Table 7 shows the values of EPS
□ Price to earnings ratio: Market_price_share / EPS. Table 8 shows the values of EPS
■ Debt measures: The debt measures are financial indicators that evaluate the debt position of the company compared with the overall assets of the company. The most important ratio considered in the debt measures is the debt to assets ratio, which is the ratio of the total debt of the company (current and non-current) and the total assets of the company (current and non-current). This ratio is similar to the liquidity ratio but considers the short term and long term components of the balance sheet.
□ Debt to assets ratio = Debt/Asset. Table 9 shows the values of Debt to assets ratio
The previous indicator is the most dangerous of the company, an indicator that is not sustainable in the long term and may affect the company in a scenario of economic downturn or crisis.
The previous information compared with a the sustainable growth rate of the company gives to the company a position in risk. The future of the company depends of the success of the current investments and developments and the compromise of the shareholders.
Reference List
Investopedia. (2015). Current Ratio. Retrieved from Investopedia: http://www.investopedia.com/terms/c/currentratio.asp
Investopedia. (2015). Net Income - NI. Retrieved from Investopedia: http://www.investopedia.com/terms/n/netincome.asp
Sparks, D. (2015). A Close Look at Tesla's Big Spending -- Merited or Not? Retrieved from The Motley Fool: http://www.fool.com/investing/general/2015/08/25/a-close-look-at-tesla-motors-incs-big-spending-mer.aspx
Tesla Motors Inc. (2016). Tesla Motors Inc - 10K. Retrieved from Tesla Motors Inc.: http://ir.tesla.com/secfiling.cfm?filingID=1564590-16-13195&CIK=1318605#TSLA-10K_20151231_HTM_ITEM_6
