Financial Analysis of Tesla Inc. Company
Competencies
In this project, you will demonstrate your mastery of the following competencies:
Analyze financial and investment decisions that add value to the organization
Analyze financing options to maximize investor value
Scenario
You are a financial analyst for the chosen business that you selected during your Module Two Journal assignment. Your supervisor has discovered last minute that your business’s board of directors is looking for updates on the business’s financial health. Your supervisor has asked you to write a report regarding the business’s current financial health and the available financial options for improving the business. You’ve also been asked to make recommendations as to which options the business should choose to best support its financial health. Your supervisor will then use your report to present to the business’s board of directors, whose members all have varying levels of knowledge in terms of finance.
Directions
Using the business you chose (TESLA, INC) from the Project Two Business Options List, create a report for your supervisor to share with the board of directors during their presentation. Keep in mind that your report needs to be easy for someone unfamiliar with finance to understand, as not all of the board members for your business fully understand finance.
Using Mergent Online, locate the most recent quarterly financial statements for your chosen company, and use these statements to support your analysis throughout the project. Refer to the Project Two Financial Assumptions document located in the Supporting Materials section for the assumptions you need in order to analyze the three available financial options outlined in the Financial Analysis section of the project directions. (See attached financial statements)
You are encouraged to use the Project Two Financial Analyst Report template located in the What to Submit section to help complete this project. (See attached template)
Specifically, you must address the following:
Financial Analysis: In this section of the report, you will use the most recent quarterly financial statements for your chosen business and the Project Two Financial Formulas spreadsheet (located in the What to Submit section) to calculate appropriate financial formulas for assessing the business’s financial health. You will also analyze all three available financial options for improving the business based on your calculations and the provided Project Two Financial Assumptions document.
A. Financial Calculations: Calculate accurate financial formulas to assess the business’s current financial health. Specifically, you must calculate the following:
Working capital
Current ratio
Debt ratio
Earnings per share
Price/earnings ratio
Total asset turnover ratio
Financial leverage
Net profit margin
Return on assets
Return on equity
B. Working Capital Management: Explain the impact of working capital management on the business’s operations. Provide examples to support your claims.
C. Bond Investment: Analyze the risks and benefits of the business choosing to invest in a corporate bond, including the necessary ethical considerations, appropriate calculations, and examples to support your analysis.
D. Capital Equipment: Analyze the risks and benefits of the business choosing to invest in capital equipment, including the necessary ethical considerations, appropriate calculations, and examples to support your analysis.
E. Capital Lease: Analyze the risks and benefits of the business choosing to purchase a capital lease, including the necessary ethical considerations, appropriate calculations, and examples to support your analysis.
2. Financial Evaluation: In this section of the report, you will now determine if the three available financial options in the Project Two Financial Assumptions document are appropriate for the business, considering the analysis you did in the first section. You will also explain financing and describe the business's likely future performance.
A. Financing: Explain how a business finances its operations and expansion.
B. Bond Investment: Assess the appropriateness of a bond investment as a financing option for the business’s financial health, using your financial analysis and other financial information to your support claims.
C. Capital Equipment: Assess the appropriateness of a capital equipment investment as a financing option for the business’s financial health, using your financial analysis and other financial information to support your claims.
D. Capital Lease: Assess the appropriateness of a capital lease purchase as a financing option for the business’s financial health, using your financial analysis and other financial information to support your claims.
E. Short-Term Financing: Explain how potential short-term financing sources could help the business raise needed funds for improving its financial health. Base your response on the business’s current financial information.
F.Future Financial Considerations: Describe the business’s likely future financial performance based on its current financial well-being and risk levels. Use financial information to support your claims.
3. Financial Recommendations: In this section of the report, you will recommend which financing option(s) are the best for the business to choose depending on its financial health.
A. Financial Recommendation(s): Recommend the most appropriate financing option(s) based on the business’s financial health, including a rationale for why the option(s) are best.
Spreadsheet: Project Two Financial Formulas
Use this Excel spreadsheet to complete your calculations for the project. You should have already completed parts of the spreadsheet for your Project Two Milestone assignment.
Tesla Inc. Comparison analysis
Student’s Name:
Institution:
Professor:
Unit Name & Number:
Date of Submission:
Tesla Inc. Comparison analysis
B. Working capital
The working capital comprises the two main components: current assets and current liabilities, which are trade receivables, inventories, bank overdrafts, and trade payables. Working capital management in Tesla is very crucial since it is an essential factor in how the business is viewed by creditors, suppliers, and other interested parties. Furthermore, it determines the success of the business. To successfully manage the working capital, great care is required to ensure there is a potential interaction between the components, such as an extension of the credit period to increase the number of sales ( Ponsian et al., 2014). However, this may necessitate Tesla to get an overdraft once the company cash position falls due while waiting for the customers to pay. Ability to properly manage the working capital correlates directly to the business growth and the overall operational viability. For a company to attain a positive working capital as indicated by Tesla of $ 9,828,000,000 in the first quarter of 2021, it must keep more than the cash on hand to maintain a financially solvent company.
C. Bond Investment
A corporate bond can be described as a type of security debt sold to the investors issued by a certain firm. The main purpose of the corporate bond is to help Tesla raise additional cash without having to issue more stocks, borrow from the bank or sell the equities, among other available options. Corporate bonds are allowed to be traded in the secondary market, which will enable Tesla to sell or buy the securities after they have been issued. This allows the company to benefit from buying the bonds after prices have declined potentially. The main potential risk associated with the corporate bond is the interest rate since they have an inverse relationship with the bond prices (Bessembinder and Maxwell, 2008).
Before investing in bonds, Tesla needs to ensure the issuer of the corporate bond meets the allowable criteria and also do a background check on the core activities such as involvement of the company with child trafficking to ensure all the business activities undertaken by the company are ethical. The appropriate bond calculations are done through the bond yield or the return investors realize from a bond that accounts for the time value for money. From the corporate bond investment calculations (Project two), the Net present value (NPV) is – 1,925,927, and Tesla should not invest in this project because it has a negative NPV and will be a loss-making investment.
D. Capital equipment
Capital equipment is used by Tesla to provide a service, manufacture a product, deliver or store merchandise. The capital equipment, i.e., the building the company is planning to purchase, will be depreciated and capitalized over a period of time. Once Tesla purchases the building, they will take ownership of the equipment and make modifications when necessary, which is the main benefit of buying capital equipment compared to leasing. Furthermore, the purchase of the equipment will allow the company to benefit from the tax incentives that allow businesses to deduct the full purchase price from the gross income or in accordance with the USA tax code. The company is fully in charge of maintaining and repairing the building they are planning to purchase, which is risky when the building requires replacing and maintenance.
Tesla will incur extra costs in the repair and maintenance of the building to ensure the buildings is up to the standards of the Leadership in Energy and Environmental Design (LEED) which will be an extra cost and risky for the company. The ethical considerations Tesla should consider are the environmental criteria, including the environment risk evaluation of the new building site. Net Present Value (NPV) has been used for the calculations of the equipment investment, and Tesla should accept the project because it has a positive NPV. This implies that the projected earnings from the equipment will exceed the anticipated cost by $2,243,458(Project two assignment).
E. Capital lease
A capital lease is a contract that allows the renter to temporarily use an asset. The main risk of a capital lease is the creation of the debt in the balance sheet due to the payments that will be made as to the agreement in the lease states, which increases the debt to equity ratio ( Morais, 2014). However, the purchase of the capital lease will enable Tesla to claim depreciation in an asset which will help in reducing the t...