Financial Research Report: Tesla's Financial Analysis

Assignment 1: Financial Research Report
First Name Last Name
Strayer University
Fin 534
Dr. Black
Date
Financial Research Report
Introduction
A company’s financial ratios provide an avenue through which relationships are determined more so from a financial perspective and consequently, this data facilitates comparison purposes (Borhan et al., 2014). This report takes into account Tesla’s financial analysis concerning the company’s 2019, 2018, and 2017 accounting periods.
The rationale for Stock Selection
The most straightforward rationale in choosing Tesla stock originates from the broader perception of the industry. The electric vehicle (EV) market lacked the much-needed appeal from the most conventional industry players meaning that it has lagged. This position, coupled with the ever-growing calls for climate change, indicates that any entrepreneur or firm that enters into this space is bound to reap many benefits in the long-term. Currently, the market shares of fully electric and plug-in hybrid cars are 1.5% in the People’s Republic of China, the United Kingdom, and France (Weiss, Zerfass, &Helmers, 2019). Many countries in the European Union, including Germany and Norway, advocate for an increase in the number of EVs because they mitigate the increasing number of pollutants in the atmosphere. Therefore, it is a step that will favor these firms because operating policies will be lenient upon them (Green, Skerlos, &Winebrake, 2014). Besides, there is a much-ensuing competition to the extent that governments will be compelled to support their domestic firms as much as possible. To this end, they will be liable to receive significant subsidies from the government. The same case applies to Tesla and its customers.
Further, the stockholder is guaranteed that Tesla's mission is long-term, meaning that its stock price will improve steadily over time. According to the company, its mission “is to accelerate the world’s transition to sustainable energy” (Tesla, n.d.). Its commitment towards improving humanity appears to be a concrete cause that will prove to be a massive source of confidence for stockholders. Beyond this aspect, Tesla enjoys significant advantages over its rivals. First and foremost, Tesla produces exceptional powertrains in the market, which is the primary component for EVs. Currently, the company sells these patented components to other players in the industry, including Toyota and Daimler (Cheong, Song, & Hu, 2016). This product's effectiveness is apparent in the fact that it accounts for the industry standards when it comes to mileage covered. In this regard, the Model S can go for 265 miles, while Model Y gives a range of 316 miles, according to the United Environmental Protection Agency (EPA) (Crothers, 2020). Customers enjoy these massive advantages even though the car is relatively affordable. The case for Tesla goes beyond this paper's scope, and I am highly confident that Jamie will enjoy high returns, including dividends in a decade.
Client’s Profile
My cousin, who is unmarried and 24 years old, is a relatively young structural engineer who works for a construction company. We are very close friends having grown up in the same neighborhood, and more importantly, our families have had strong ties over time. Growing up, it appears that we all have taken different paths, which is fine, but then we still have quite engaging conversations when we meet. My financial prowess and desire to attain financial independence and ultimately, economic freedom has raised Jamie's attention as he is also keen to reach this phase. However, he is a motor enthusiast while I am more inclined to technology. This position does not disintegrate my love for cars, though. He is financially better and seeks strategies upon which he can invest his cash for more returns. Usually, I tell him that anyone can make great returns as long as they choose a stock they understand. A teacher can use their knowledge to pick the stock of the best value-inducing publishers. At the same time, a farmer can commit their funds to the outstanding agricultural companies relative to value rather than price. To this end, Tesla poses as the best fit for my cousin as he seeks to have optimal returns for his investment in the electric vehicle company.
Ratio analysis

2019

2018

2017

Current ratio=Current assets/Current liabilities

1.135

0.8313

0.8561

Cash ratio = Liquid assets/Current liabilities

0.5876

0.3688

0.4388

Debt-to-equity ratio = Total liabilities/Total assets

3.959

4.759

5.433

Debt-to-asset ratio = Total liabilities/Total assets

0.7636

0.7877

0.8034

Net profit margin = After tax net profit/Net sales

(0.03153)

(0.0495)

(0.1906)

Current ratio (CR) and cash ratio are liquidity ratios that are used in determining the company’s position in meeting its present obligations. Although both articulate the company’s ability in meeting its short-term obligations, the former solves current assets while the latter applies to cash and marketable securities. Concerning these ratios, it can be said that Tesla’s ability to meet short-term obligations from both dimensions has been growing steadily. The level of current assets, in particular, has risen commendably, which is probably because of the rise in prepayments or inventory. However, prepayments appear to be the most reasonable answer as many Tesla customers have booked their vehicles even before production has begun.
Leverage ratio &...