Running head: TESLA MOTORS

Assignment 1: Financial Analysis of TESLA MOTORS

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Tesla Motors (TSLA) is changing the way we utilize energy. From battery powered cars
to gigafactories, super trains and now its newest invention, the power wall home battery, TSLA
has proven to be the car and energy company of the Age of Aquarius. I was first introduced to
TSLA June 1, 2013 when the stock was trading at $99. After just releasing its third quarter (Q3)
earnings report on 3 November 2015, it is now trading at $225.23 per share. (Yahoo Finance,

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2015). As an admirer of Nikola Tesla, an intuitive inventor in the 1700s, famous for alternative
current and utilizing free energy from the atmosphere to power our everyday lives, I instantly
took an interest in Elon Musk (TSLA CEO) and his vision for the future of the company and the
way we utilize energy. But is TSLA doing too much too fast?
Is it Wise to Invest in Tesla? Financial Analysis
From an investors point of view, it is wise to perform a financial analysis utilizing
different financial ratios to see where it stands against its competitors, how efficiently the
managers are operating, overall health, and how close it may or may not be to distress.
Liquidity Measurement Rations
Liquidity measurement ratios are used to measures the ability of a company to be able to pay off
their short term debt obligations if they were to come due. (Kimmel et al., 2013). Table 1
displays the formulas I used.
TABLE 1. TSLA Liquidity Ratios and Formulas
Liquidity = Current Ratio (current assets/current
liabilities)

Current Assets
Current Liabilities

$3,198,657,000 = 1.52
$2,107,166,000

= Quick Ratio (current assets-inventory) /current

liabilities

Current Assets-Inventory = $3,198,657-$953,675 = 1.07

Current Liabilities
$2,107,166

What this essentially means is, for every $1 that TSLA has in liabilities, it has $1.52 in current
assets. Figure 1 shows the 2014 balance sheet from the annual report.
FIGURE 1. TSLA Current Ration

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Below is a direct competitor comparison for TSLA. After viewing this, I was able to see
TSLAs stance amongst its competitors and industry average. With this information I decided to
compare the liquidity of two of TSLAs closest public competitors, General Motors (GM) and
Ford (F). (Yahoo Finance, 2015) Table 2 display GM liquidity information. Figure 2 presents
GMs balance sheet from its 2014 annual report. Table 3 show F liquidity information. Figure 3
illustrate Fs balance sheet from its 2014 annual report.

IMAGE 1. Tesla Motors Rankings Amongst Competitors and Industry Average

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TABLE 2. GM Liquidity Ratios and Formulas

Liquidity = Current Ratio (current assets/current
liabilities)

Current Assets
Current Liabilities

= Quick Ratio (current assets-inventory) /current

liabilities

Current Assets-Inventory = $83,670 -$13,642 = 1.07

Current Liabilities
$65,701

FIGURE 2. GM Consolidated Balance Sheet

TABLE 3. F Liquidity Ratios and Formulas

$83,670 = 1.27
$65,701

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Liquidity = Current Ratio (current assets/current
liabilities)

Current Assets
Current Liabilities

$40,442 = 1.01
$40,108

= Quick Ratio (current assets-inventory) /current

liabilities

Current Assets-Inventory = $40,442 -7,866 = .81

Current Liabilities
$40,108

With this information I was able to determine that TSLA is doing just as good, or if not,
better than its mature competitors.

FIGURE 3. F Balance Sheet

Solvency
Now that I know TSLA has good liquidity, its time to look at how solvent the company
is. Meaning, how well can it meet its obligations and financial leverage. (Kimmel et al., 2013). I
am specifically looking at TSLAs ability to operate over the long haul. Table 4 shows the total

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debt ratio for TSLA. The total debt ratio discloses that for every $1 that TSLA has in assets, it
has $.84 in debt. (Tesla, 2015).

TABLE 4. TSLA Total Debt Ratio

Total Debt Ratio = Total Assets-Total Equity
Total Assets

5,849,251 - 911,710 = .84

5,849,251

Debt to Assets Ratio = Total Liabilities

Total Assets
Profitability

4,879,345 = .83
5,849,251

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How well do the managers manage the companys assets and operation? For this
information I looked at four profitability ratios; profit margin, which is a percentage of sales
profit. Earnings before income tax and depreciation and amortization (EBITDA), which is the
operating cashflow before taxes. A higher margin usually signifies that there are lower expenses
compared to sales. The return on assets (ROA) tells how much profit the company makes for
every $1 in assets it owns. Finally, I measured the return on equity (ROE); to see by what percent
TSLA increased the wealth of its shareholders. (Kimmel et al., 2013). Table 5 presents the profit
numbers for TSLA. Figure 4, is the Consolidated Statements of Operations from the annual
report that I used to cross referenced the information from the income statement on yahoo
finance.
TABLE 5. TSLA Profitability Measures
Profit Margi Ratio = Net Income
Sales

(294,040) = -.09
3,198,356

EBITDA Margin = EBITDA

Sales

(183,750) + 239,931 = .02

3,198,356

Return on Assets = Net Income

Total Assets

(294,040) = -.05
5,849,251

Return on Equity = Net Income

Total Equity

(294,040) = -.32%
911,710

FIGURE 4. TSLA Consolidated Statement of Operations

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Non-Financial Factors for Investors to Consider

Corporate Governance
It is the duty of the Board of Directors to serve as a prudent fiduciary
for shareholders and to oversee the management of the Company's
business. (Tesla, 2015). These board members have implemented certain

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policies that I believe will help to reduce fraud and improve internal controls
and
In chapter 7 we learned about the importance of the separation of
duties and having internal auditors. TSLA has implemented an audit
committee. One of their responsibilities is to ensure that the lead audit
partner and the audit review partner be rotated every five (5) years as is
required by SEC rules. Another aspect I like is the transparency in
communication. The board makes it available for stockholders to the board
with inquiries regarding, internal controls, accounting principles, comments
etc. (Tesla, 2015). This is important to shareholders because any news of
fraud, waste, abuse, misleading account information etc., can cause their
stock prices to fall.
Customer Satisfaction
According to Ingram (2013), the model S has received 99 out of 100 in customer
satisfaction rating. The areas surveyed were price, performance, reliability, comfort, enjoyment,
etc. The car also received a five star crash test rating. Telsa also host a service center customer
satisfaction forum on their website where customers are able to see the conversations of each
others experiences. (Tesla, 2015). As a growing company, car sales are important because the
driving force in creating revenue. As TSLA carry on with building out its infrastructure, its
important to keep meeting sales and earnings target. Since TSLA is a growth company, the
shareholders will benefit from the rise in share prices until TSLA generate enough retained
earnings and adequate cash to declare the payment of dividends.

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Government & Politics
In January 2010, Tesla received a $465 million government guaranteed loan courtesy of
the Advanced Technology Vehicle Manufacturing program. This allowed the company to finally
build out facilities to produce batteries and electric engines on a mass scale. (Quast, 2013). This
was the beginning of millions in environmental credits and government subsidies. Tesla received
millions in several emission vehicle credits for meeting federal fuel-efficiency regulations and
were able to sell them for $150M to other companies. (Winton, 2015). They appear to be making
the most out of their environmentally friendly technology. TSLAs technology and mission
attacks the environmentally conscious consumer and investors. With this new shift in green, and
government support, investors may find this more appealing and continue to increase their
shares.
Conclusion
With all things considered, I would invest in TESLA MOTORS. This company is young
and is just getting started building its infrastructure, meeting government regulations, and
expanding its brand. TSLA is definitely revolutionizing how we reduce our carbon footprint by
inventing technology that allows us to live off the grid.

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References
Ford Motor Company. (2015). Financial Reports and Filings. Retrieved from
http://corporate.ford.com/investors/reports-and-filings/annual-reports.html#/undefined
General Motors Company. (2015). GM 2014 Form 10K filings. Retrieved from
http://www.gm.com/company/investors/sec-filings.html
History.com Staff. (2015). Nikola Tesla. Retrieved from
http://www.history.com/topics/inventions/nikola-tesla
Ingram, Anthony. (2013). Consumer Reports Says Tesla Model S Customer Satisfaction Highest.
Retrieved from
http://www.greencarreports.com/news/1088672_consumer-reports-says
tesla-model-s-customer-satisfaction-highest
Kimmel, P. D., Weygandt, J. J., & Kieso, D .E. (2013). Financial accounting: Tools for
businessdecision making (7th ed.). Danvers, MA: John Wiley & Sons, Inc.
Quast, Jon. (2013). What California's $34 Million Subsidy Means for Tesla's Future. Retrieved from

http://www.fool.com/investing/general/2013/12/23/what-californias-34-million-subsidy
means-for-tesl.aspx
Tesla Motors, Inc. (2015). Retrieved from

http://ir.teslamotors.com/secfiling.cfm?filingID=1564590
15-1031&CIK=1318605
Winton, Neil. (2015). Tesla Should Turn Off Subsidies, Wall Street Journal Europe Says. Retrieved

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from
http://www.forbes.com/sites/neilwinton/2015/02/16/tesla-should-turn-off-subsidies
wall-street-journal-europe-says/
Yahoo Finance. (2015). Tesla Motors Balance Sheet. Retrieved from
http://finance.yahoo.com/q/bs?s=TSLA+Balance+Sheet&annual
Yahoo Finance. (2015) Tesla Motors Competitor Rankings. Retrieved from
http://finance.yahoo.com/q/co?s=TSLA+Competitors
Yahoo Finance, (2015). Tesla Motors Inc Earnings Call (Q3 2015). Retrieved from
http://biz.yahoo.com/cc/5/148465.html