Tesla financial analysis assignment help

Tesla Case Study – Company Analysis Assignment Help

Tesla Inc. Company Overview

Tesla, Inc. is an American electronic and clean energy company car based in California. The company produces electronic products such as electric cars, solar panels, battery energy storage and other green energy related products. Tesla as founded on 2003 by a group of engineers who wanted to prove that that electronic cars are better, quicker and faster to drive than gasoline ones. Today, Tesla builds full electric cars. In 2008, Tesla launched its first electronic powered powertrain. From there, Tesla designed the world’s first all-electric Suden from scratch- the Model-S.

Model-S has gained a substantial market share for its performance, efficiency and safety. The car acts as the world’s icon for the car of 21st century with the longest range of electronic range of electric cars. Over time, Model-S from Tesla has been improved in terms of software and architecture update to an acceleration speed of 0-60 mph with 2.8 seconds.  From 2015, the company has extended its product line with Model X, Model 3, Tesla Semi, Model Y and Cybertruck (Roberson, 2021; Tesla.com, 2018). As of March, 2020, Tesla made sales of $26 billion, the company is valued at $773 billion.

Introduction- Tesla Motors Inc.

Tesla, Inc., formally known as Telsa Motors, Inc. has become a world leading company in innovative and innovative and energy solutions. The company has been a good opportunity to learn for students in the university. Tesla Inc. cases study provides students with real life skills in opportunity analysis. Apart from the business perspective in Tesla case study, the company provides insightful information about the future of cars and environment.

According to Karamitsios (2013), the transport sector is the leading contribute of green house gases in the world. Automotive companies relies heavily on fossil fuel technology. Due to the environmental exposure caused by emission of CO2 from cars, car manufacturers are required to implement environmentally friendly technologies in their products. Electronic vehicles has been described as the most appropriate solution to the problem. Tesla Inc. is one of the companies that have prioritized use of electronic cars as main source of energy. The company has gained interests in many scholars due to its use of latest technology such as AI.

Lessons from Tesla Approach to Innovation

In a review conducted by Furr & Dyer (2020), few companies have managed to adopt new technology and innovation as Tesla. Based on the case study of Tesla, it is evident the Elon Musk is a master in building and using innovation capital to gain support. Elon Musk has not only showed success in his PayPal and Space X projects, but also showing success in the future projects. One thing about Musk is that he makes sure that he materializes his ideas by putting the ideas into physical form.

Tesla makes the car project truly unique not only in the finished product but in the architecture used to produce the electronic vehicles. Tesla has more software than the average vehicle , and which is integrated around a single central software architecture. Despite that most gas-powered cars include software component, Tesla cars has more complex architecture making it hard for them to imitate Tesla’s ability to optimize vehicle performance and update software.

Tesla uses a simple architecture of a flat pack of batteries at the base, two electronic engines for front and rear and no transition. Tesla car gives an advantage over traditional electronic car by having greater battery management efficiency, lower center of gravity and greater energy density. This means that Tesla is likely to beat out competitors trying to leverage parts of the old internal combustion architecture.

Explaining Tesco’s 2018 Financial Statement

     Explaining Tesco’s 2018 Financial Statement

Tesco balance sheet 2018

“000000” “000000” % change in respect to 2017
2018 2017
Non-Current Assets
Goodwill 2661 2717 -2.0611
PPE 18521 18108 2.28076
Investment property 100 64 56.25
Investment in joint ventures 689 739 -6.7659
Other investments 860 823 4.495747
Trade and other receivables 186 180 3.333333
Loans and advances 6885 5795 18.80932
Derivative Financial instruments 1117 1303 -14.2748
Deferred tax assets 117 707 -83.4512
31136 30436 -21.3838
Current Assets
Other investments 68 284 -76.0563
Inventories 2263 2301 -1.65146
Trade and other receivables 1482 1475 0.474576
Loans and advances to clients 4637 4166 11.30581
Derivative financial instruments 27 286 -90.5594
Current Tax Assets 12 13 -7.69231
Short Term investments 1029 2727 -62.2662
Cash and Cash equivalents 4059 3821 6.228736
Assets held for sale 149 344 -56.686
13726 15417 -276.903
Current Liabilities
Trade and other Payables -8996 -8875 1.36338
Borrowings -1479 -2560 -42.2266
Derivative Financial instruments -69 -61 13.11475
Customer and bank deposits -7812 -6687 16.82369
current tax liabilities -335 -613 -45.3507
Provisions -547 -438 24.88584
Liabilities held for sale 0 -171 -100
-19238 -19405 -131.39
Non-current Liabilities    
Trade and other payables -364 -324 12.34568
Borrowings -7142 -9433 -24.2871
Derivative Financial instruments -594 -607 -2.14168
Customer and Bank Deposits -2972 -2276 30.57996
Post-employment Obligations -3282 -6621 -50.4304
Deferred tax liabilities -91 -88 3.409091
Provisions -721 -685 5.255474
Totals -15166 -20034 -25.269
Equity
Share Capital 410 409 0.244499
Share premium 5107 5096 0.215856
All other reserves 735 601 22.29617
Retained Earnings 4228 332 1173.494
Non-controlling interest -22 -24 -8.33333
10458 6414 1187.917

 

From the balance sheet, the current assets have reduced from the year 2017-2018 by 1496 million. The main contributors to the reduction are short term investment and financial instruments. Additionally, the firm has improved its cash equivalents to 4059 million, which is a good sign of growth of Tesco. Generally, when current assets reduce, it means there is a liability offset or new assets were bought. The current liabilities have reduced by 167 million, indicating that Tesco is continuously meeting its current obligations as they fall due. The reduction in current borrowings is a good sign for the firm, especially for the going concern basis. The equity section of the firm indicates a remarkable improvement. Looking at the retained earnings, they grew by 1173 percent from the year 2017. The 4228 million retained earnings show a good trend in the profitability of the company. The long term borrowings have reduced too by 24 percent, which is a good indicator of Tesco ability to repay their loans on time. The property plant and equipment grew by 2 percent showing how Tesco is geared towards providing the best products for its customers by investing in the latest technology and equipment. Additionally, Tesco has invested in properties from the year 2017-2018 by 56 percent, which can be attributed to retained earnings of the firm. From the horizontal analysis calculations, the non-current assets of Tesco have increased from 30436 million to 31136 million. The difference is represented by a 2.3 percent increase. This is a good sign, because the more assets a company has, the better the financial position it is. In case of any eventuality, the assets might be sold to offset the company obligations.

Tesco Ratios

000000′ 000000′
Year 2018 2017
LIQUIDITY RATIOS
Current assets 13,577 15,073
Current liabilities 19,238 19,234
Current Ratio 0.705738642 0.783664344
Current assets 13,577 15,073
Inventory 2,263 2,301
11,314 12,772
Current Liabilities 19,238 19,234
Quick Ratio 0.588106872 0.664032443
FINANCIAL RISK  RATIOS
Total Liabilities 34,404 39,268
Total Assets 44,713 45,509
Debt Ratio 0.769440655 0.862862291
PROFITABILITY RATIOS
Net Income 1,208 -54
Net Sales 57,491 55,917
%Net Profit Margin 2.101198448 -0.0965717
Net Income 1,208 -54
Ending Period Assets 44,713 45,509
ROA 0.027016751 -0.00118658
Net Income 1,208 -54
Shareholders’ Equity 10,480 6,438
ROE 0.115267176 -0.0083877

 

The current ratio for 2018 is unfavorable, as the value is less than 2. The 0.71 ratio shows the company current liabilities are more than the current assets. In a situation where the ratio is less than 2, it means Tesco is overtrading and it will reach a point they will not be able to pay its liabilities as they fall due. The quick ratio is 0.56, which indicates a liquidity problem at the company. In the event the firm is in a financial crisis, selling their cash assets will not be enough to offset the liabilities owing. Assessing the financial ratios, the debt ratio shows a value of 0.77 thus, the total assets are more than total liabilities by 0.77. Also, the value indicates that Tesco is not in any financial crisis or risk, as it can comfortably pay its debts with the available total assets. The net profit margin for the year 2018 is favorable at 2.1 percent. The above value shows the company is operating at profitability levels as opposed to the year 2017 when the company made net losses of 54 million. The return on assets is not bad as 1208 million is generated using the assets of 44713 for the year 2018. A proportion of 0.03 is returned by the net income of about 1208 million. The return on shareholders’ equity is improving compared to the financial year 2017.  The shareholders invested cash is returned at the rate of 11.5 percent. In general, Tesco has improved on the way they conduct business in 2018 as indicated by the above ratios. One point to note, Tesco must try and balance how they engage in trading activities to avoid instances where overtrading take place and affect current assets and liabilities.

Tesco income statement

000000′ 000000′
2018 2017 % change in respect to 2017
Revenues 57491 55917 2.814886
cost of sales 54141 53015 2.123927
Gross Profit 3350 2902 15.43763
Administrative expenses -1633 -1995 -18.1454
Related items profits 120 110 9.090909
Operating profit 1837 1017 80.6293
Joint venture loss -6 -107 -94.3925
Finance income 98 109 -10.0917
Finance costs -631 -874 -27.8032
Profit before tax 1298 145 795.1724
Taxation -306 -87 251.7241
Profit after tax 992 58 1610.345
Discontinued operations loss/profits 216 -112 -292.857
profit/loss for the year 1208 -54 -2337.04

 

The company revenues have gone up by 2.8 percent. The 2.8 percentage growth is attributed to aggressive marketing strategies and new market ventures. The reduction in the administrative expenses by 18 percent positively contributes to the increase in profits. The finance costs entail the costs incurred by the company as a result of borrowing. The reduction in finance costs is attributed to Tesco reducing debt financing. The joint venture losses have reduced significantly, which is an indication of the good performance of the company. The loss has reduced by 94 percent compared to the year 2017. Looking at 2018 profits, the amount of 1208 million is a greater improvement, which is contributed by the increase in sales revenue, reduction in costs and an increase in profits of discontinued operations.

Reference

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. New York: John Wiley & Sons.