Tesla company financial ratios PDF

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Tesla Company Group Members Dheeraj SaiKrishna 560231 Sushma Anugula 560258 Sainath Badaam 560634 Amur Kumar Rakonde 560654 Ehteshammuddin Syed 565367

Campbellsville University

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Comparison of Tesla, Inc. and NIO Motors Company Tesla is among the best innovative and inventive electric vehicle manufacturer company globally. Tesla’s capability of aligning its production with the best emerging technologies not only makes it exceptional but also gives it a considerable competitive advantage in the automotive industry. However, the developments in the technology docket and inventions has augmented competition in the automotive industry and various companies such as NIO; top competitor of Tesla, Inc., posses an immense economic threat to the company. The paper depicts a comparison of various financial ratios of Tesla, Inc. and NIO company in the financial year 2020. The values are provided in a million $. Current Ratio. Current ratio compares the current assets to current liabilities and provides the company’s capability in meeting its short-term responsibilities (Robison, 2020). It is given by: Current ratio=current assets/current liabilities Tesla, Inc. current assets amounted to $21,744 and current liabilities $13,302 (Tesla, 2020). Thus: Current ratio=21,744/13302 =1.63 Alternatively, NIO company had current assets worth $3880 and currents liabilities of $1600 (NIO,2020). Therefore: Current ratio= 3880/1600 =2.42 Hence, Tesla company with a current ratio of 1.63 indicates that it is relatively inferior in meeting its short-term liquidity as compared to NIO company with a current ratio of 2.42.

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Debt Ratio The ratio reveals the firm’s assets bought with debt (Kuhon & Lestari,2016). It is computed as: Debt ratio=Total Debt/Total Assets Tesla company had a total debt of $ 14700 and total assets amounting to $45691 (Tesla, 2020), hence a debt ratio of: 14700/45691 =0.32 On the other hand, NIO company had a total debt of $ 3880 and total assets worth $5066 (NIO,2020). Thus: Debt ratio=3880/5066 =0.77 NIO company has a relatively higher debt ratio than the Tesla company hence the company is highly leveraged since most of its assets are acquired through debt. Gross profit margin Gross profit margin shows the profitability of the company and is expressed in percentage (Zorn, Esteves, Baur & Lips, 2018). It is computed as: Gross profit margin=(Revenue-COGS)/Revenue×100 Tesla company had a revenue of $ 8771 and COGS of $6708 (Macrotrends, 2020). Therefore Gross profit margin= [(8771-6708)/8771] × 100 =23.5% NIO company revenue amounted to $ 1791 and COGS $580 (NIO, 2020). Hence: Gross profit margin= [(1791-580)/1791] ×100

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=67.61% NIO company has a higher gross profit margin value indicating that it made more profits than the Tesla company inconsiderate of the expenses. Times Interest Earned (TIE). TIE shows the company’s competence in paying off its debts (Robison, 2020). It is calculated as: TIE=Income before Interest and Taxes (EBIT)/Interest Expense Tesla’s EBIT was $809 and an interest expense worth $748 (Tesla, 2020). The company had its TIE as follows: 809/748 =1.08 NIO company had EBIT of $ -139 and interest expense of $ -16 (NIO, 2020). Therefore: TIE= -139/-16 =8.7. The high values of NIO company prove that the company is making a higher income to handle its interest responsibilities as compared to Tesla company.

Accounts Receivable Turnover. Accounts receivable turnover shows the number of times in a year the company collects cash from its clients (Kuhon & Lestari,2016). It is given by: Net Annual Credit Sales÷ [(Beginning Accounts Receivable +Ending Accounts Receivable)/2] Tesla company had net annual credit sales amounting to $11262 and average accounts receivable worth $1167 (Tesla, 2020).Thus: Accounts receivable turnover=11262/583.5

TESLA COMPANY =19.3 NIO company with net annual credit sales worth $608 and average accounts receivable of $231 (NIO, 2020) has its ratio as:

Accounts receivable turnover = 608/160.5 3.79 Tesla company has a higher accounts receivable turnover ratio, hence, the company’s capability of collecting cash from its clients is more efficient and its customers are trustworthy. Inventory Turnover The ratio describes the rate at which the company replaces its inventory in a given period (Zorn et al. 2018). It is computed as: Inventory Turnover= COGS/Average Inventory Tesla company COGS totaled to $ 6708 and had average inventory worth $4219 (Tesla, 2020). Therefore: Inventory Turnover=6708/10666 =1.59 NIO company with COGS worth $580 and average inventory of $153 (NIO, 2020) will have an inventory turnover as: 580/153 =3.79 NIO company with an inventory turnover of 3.79, higher than that of Tesla reveals that NIO has robust sales than the latter. Return on Sales

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TESLA COMPANY Return on sales measures the company’s capabilities in generating profits from its sales (Robison, 2020). It is calculated as follows: ROS=Operating profit/Net sales Tesla company had an operating profit of $ 300 and net sales worth $8771 (Tesla, 2020). Thus: ROS = 300/8771 =0.03 NIO company operating profits were $920 and net sales totaled to $1791 (NIO,2020). So, the company ROS was: 920/1791 =0.51 NIO company made more profits than the Tesla company as shown by its higher ratio. Asset Turnover. Asset turnover measures the company’s efficiency in generating profits from its assets (Kuhon & Lestari,2016). Its given by the following formulae: Asset turnover=total sales/ [(beginning assets+ ending assets)/2] Tesla company made total sales of $ 8771 and had average assets worth $ 6403 (Macrotrends, 2020). Therefore, Tesla has an asset turnover ratio of: 8771/6403 =0.73 NIO’s totals sales were $1791 and its average assets were worth $233 (NIO,2020). Hence, its asset turnover equals to: 1791/233 0.13

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The Tesla’s high asset turnover ratio indicates that the company is diligently using its assets for profitability as compared to NIO company. Return on Assets. The ratio gauges the company’s assets efficacy in generating revenue (Robison, 2020). It is given by: Return on Assets = Net Income/ total assets Tesla’s net income was $ 62597and its total assets valued $45691 (Tesla, 2020). Therefore: ROA= 62597/45691 =1.37 NIO company had a net income of $1622 and total assets worth $5070 (NIO, 2020). Therefore: ROA=1622/5070 =0.32 Tesla company has a higher ROA an implication of enhanced efficacy in generating cash from its assets.

Financial Leverage. Financial leverage shows the business’s use of debts to acquire assets (Zorn et al. 2018). It is calculated as:

Financial leverage=Total debt/shareholder's equity. Tesla company with a total debt of $ 14700 and shareholder's equity of $8212 (Tesla, 2020) has a financial leverage ratio of: 14700/8212 =1.79

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Similarly, NIO company had a total debt of $3880 and shareholder’s equity of $4619 (NIO, 2020). Therefore: Financial leverage= 3880/4619 =0.84 Tesla company has a higher financial leverage ratio an implication that the company is using debt to cater for its assets and production activities. Contrary, the lower ratio of NIO company indicates though the company is using debt to finance its operations the company is generating a relatively higher income for advancements than the Tesla, Inc.

Return on Equity The ratio reveals the company’s capability in generating revenue from its shareholder’s investments in the firm (Kuhon & Lestari,2016). It is calculated as: Return on Equity= Net Income/Shareholder’s Equity.

Tesla company net income was $38760 and its shareholder’s equity amounted to $8212 (Tesla, 2020). Hence: ROE=38760/8212

=4.72 On the other hand, NIO company net income totaled to11086 $ and shareholder’s equity $4619 (NIO, 2020). Thus, the company’s ROE is:

11086/4619

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=2.4 Tesla’s higher ROE tells that the company is generating more cash from the shareholder’s equity as compared to NIO. Discussion Company’s profitability is determined by calculation of various financial ratios which include gross profit margin, return on assets, return on equity, return on debt, among others (Fatihudin, & Mochklas,2018). Profitability refers to the company’s capacity of using its resources to create profits. From the calculations of gross profit margin NIO company is more profitable with a margin of 67.61% compared to Tesla Company with 23.5%. However, considering ROE values Tesla company generated more income than its competitor, NIO. Nevertheless, the two companies have a ROE ratio below 20% which implicates that the companies are doing well in the industry though NIO is more profitable than Tesla Motors. Company’s efficiency depicts its capability to optimally produce using the least amount of resources. Based on the values in this research Tesla, Inc. operates more efficiently by using its assets competently than NIO motors as evidenced by its higher asset turnover ratio. However, the higher inventory turnover ratio of NIO company reveals that the company’s automotive are selling faster and the demand is relatively higher (Agusta & Hati, 2018). Hence, though the Tesla company is running more efficiently than NIO the latter has a brighter future based on the inventory turnover ratio. Liquidity depicts the company’s capacity of meeting its short-term debt duties (Agusta & Hati, 2018). Grounded on the calculations in the research, NIO company with 2.42 current ratio which is higher than that of NIO which is 1.63 can efficiently pay off its short-term debts because its short-term assets are more than the short-term liabilities. However, both current ratios

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are more than one hence the companies hold more assets than the debts due in a year. Additionally, NIO has a higher interest coverage ratio than the Tesla company an indication of proficiently meeting its long-term debts as compared to Tesla. The company’s capability of paying off its long-term debts is termed as business’s solvency (Fatihudin, & Mochklas,2018). In conclusion, considering the computed values in the research it is vividly clear that there is a stiff competition between the two companies. Tesla company seems close behind NIO company which is more profitable in the research. Also, Tesla company need to be keener on its operations so as not to lose a segment of its market share to NIO which has a higher inventory turnover ratio. None the less, as the company’s vision provides, Tesla company should seek more opportunities to further expand their product line worldwide for increased profitability.

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Agusta, R. F., & Hati, S. W. (2018). Calculation of Liquidity, Solvency, and Profitability Ratio in Manufacturing Company. Journal of Applied Accounting and Taxation, 3(2), 110-116. Fatihudin, D., & Mochklas, M. (2018). How Measuring Financial Performance. International Journal of Civil Engineering and Technology (IJCIET), 6(9), 553-557. Kuhon, J. G., & Lestari, N. (2016). Calculation of Financial Ratios on PT ACE Hardware Indonesia Tbk. Journal of Applied Accounting and Taxation, 1(1), 52-58. NIO. (2020). Quarterly Results. Retrieved from https://ir.nio.com/financials/quarterly-results Macrotrends. (2020). Tesla Financial Statements 2008-2020|TSLA.Retrieved from https://www.macrotrends.net/stocks/charts/TSLA/tesla/financial-statements Robison, L. (2020). Financial Ratios. Financial Management for Small Businesses. Vol, 2(3). Tesla. (2020). 2020 Annual Reports. Retrieved from https://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_TSLA_2020.pdf Zorn, A., Esteves, M., Baur, I., & Lips, M. (2018). Financial ratios as indicators of economic sustainability: A quantitative analysis for swiss dairy farms. Sustainability, 10(8), 2942.

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The ultimate goal of any company is to maximize the value of its stakeholders. However, organizations should ensure it is using ethical practices to do so. Using unethical means does not only affect the reputation of the company but may also attract fines and penalties from the regulatory bodies. For instance, Goldman Sachs is one of the biggest firms across the globe. However, its image is tainted because of the many unethical practices it has been involved with. Goldman Sachs unethical practices came into the lime light during the 2007 – 2008 during the financial crisis. Between 2005 and 2007, Goldman Sachs issued and wrote many securities and mortgages which were backed by customers with poor credit ratings (Leslie, 2019). Goldman Sachs later admitted that it mislead its investors and was fined $5.1 billion. Although Goldman Sachs aim was to increase the value of its stakeholders, its unethical practices badly affected its reputation. References Leslie, D. (2019). Understanding artificial intelligence ethics and safety: A guide for the responsible design and implementation of AI systems in the public sector. Available at SSRN 3403301.

Hello, I have gone through your discussion post and it is quite informative. One of the most important lessons that I have come across during this week discussion is that market risks can never be eliminated no matter how much the organization diversifies. The term beta helps us to understand the investment risks in relationship to that of the market. The higher the correlation between beta and the market, the more meaningful the beta is (George, 2014). When the beta is 1.0, it means that for a change of 1% in the market, the security or individual investments would

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move by 1%. When the stocks have beta greater than one, it means that the stocks have more amplified movements and are more riskier. Before making an investment decision, it is necessary for the organization or individual to take a look at the company’s betas. A beta of 0.85 means that the securities move in the same direction as the market. References George, Andy (2014). Beta factors: How Can Be Used In The Current Situation....