Tesla Motors (A): Financing Growth Case Study Solution
Financial Performance Analysis
Financial performance analysis is the process of creating a relationship between the items and balance sheet of the company in order to gain a deep understanding of company’s financial strengths and weaknesses.
Ratio Analysis:
Ratio analysis determine the financial strengths and weaknesses of the company and also reveals the performance and position of the company overtime. Exhibit-1 of the case study is used to calculate the financial ratios of the company.
Liquidity Ratios:
After analyzing the cash ratio of Tesla Motors, it could be said that the liquidity position of the company is not well because in 2013, the company’s cash ratio was 1.25 but in 2015 it decreases to 0.42, which shows that company had sufficient cash to pay out its liabilities but in 2015 the ratio shows that the liabilities are more than cash and company does not have sufficient cash to out its liabilities.
Quick ratio (acid test ratio) andcurrent ratio are also declining from 2013 to 2015, which shows that the company had enough assets to pay its debt in 2013 but now in 2015, the company’s liabilities have exceeded over assets. The recent declining trend of current and quick ratio indicates that the company has insufficientassets available to pay out its current debt in a particular financial period.
Profitability Ratios:
The company’s gross profit margin was 23%, 28% and 23% in 2013, 2014 and 2015 respectively. Although company’s net sales are increasing each year but the gross profit has irregular trend of increasing and decreasing, which shows that the company is not managing its cost of goods sold well.
Operating profit margin have also declined from 2013 to 2015, in contrast the net sales of Tesla Motors have increased from 2013 to 2015, which shows that the company spent more in expenses than it earned from its sales revenue.
Asset Turnover Ratio:
Asset turnover ratio has declined from 2013 to 2015, which indicates that Tesla Motors is not making sufficient sales as compared to the assets they have. In other words, Tesla Motor is utilizing more assets to generate $1 sale.
Debt-to-Equity Ratio:
The debt to equity ratio has been increasing from 2013 to 2015 indicating the relative proportion of equity and debt of shareholders used to finance the assets of company. The abnormal fluctuation in the debt and equity of shareholders or high debt to equity ratio indicates that the company had been aggressive in financing its growth with debt. Also, the aggressive leveraging practices are often related with high risk levels which will increase the beta of the company. For investors, the capital structure of Tesla seems to be in trouble, it should continue to grow its top-line revenue in order to provide enough confidence to its shareholders, investors and lenders, while at the same time increasing its return on assets, return on equity and profit margins.
Net Working Capital:
The net working capital has not been stable and fluctuating from 2013 to 2015, showing that the level of inventory has increased and reached $1277838; the restricted cash and marketable securities have also increased and reached $22628. Additionally, the prepared expenses have also increased in 2015. For current liabilities, the increase in account payable, differed revenues, customer deposits and accrued liabilities have increased the current liabilities. The negative net working capital in 2015 shows that the liabilities have exceeded over assets, it can also depicts the company would funds its growth in sales through borrowing.
Operating Cycle:
The performance of the management efficiency can be evaluated by operating cycles, the average time period required to make initial outlay of cash to manufacture cars, and receive cash from customers. As the operating cycle is longer as compared to prior year, which means that the company would need more cash to maintain its business operations, it would have fat margins and would require additional finance for the purpose of growing at modest pace. Additionally, the gross profit margin have been decreasing, depicting that the money proportion left over from company’s revenue is not enough after accounting for COGS.
External Analysis
External analysis has been done to examine the environment of the industry. The purpose of external analysis is know the opportunities and threats present in the industry that Tesla Motors can use for expansion, growth and profitability.
Industry Analysis
Industry analysis provides the understanding of economic fluctuations, information about the industry growth patterns and current business environment. The automotive industry is facing intense challenges globally. Tesla Motors in spite of challenges, managing to grow its business. The current trend of the industry indicates that there is high potential to growth and development in this industry. There are many existing competitors of Tesla Motors in the automotive industry such as; Ford, Nasdaq-listed, General Motors, Tata Motors, Toyota Motors and Oshkosh etc. are increasing their offerings and coming up with aggressive innovative products and capturing huge market share.
There is aggressive competition available in the industry and people are more concern about global warming as well so Tesla Motors could come up with eco-friendly vehicles. Tesla Motors must opt for the opportunities available in the market such as; global expansion, business diversification etc. to generate high profits and to support further business growth. Tesla Motors should start production of car batteries instead of outsourcing, which will reduce the overall cost of its car production.
Customer Analysis
The customer analysis has been done to understand the target market, positioning, customers’ needs and segmentation of Tesla Motors. Tesla Motors is selling selling their vehicles in premium segment (Model S and Model X) but aiming to provide affordable products in future. Tesla Motors current target customer segment includes both the genders of North America, Asia and Europe whose age ranges from 25-65. AS THE Tesla provides premium cars so it targeted customers are mostly professionals, senior managers and executives etc. with the personality of determined and ambitious.
Tesla Motors desire to have soft core and hard core loyal customers whose perception is use environmental friendly, energy efficient and cost effective products. Tesla Motors uses different marketing-mix techniques for its target customer segments. Tesla target customers are individuals anxious about global warming. In a nutshell, Tesla Motors manufactures expensive energy efficient products for upper and middle class individuals.
Evaluation of Various Valuation Methods
The goal of valuation is to determine the fair market value of the business or company if it is being sold, liquidate or bought. The companies do valuation of their company’s assets or business in order to raise debt. There are different methods available to value a company such as; discounted cash flow method, comparable transactions and market valuation multiples etc. Valuation of the companies influence the investors as well. Tesla Motors wants to raise funds through equity financing. Different professionals had done the valuation of the company and came up with different share price value. The case most likely explores the valuation made by two analysts, the one is bull investor intending to buy securities and sell them at higher price in upcoming years, and another is bearish stock investor believing the stock market would under perform or stock would go down. The evaluation of both the analyst’s valuation methods has been done below.
DCF Valuation Method
Discounted cash flow valuation method estimates the value of the company based on its projected cash flows. DCF valuation method could be considered as an income based approach. DCF valuation indicates that price of any assets must be at least equal to its future cash flows. DCF valuation could be used by investors to measure the fair price value of the share. Investor must consider the factor, which can affect the company’s performance…………..
This is just a sample partical work. Please place the order on the website to get your own originally done case solution.
How We Work?
Just email us your case materials and instructions to order@thecasesolutions.com and confirm your order by making the payment here
Related Case Solutions & Analyses:
Nonmarket Action and the International Counter-Money Laundering Act (H.R. 3886
Toyota Recalls (A): Hitting the Skids
Toward Golden Pond (B)
Fresh Start: Perus Legacy of Debt and Default (A)
Windham Negotiation (B1): Confidential Information for the Barkley Representative
Diversity At Jp Morgan Chase: Right Is Good Enough For Me (A)
Circles: Lifecycle of a New Venture
THE ESSENTIAL DRUCKER
WHAT HAPPENED TO THE DREAM
Sociology
