To a great extent, Tesla is an automotive company mainly focused on researching, designing, and selling electric vehicles and their spare parts. The key areas of Tesla’s balance sheet include liabilities and assets, which stood at $30,584,000 and $62,131,000, respectively (Jonathan & Siegfried, 2021). Therefore, it indicates that the company has no debts and can sell its properties to cater for its expenses, indicating a positive and healthy status. In addition, Tesla’s income statement’s main areas involve the total expenses of $56,289,000, the entire revenue is $67,166,000, and the net income stands at $9,160,000 (Jonathan & Siegfried, 2021). It indicates that the company makes a profit and the revenue gathered can cater to its expenses without borrowing.
For a firm to thrive, it must conduct a detailed ratio analysis, which assists in evaluating its books and obtaining an overview of its financial health. The liquidity (cash ratio and current ratio), profitability (return on equity and rotational of assets), and solvency (debts-to-assets ratio and the equity ratio) ratios selected help Tesla’s shareholders whether to continue investing. The current ratio quantifies an entity’s prowess to pay short-haul obligations.
Tesla’s current analysis for 2021 was 1.37, indicating good financial stability as the firm can refund its debts sufficiently (Macrotrends, 2022). Notably, the cash ratio is a liquidity measure showcasing the organization’s short-term charges using cash and money equivalent. Tesla’s cash ratio is 1.59, thus the reason why it is preferred by creditors, analysts, and investors, as the firm can cover its current liabilities and have some remaining earnings (Macrotrends, 2022). Therefore, the liquidity ratio analysis of Tesla Inc. indicates that the company has pragmatic financial health.
Rotational of Assets (ROA) is evaluated by dividing actual earnings by the entire properties, and the more the sales and profits are generated by Tesla, the more it amasses its assets. Currently, Tesla’s ROA stands at 9.08, showcasing positive monetary fitness (Macrotrends, 2022). The return on equity (ROE) calculates the capability of a firm to earn profits from its speculations. Tesla’s ROE is 18.19, manifesting it remains effective in manufacturing and outperforming other entities in the same market (Macrotrends, 2022). The debt-to-asset ratio measures how much of the venture is owned by creditors contrasted to the shareholder’s possessed properties. For Tesla, it is 0.53, indicating that for every $1 debt, Tesla assets are worth $2 (Macrotrends, 2022). Lastly, Tesla’s equity ratio is 0.9177, and since it is zero, the company has good financial health (Macrotrends, 2022). The solvency and profitability ratios are positive, showcasing that the company management is making good decisions to ensure the entity has more assets.
Healthy Status of Tesla Inc. and Comparison
Significantly, Tesla Inc. is heading in the right direction as the solvency, profitability, and liquidity ratios are all positive, indicating good financial health to meet its short-haul and long-term obligations without bankruptcy. In addition, from the balance sheet, the company’s assets outweigh its liabilities, indicating no financial distress as it can pay short-term debts and still have substantial earnings. By comparing Tesla and Volkswagen entities based on the ratio categories, it is clear that Tesla is more efficient than its competitor as its ratio analysis is extensively valuable and stable. Regarding the solvency ratio, Tesla’s cash flows are high, and con covers its long-term debt compared to Volkswagen, which has a high chance of defaulting on its bills.
Tesla’s profitability ratios metrics show that analysts, shareholders, and investors would prefer the company to Volkswagen due to its high capability of generating more income (Jonathan & Siegfried, 2021). Contrasted to Volkswagen, Tesla has positive solvency ratios, whereby the company can meet its long-haul debt obligations and pay its lenders. Therefore, it shows Tesla has sufficient cash flow to meet its long-term liabilities, indicating good financial health.
Jonathan, H. U. K. E., & Siegfried, P. (2021). Finance methods in the automotive sector-business agility in the age of digital disruption. International Journal of Automotive Science and Technology, 5(3), 281-288. Web.
Macrotrends. (2022). Tesla financial ratios for analysis 2009-2022. Macrotrends. Web.