INTRODUCTION TO

BUSINESS FINANCE
REPORT
Industry Automobile
Founded July 1, 2003
Founder Elon Musk
CEO Elon Musk
Headquarter Austin
Texas
United States
 Financial Ratio Analysis
TESLA, INC.

Group Members:
1) Humera Memon (013-21-0065)
2) Isha Jabbar (013-21-0059)
3) Sarfaraz Memon (013-21-0061)
4) Muhammad Basit (013-21-0071)

Instructor: Sir Asim Shaikh

Subject: Introduction to Business Finance
Outline
 Brief Introduction of the Company
o History
o Current Position
o Company’s Vision
o Company’s Mission
o Company’s Products
o Company’s Competitors
 Ratios Analysis
o Comparison with Industry Average
o Interpretation
 Discussion and Conclusion
  A BRIEF INTRODUCTION
Tesla, Inc., formerly Tesla Motors, is an American company that makes
electric cars, solar panels, batteries for cars, and power storage for
homes. It was established in 2003 by American business visionaries
Martin Eberhard and Marc Tarpenning and was named after Serbian
American designer Nikola Tesla.
The goal of forming Tesla Motors was to create an electric sports car.
Tarpenning was Tesla's chief financial officer (CFO), and Eberhard was
Tesla's CEO. The company received funding from several different
sources, the most notable of which was PayPal co-founder Elon Musk,
who contributed more than $30 million to the new venture and served as
the company's chairman beginning in 2004.
The Roadster, Tesla Motors' first vehicle, was released in 2008 and was
entirely electric. It had a range of (394 kilometers) on a single charge in
company tests, which is unprecedented for a production electric car. Its
performance in additional tests was comparable to that of numerous
gasoline-powered sports cars: The Roadster could reach a top speed of
125 miles (200 kilometers) per hour and accelerate from 0 to 60 miles
(96 kilometers) per hour in less than four seconds. Carbon fiber was
used to make the lightweight car body. Since the Roadster did not have
an internal-combustion engine, it did not produce any emissions from
the tailpipe. Tesla Motors discovered that the vehicle had efficiency
ratings that were the same as getting 135 miles per gallon (57 kilometers
per liter) of gas mileage. The vehicle's electric motor was powered by
rechargeable lithium-ion cells, which are typically found in laptop
computer batteries. Notwithstanding a government tax reduction of
$7,500 for buying an electric vehicle, the Roadster's expense of
$109,000 made it an extravagance.
Eberhard joined the company's advisory board after resigning as CEO
and president of technology toward the end of 2007. In 2008, it was
made public that he had left the business, even though he was still a
shareholder. In addition, Tarpenning left the company in 2008 as vice
president of electrical engineering, overseeing the Roadster's electronic
and software system development. Musk assumed leadership. The initial
public offering of Tesla raised approximately $226 million in 2010.
To concentrate on its new Model S sedan, which was praised by
automotive critics for its performance and design, Tesla halted
production of the Roadster in 2012. It came with three different battery
options, each of which was estimated to have a range of 379 or 483
kilometers or 235 or 300 miles. The fastest battery option reached a top
speed of 130 miles (209 kilometers) per hour and went from 0 to 60
miles (96 kilometers) per hour in just over four seconds. The Model S
had its battery system underneath the floor, in contrast to the Roadster,
which carried it at the rear of the vehicle. This gave the Model S more
storage space in the back and improved its handling due to its low center
of gravity; on subsequent Tesla models, this battery placement was
utilized. The Tesla Autopilot, a type of semi-autonomous driving, was
made accessible in 2014 on the Model S (and later on different
models).In the United States and Europe, Tesla began building charging
stations known as Superchargers in 2012 with the intention of rapidly
and for free charging Tesla owners' batteries. The Model S battery pack
could also be completely replaced with later versions of those stations.
In 2015, Tesla introduced the Model X, a vehicle that was a
"crossover"—that is, it was built on a car chassis and had features of a
sport utility vehicle. The Model X had seating for up to seven people
and a maximum battery range of approximately 340 miles (547
kilometers).
To produce automobiles and batteries, Tesla began constructing massive
factories it dubbed "Gig factories. “In 2016, the first of these factories
outside of Reno, Nevada, opened. In addition to the Buffalo, New York,
and Shanghai, China, gig factories, additional gig factories were
planned.
The Model 3, a $35,000 four-door sedan with a range of up to 353 miles
(568 kilometers) and a demand for a cheaper vehicle, began production
in 2017. The majority of controls were on a 15-inch (38-cm) touchscreen
in the middle of the vehicle, which had an all-glass roof. Overtaking the
Nissan Leaf, the Model 3 became Tesla's best-selling model and the
best-selling electric vehicle ever.
Additionally, the business expanded into solar energy products. In 2015,
a line of batteries for storing solar energy-generated electricity for use in
homes and businesses was introduced. Tesla offered rooftop solar
panels, a solar roof with energy-generating tiles, and a large battery
called the Powerwall to store the generated power for use when the sun
was not shining or as a backup in the event of a power outage. In 2016,
Tesla bought the solar panel company Solar City. The name of the
company was changed to Tesla, Inc. in 2017 to reflect that it no longer
only sold cars.
Musk tweeted several times about going private with Tesla the following
year, claiming to have secured funding. The Securities and Exchange
Commission (SEC) of the United States indicted him for securities fraud
in September 2018 on the grounds that his tweets were "false and
misleading. After Musk reportedly threatened to resign, Tesla's board
rejected the SEC's proposed settlement later that month. However, news
of the rejected deal sent Tesla's stock plunging, and the board quickly
agreed to a less generous settlement in which Musk was required to step
down as chairman for at least three years and Tesla's lawyers had to
approve his tweets before they were sent. He was nevertheless permitted
to continue as CEO. Additionally, Musk and Tesla were each assessed a
$20 million fine.
Model Y the Model Y is a crossover that Tesla introduced in 2020.
Compared to the Model X, the Model Y was smaller, less expensive, and
shared many components with the Model 3. Musk expressed optimism
that the Model Y would become Tesla's best-selling model, as its sales
quickly matched those of the Model 3. A second Roadster, a semi-trailer
truck, and a pickup truck called the Cyber truck, which had a boxy,
angular design when it was first unveiled, were among the models that
Tesla announced would be available in the early 2020s.

 TESLA’S VISION
Tesla’s vision is to “create the most compelling car company of the 21st
century by driving the world’s transition to electric vehicles”

 TESLA’S MISSION
Tesla’s mission is “to accelerate the advent of sustainable transport by
bringing compelling mass-market electric cars to market as soon as
possible.” Tesla used a transitional business model as its ecosystem
grew.
 TESLA’S PRODUCTS
 Model Y
 Model 3
 Model X
 Model S
 Cyber truck
 Tesla Semi
 Tesla Roadster vehicles
 TESLA’S COMPETITORS
 BMW
 Mercedes-Benz
 Audi
 Polestar
 Lucid
 RATIO ANALYSIS

LIQUIDITY RATIOS

COMPANY’S
RATIOS FORMULA
RATIOS

Current Assets
Current Ratio Current Liabilities
1.46X

Current Assets−Inventories
Quick Ratio Current Liabilities
0.95X
INTERPRETATION: The higher the ratio is, the more capable
company is to pay off debt. However, Tesla’s company current ratio is
1.46 (equivalent to 1)which shows that Tesla can pay 1.46 times its
current liabilities from its current asset
 Asset Management Ratios

COMPANY’S
RATIOS FORMULA
RATIOS

Sales
Inventory Turnover Ratio Inventories
7.08X

INTERPRETATION: To generate sales revenue tesla’s inventory is

used roughly 7.08 times

Sales
Fixed Assets Turnover Assets ¿ 3.29X
Net ¿

INTERPRETATION: Tesla is generating 3.29X times sales from its

existing fixed assets which shows tesla is using its assets efficiently

Receiveables
Days Sales Outstanding Annual Sales/365
8 days

INTERPRETATION: Tesla will take almost 8 days to cover its sales in

account receivable

Total Assets Turnover Sales

1.13X
Ratio Total Assets

INTERPRETATION: Tesla is generating 1.13X times sales from its

total assets
 Profitability Ratios

RATIOS FORMULA COMPANY’S RATIOS

EBIT
Operating Margin Sales 16.57%
INTERPRETATION: For every one dollar of sales tesla makes profit of
16.57% before paying interest and taxes
Net Income
Profit Margin Sales 14.95%
INTERPRETATION: Tesla has a net income of $0.1495 for each dollar
of sales generated

Net Income
Return on Total Assets Total Assets 16.97%

INTERPRETATION: The Company Tesla generates 16.97% of its

earnings from its assets

Net Income
Return on Equity Common Equity 33.44%

INTERPRETATION: Tesla returns to the owners or stockholders as

a33.44 percentage of the money they have invested or retained in the
company

Basic Earning Power EBIT

14.1%
(BEP) Total Assets

INTERPRETATION: Tesla’s raw earning power of its assets before the

influence of taxes and debt is 14.1%
 Debt Management Ratios

COMPANY’S
RATIOS FORMULA
RATIOS

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 to 𝑇𝑜𝑡𝑎𝑙 Total Debt

0.06%
𝑎𝑠𝑠𝑒𝑡𝑠 Total Assets

INTERPRETATION: Tesla has 0.06%of its assets from debt

EBIT
Times Interest Earned INTEREST CHARGES
30.2X

INTERPRETATION: Tesla company has 30.2 times ability to meet its

annual interest payments from operating earning
 Ratios Tesla Ratios Industry Average
Current Ratio 1.46X
Quick Ratio 0.95X
Inventory Turnover Ratio 7.08X
Days Sales Outstanding 8
Fixed Asset Turnover 3.29X
Total Asset Turnover 1.13X
Operating Margin 16.57%
Profit Margin 14.95%
Return On Total Asset 16.97%

Return On Common Equity 33.44%

Basic Earning Power 14.1%

Total Debt To Total Assets 0.06%

Times Interest Earned 30.2X

 Discussion

Although its been the darling for many investors over the past decade, Tesla’s
(TSLA) current balance sheet and capital structure have been a cause for concern
for analysts and investors.

KEY TAKEAWAYS
During the early days of the company, Tesla relied heavily on debt to financial
expansion.
Most recently, Tesla's operations have turned positive, allowing the company to
flip its retained earnings positive.
Throughout 2021, Tesla outperformed analyst expectations regarding earnings-per-
share.
As of December 2021, Tesla's total debt and total equity are almost equal.
After a stock split in 2020, Tesla has signaled its intention to split its stock again
pending board approval.
Tesla's Beginnings
The popularity of the Tesla success story is widely known. Tesla did what the Big
Three could not: produce a quality electric vehicle that is in huge demand.

Capital Structure Debt

As an investor, we should first consider Tesla’s debt story and industry background
in the automotive industry. Auto manufacturers require huge amounts of capital to
invest in the actual manufacturing process. However, since 1800, Ford (F) is the
only auto manufacturer in the United States that has gone bankrupt.

Tesla has to fuel its expansion by leveraging debt. As of Dec. 31, 2021, Tesla
reported total liabilities of $30.5 billion. Between 2020 and 2021, the company
incurred 7% more debt. A majority of this debt is due in the short-term, as Tesla
had over $10 billions of accounts payable at the end of 2020—almost a 40%
increase from the year prior. In addition, Tesla reported over $5.7 billion of
accrued short-term liabilities, $1.4 billion of deferred revenue, and $925 million of
customer deposits for products not yet delivered.

Regarding long-term liabilities, Tesla was holding over $5 billion of long-term

debt and lease obligations at the end of 2021. In total, approximately 1/3 of the
company's debt is noncurrent while the rest is due for payment within the next 12
months.

On the asset side, Tesla was holding less than $18 billions of cash at the end of
2021. As expected, most of the company's assets are tied into long-term, illiquid
assets. Tesla's cash on hand decreased almost $2 billion from 2020 to 2021,
although the company's total current assets slightly increased.

Shareholder Equity
Between 2020 and 2021, Tesla adopted new accounting treatment for its additional
paid-in capital. The adoption of ASU 2020-06 reduced the company's additional
PIC balance by $474 million. However, the value of the company's equity still
increased over 10% over 2021.

A critical part in evaluating Tesla's capital structure relates to the company's

retained earnings. After historically investing in heavy machinery, manufacturing
space, and production efficiency, Tesla famously failed to incur a profit for years.
Now, the company is finally reaping the benefits of its long-term strategy. At the
end of 2020, Tesla's retained earnings was -$5.4 billion. At the end of 2021, Tesla's
retained earnings flipped positive to $331 million.
In 2020, Tesla announced a five-for-one stock split. The Board of Directors
approved and declared a common stock split in the form of a stock dividend. Tesla
made the decision in an effort to "make stock ownership more accessible to
employees and investors".

With share prices topping $1,000 in 2022, Tesla announced plans to potentially
incur another stock split. As of April 2022, this second stock split in company
history still needed to be approved by Tesla's board. By making shares even more
accessible, the move is expected to favorably impact Tesla's shareholder equity by
further driving investor interest in the company's stock.
Change Over Time
Tesla was carrying over $23 billion of debt, while it has raised roughly $6 billion
of equity. Fast-forwarding to 2021, the company's capital structure has completely
changed. With roughly $30 billion of total liabilities and $30 billion of equity, the
company's debt-to-equity ratio stood at 1.01 at the end of the year.

Another positive signal for Tesla is the company's recent profitability. In Q4 2018,
the company reported a quarterly earnings-per-share of $0.19. However, the
company's trailing 12-month EPS was -$1.14. For every dollar an investor had
invested in Tesla, they'd generated over $1 of loss.

20,000%
Investors that purchased Tesla shares on Jan. 1, 2012 would have gained almost
20,000% on their investment on Jan. 1, 2022.

Today, the story is different. In Q4 2021, Tesla's quarterly EPS was $2.05—a
company record. It's trailing 12-month EPS was $4.90—also a company record.
Tesla beat earning per share estimates each quarter in 2021.
In addition, company-wide profit is exceling. Tesla's Q4 2021 revenue of $17.7
billion represented almost a 65% increase from Q4 2020. The company's profit
margin of 13.1% is over 400% higher than from one year ago. Though the
company's net cash on hand has decreased, the company generated $2.61 billion of
operating income during the fourth quarter of 2021.

Conclusion
Considering all financial analysis and tesla ratio analysis, It can
be concluded that it is good to invest in Tesla, Inc.