Fluent Essays

Overview Working capital management is critical to an organization’s ability to meet its short-term obligations. When proposing new projects or investment ideas for corporations, it is critical to consider working capital red flags such as excess credit use by the business or a low cash balance. Managing such issues early on can help corporations acquire a competitive advantage in the marketplace. Prompt Using the business you selected for Project Two, complete the calculations for determining working capital, and describe their relevance in assessing financial health. Specifically, you must address the following rubric criteria: Financial Statement(s): Explain the various financial statement(s) needed to calculate a business’s working capital and how each financial statement is used. Provide examples to support your claims. Working Capital’s Role: Discuss how effective working capital management supports a healthy business. Working Capital Interpretation: Use the appropriate formula to calculate working capital, then discuss the business’s current financial liquidity position. For example, does the business have sufficient working capital on hand to address bills to suppliers? Will there be potential cash inflow at the end of the year? Working Capital Management Direction: Discuss the current direction of the business regarding working capital management. Keep in mind that financial statements reflect a specific moment or period of time and the value of the business’s working capital during that period. To get a better understanding of the direction in which a business is going, use the business’s balance sheets from Mergent Online to compare the business’s value today against its value from one year ago. Guidelines for Submission Your submission should be a 2 to 3-page Word document with 12-point Times New Roman font, double spacing, and one-inch margins. Any sources should be cited according to APA style. FIN 320: 2-2 Journal – Tesla 6 FIN 320: 2-2 Journal – Tesla Jennifer Moore Southern New Hampshire University September 13, 2021 TESLA Inc is an American-based Energy and Automotive firm used for developing, manufacturing, and designing of electric vehicles plus batteries (Energy-storage systems) from its headquarters in Palo Alto. The company also specializing in the maintenance, operation, and installation of renewable-based energy storage systems for both commercial and residential customers. Tesla engages in manufacturing through ventures such as Solar Roof, Powerpack and Powerwall that enables utilities, businesses, and homeowners for management of renewable energy consumption, storage, and generation plus the support of energy and automotive products. Financial statement are the quantitative reports issued by company managerial staff that gives the stakeholders important information regarding about the business performance. These statements include Stockholder’s equity, balance sheets, cash-flows, and income statements. The aim of these statements is giving pertinent data about the changes, performance, and financial position of a commercial firm for making economical decisions. The features of the statements include comparability, reliability, relevancy, and understandability. They explain the financial capability of the organization from the expenses, income, equity, liabilities, and assets. Cash flow management is the organizational process which maintains the outflow and inflow of funds. The fundamental aim is in ensuring an optimum incoming fund’s flow higher compared to the outflow to ensure that firms remain at surplus. The assessment of TESLA’s financial health relies on the information from the financial information that illustrates its business performance. This includes the analysis of the firm’s profitability using various metrics such as working capital, profit margins, return on assets and the return on the invested capital. The financial reports generated from the analysis serve as relevant tool for understanding the current and future business health. Other metrics like the stock price fluctuation to $ 383 in 2017 compared to $151 in 2016 also points to the investor’s relations that affects the business performance among its rivals. The change in revenue in Tesla seems to increase at a rate equivalent to 81% from the period between 2015-2018. The historical statistics helps in the estimation of the future cash flows with the firm’s performance in the automotive industry that explains the plausible business financing options. Figure showing the Financial Outlook of Tesla Inc from Yahoo finance (2021). The financial ratios are the quantitative metrics used to gauge how the firm performs in generating profit among its global competitors. These ratios include the return on equity, return on assets, profit margin, return on investment capital. Additionally for better analysis, this financial statement includes the debt-equity ratio and the debt ratio that helps in understanding the influence of short and long-term liability relative to the invested capital. In the balance sheet, the debt-equity ratio is 0.000209115 is very low indicating a higher financial capability of the firm to handle the long-term and short-term debts. In the manufacturing or automobile industry this is quite normal compared to financial institutions with a higher ratio because their profits rely on their ability facilitate debt with interests. The debt ratio explains the solvency ability of the company with the total liabilities relative to the cumulative assets. Tesla currently has a debt ratio of 0.000209115 which is very low indicating that it has more assets compared to the total liabilities. The firm has a return of assets equal to 8.335%, the general rule a value below 5% is more asset-comprehensive businesses while a value higher than 20% is for asset-light businesses. This value indicates the enormous financial activities present in Tesla, extensive business operations and a higher profitability. Metric Value Debt-Equity Ratio 0.000209115 Debt Ratio 0.000209115 Return on Assets 0.083354051 Gross Profit Margin 0.9727 Cash Ratio 21221609.81 Current Ratio 21221612.18 In summary, Tesla is a fast-growing firm with an innovative and youthful nature which explains the sustainable business performance. There is an overvalued share price in the firm from the Yahoo finance reports which explains the good financial health of the firm : heavy capital investments in the automobile industry gives it a higher return gain in the future. The financial ratios from the return on assets, investment capital and equity show that the firm is currently operating at a good pace. But there is a concern to improve the current and cash ratio to ensure that the working capital is at its optimum value to avoid liquidity challenges for the firm. A good alternative is to secure other plausible financing options. REFERENCES Jean, F. and Andy, S (2021). Investopedia. What is considered a High Debt-to-Equity Ratio. Accessed on 9th September 2021. Retrieved from What Is Considered a High Debt-To-Equity (D/E) Ratio? (investopedia.com) Petro, S. (2019). Business and financial analysis of Tesla Inc. Tallin University of Technology. Business Administration, Financing. Yahoo Finance (2021). Tesla, Inc- TSLA Stock Price, Quote, History & News. (2019, April 20). Accessed on September 9, 2021. Retrieved from https://finance.yahoo.com/quote/TSLA/ Cash Flow TESLA MOTORS INC Cash Flow January, 2020 February, 2020 March, 2020 April, 2020 May, 2020 June, 2020 July, 2020 August, 2020 September, 2020 October, 2020 November, 2020 December, 2020 Cash Balance at Beginning of Month $ 22,320.00 $ 4,205,563,548.85 $ 8,418,116,382.02 $ 12,637,692,505.54 $ 16,864,303,624.88 $ 21,097,961,465.04 $ 25,338,677,770.55 $ 29,586,464,305.52 $ 33,841,332,853.67 $ 38,103,295,218.35 $ 42,372,363,222.58 $ 46,648,548,709.11 Cash Flow From Operating Activities Changes in accounts receivables $ (362.50) $ (362.50) $ (362.50) $ (362.50) $ (362.50) $ (362.50) $ (362.50) $ (362.50) $ (362.50) $ (362.50) $ (362.50) $ (362.50) Changes in inventory $ 929.17 $ 929.17 $ 929.17 $ 929.17 $ 929.17 $ 929.17 $ 929.17 $ 929.17 $ 929.17 $ 929.17 $ 929.17 $ 929.17 Changes in accounts payable $ (643.58) $ (643.58) $ (643.58) $ (643.58) $ (643.58) $ (643.58) $ (643.58) $ (643.58) $ (643.58) $ (643.58) $ (643.58) $ (643.58) Changes in depreciation $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 Net Profit $ 4,206,891,281.87 $ 4,213,902,886.20 $ 4,220,926,176.54 $ 4,227,961,172.37 $ 4,235,007,893.18 $ 4,242,066,358.53 $ 4,249,136,587.99 $ 4,256,218,601.17 $ 4,263,312,417.70 $ 4,270,418,057.26 $ 4,277,535,539.55 $ 4,284,664,884.32 Total Changes in Cash from Operations $ 4,206,897,645.51 $ 4,213,909,249.84 $ 4,220,932,540.18 $ 4,227,967,536.00 $ 4,235,014,256.82 $ 4,242,072,722.17 $ 4,249,142,951.63 $ 4,256,224,964.81 $ 4,263,318,781.34 $ 4,270,424,420.90 $ 4,277,541,903.19 $ 4,284,671,247.95 Cash Flow from Investing Activities Capital Expenditures - New Equipment $ (272,925.00) $ (272,925.00) $ (272,925.00) $ (272,925.00) $ (272,925.00) $ (272,925.00) $ (272,925.00) $ (272,925.00) $ (272,925.00) $ (272,925.00) $ (272,925.00) $ (272,925.00) Capital Expenditures - New Vehicles $ (475.00) $ (475.00) $ (475.00) $ (475.00) $ (475.00) $ (475.00) $ (475.00) $ (475.00) $ (475.00) $ (475.00) $ (475.00) $ (475.00) Total Changes in Cash from Investing $ (273,400.00) $ (273,400.00) $ (273,400.00) $ (273,400.00) $ (273,400.00) $ (273,400.00) $ (273,400.00) $ (273,400.00) $ (273,400.00) $ (273,400.00) $ (273,400.00) $ (273,400.00) Cash Flow from Financing Activities Long Term Notes Payable Repayments $ (1,082,313.33) $ (1,082,313.33) $ (1,082,313.33) $ (1,082,313.33) $ (1,082,313.33) $ (1,082,313.33) $ (1,082,313.33) $ (1,082,313.33) $ (1,082,313.33) $ (1,082,313.33) $ (1,082,313.33) $ (1,082,313.33) Short Term Notes Payable Repayment $ (703.33) $ (703.33) $ (703.33) $ (703.33) $ (703.33) $ (703.33) $ (703.33) $ (703.33) $ (703.33) $ (703.33) $ (703.33) $ (703.33) Total Changes in Cash from Financing $ (1,083,016.66) $ (1,083,016.66) $ (1,083,016.66) $ (1,083,016.66) $ (1,083,016.66) $ (1,083,016.66) $ (1,083,016.66) $ (1,083,016.66) $ (1,083,016.66) $ (1,083,016.66) $ (1,083,016.66) $ (1,083,016.66) Cash Balance at End of Month $ 4,205,563,548.85 $ 8,418,116,382.02 $ 12,637,692,505.54 $ 16,864,303,624.88 $ 21,097,961,465.04 $ 25,338,677,770.55 $ 29,586,464,305.52 $ 33,841,332,853.67 $ 38,103,295,218.35 $ 42,372,363,222.58 $ 46,648,548,709.11 $ 50,931,863,540.40 Source Data Company Name: TESLA MOTORS INC Opening Day of Business (Year 1) 5/5/20 Jason Ripley: Jason Ripley: Insert start date for business Format = year-month-day so 21-1-1 for Jan 1, 2021 0 1 2 3 4 5 6 7 8 9 10 11 Closing Day of Business (Year 1) 5/5/21 Jason Ripley: Jason Ripley: Insert year end date for business in format year-month-day, so 21-12-31 for Dec 31, 2021 Calculating Depreciationi Expense: Startup Financing: Straight Line technique. Depreciation expense = (Original Cost - Salvage Value) / Number of years in life span Initial Capital invested $ 240,000.00 Item Purchase Price Salvage Value Usefull Life Depreciation Expense Additional investment from sole-proprietorship Stakeholders $ 32,123.00 Office Acccessories, Electronics e.g., Monitors, Displays $ 3,220,900.00 $ 3,105,000.00 13.00 $ 8,915.38 Investment from other Managerial Staff/ Board Members/ Board Directors $ 23,132.00 Light/ Design Equipment $ 2,370,000.00 $ 1,950,432.00 9.00 $ 46,618.67 Capital from Financial Insitutions, Grants, Loans or Government $ 12,421,000.00 Jason Ripley: Jason Ripley: This will sum the two cells below: Short Term + Long Term debt Machines $ 900,021.00 $ 700,021.00 11.00 $ 18,181.82 Short Term Debt (line of credit, notes payable etc.) $ 9,340.00 Raw materials $ 1,200,978.00 $ 1,150,987.00 14.00 $ 3,570.79 Long Term Debt Long Term Loans etc. $ 2,334,000.00 Startup Expenses: Cast for retrofit or renovating buildings or leased space? $ 4,400.00 Sales Cost of purchased Equipemnt? $ 12,332.00 Cost of purchased Furniture (tables/chairs), Public Address Systems. $ 234,223.00 Cost of Purchased Office Stationeries, Computers $ 33,240.00 Cost of Advanced Marketing & Advertising? $ 8,900.00 Cost of Operational Licenses to operate, or Legal fees $ 9,300.00 Cost of Purchased Inventory $ 12,500.00 Calculation of the Total sales: Mischallenous Costs $ 13,200.00 Cost of Purchasing/Hiring delivery vehicles $ 25,992.00 Variable 1 (covers, $sales/hr, REVPAR etc.) Variable 2 (Labor output$/cover, # hours, # rooms etc.) Total Sales Cash reserve for short term debt or emergency $ 22,320.00 72300 90000 $ 6,507,000,000.00 Outstanding Accounts Payable $ 9,223.00 Profit & Loss: Labour Costs Sales $ 6,507,000,000.00 What salaries will you pay your managers (and owners)? These are fixed costs and do not change based on revenue, you incur them Average, or expected annual growth rate for Industry sales? 2.00% even when your business is closed. Your Labour costs for the rest of your employees however are considered variable, because you Mean rate of returns & Discounts for Industry. 1.52% alter them depending on business volumes. Mean price volatility of item 2.21% Annual Salary Mean profitability of items 3.25% Manager 1 $ 10,000.00 Salaries for Executive Staff? $ 40,000.00 Manager 2 $ 10,000.00 Employee Compensation cost 10.37% Manager 3 $ 10,000.00 Monthly lease costs $ 62,962.50 Manager 4 $ 10,000.00 Office Expenses e.g., Paper rolls, pens/pencils, envelopes, printer paper etc. 8.62% Ongoing marketing budget 2.31% Industry average variable labour cost 10.37% Repairs & Maintenance (R&M) costs 2.41% Utilities expense 3.24% Rent/Lease Costs Licence and other fees include things like a business licence, a liquor licence, consulting/accounting/legal fees. 3.42% If you are not purchasing your physical location, then you will likely be leasing a space. Lease costs are typically based on square Interest expense or Mean borrowing costs. 2.41% footage (or square meters). The cost per square foot will be different depending on where you plan to open your business. Use Mean Corporate tax rate for business operation. 2.14% sources such as www.realtor.ca, or search for commercial leasing companies in the area you are planning your virtual business. Cash Flow: Accounts receivable i.e.credit one willing that affects your cash flow position. $ 4,350.00 Industry average per square foot cost $ 230.00 Total value of inventory expected at the end of the year. $ 1,350.00 Number of square feet required 3285.00 $ 755,550.00 Annual Lease Costs Additional purchases e.g maintenance, purchases: $ 250.00 Electronics e.g., Monitors, Displays $ 3,220,900.00 Calculating Interest Expense Light/ Design Equipment $ 20,200.00 Interest Rate Length of Loan (yrs) Amount Borrowed Interest Expense (per month) Machines $ 34,000.00 1% 1.00 $ 12,421,000.00 $ 10,350.83 $ (12,421,000.00) Raw Materials $ 5,700.00 Based on these numbers, your monthly payment will be: $1,092,664.16 Creditor's Payback @end of the year. $ 1,500.00 Short term debts & Notes payable balance for end of the year. $ 900.00 Income Statement TESLA MOTORS INC Income Statement for Year Ending: May 5, 2021 Income May, 2020 June, 2020 July, 2020 August, 2020 September, 2020 October, 2020 November, 2020 December, 2020 January, 2021 February, 2021 March, 2021 April, 2021 Gross Sales $ 6,507,000,000.00 $ 6,517,845,000.00 $ 6,528,708,075.00 $ 6,539,589,255.13 $ 6,550,488,570.55 $ 6,561,406,051.50 $ 6,572,341,728.25 $ 6,583,295,631.13 $ 6,594,267,790.52 $ 6,605,258,236.84 $ 6,616,267,000.56 $ 6,627,294,112.23 Less Returns & Discounts $ 98,906,400.00 $ 99,071,244.00 $ 99,236,362.74 $ 99,401,756.68 $ 99,567,426.27 $ 99,733,371.98 $ 99,899,594.27 $ 100,066,093.59 $ 100,232,870.42 $ 100,399,925.20 $ 100,567,258.41 $ 100,734,870.51 Net Sales $ 6,408,093,600.00 $ 6,418,773,756.00 $ 6,429,471,712.26 $ 6,440,187,498.45 $ 6,450,921,144.28 $ 6,461,672,679.52 $ 6,472,442,133.98 $ 6,483,229,537.54 $ 6,494,034,920.10 $ 6,504,858,311.64 $ 6,515,699,742.16 $ 6,526,559,241.73 Cost of Goods Sold: Sales within U.S $ 143,804,700.00 $ 144,044,374.50 $ 144,284,448.46 $ 144,524,922.54 $ 144,765,797.41 $ 145,007,073.74 $ 145,248,752.19 $ 145,490,833.45 $ 145,733,318.17 $ 145,976,207.03 $ 146,219,500.71 $ 146,463,199.88 Sales outside U.S $ 211,477,500.00 $ 211,829,962.50 $ 212,183,012.44 $ 212,536,650.79 $ 212,890,878.54 $ 213,245,696.67 $ 213,601,106.17 $ 213,957,108.01 $ 214,313,703.19 $ 214,670,892.70 $ 215,028,677.52 $ 215,387,058.65 Gross Profit $ 6,052,811,400.00 $ 6,062,899,419.00 $ 6,073,004,251.37 $ 6,083,125,925.12 $ 6,093,264,468.33 $ 6,103,419,909.11 $ 6,113,592,275.62 $ 6,123,781,596.08 $ 6,133,987,898.74 $ 6,144,211,211.91 $ 6,154,451,563.93 $ 6,164,708,983.20 Expenses Fixed Labour Cost (manager salaries) $ 3,333.33 $ 3,333.33 $ 3,333.33 $ 3,333.33 $ 3,333.33 $ 3,333.33 $ 3,333.33 $ 3,333.33 $ 3,333.33 $ 3,333.33 $ 3,333.33 $ 3,333.33 Variable Labour Cost $ 674,947,488.53 $ 676,072,401.01 $ 677,199,188.34 $ 678,327,853.66 $ 679,458,400.08 $ 680,590,830.74 $ 681,725,148.80 $ 682,861,357.38 $ 683,999,459.64 $ 685,139,458.74 $ 686,281,357.84 $ 687,425,160.10 Rent (Lease) $ 62,962.50 $ 62,962.50 $ 62,962.50 $ 62,962.50 $ 62,962.50 $ 62,962.50 $ 62,962.50 $ 62,962.50 $ 62,962.50 $ 62,962.50 $ 62,962.50 $ 62,962.50 Office Expenses $ 560,881,362.96 $ 561,816,165.24 $ 562,752,525.51 $ 563,690,446.39 $ 564,629,930.46 $ 565,570,980.35 $ 566,513,598.65 $ 567,457,787.98 $ 568,403,550.96 $ 569,350,890.21 $ 570,299,808.36 $ 571,250,308.04 Marketing Expense $ 150,175,816.20 $ 150,426,109.22 $ 150,676,819.41 $ 150,927,947.44 $ 151,179,494.02 $ 151,431,459.84 $ 151,683,845.61 $ 151,936,652.02 $ 152,189,879.77 $ 152,443,529.57 $ 152,697,602.12 $ 152,952,098.12 Repairs & Maintenance $ 156,925,291.08 $ 157,186,833.23 $ 157,448,811.29 $ 157,711,225.97 $ 157,974,078.02 $ 158,237,368.15 $ 158,501,097.10 $ 158,765,265.59 $ 159,029,874.37 $ 159,294,924.16 $ 159,560,415.70 $ 159,826,349.72 Utilities $ 210,921,090.16 $ 211,272,625.31 $ 211,624,746.36 $ 211,977,454.27 $ 212,330,750.02 $ 212,684,634.61 $ 213,039,109.00 $ 213,394,174.18 $ 213,749,831.14 $ 214,106,080.86 $ 214,462,924.32 $ 214,820,362.53 Licenses & Other Fees $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Total Operating Expenses $ 1,753,917,344.77 $ 1,756,840,429.85 $ 1,759,768,386.74 $ 1,762,701,223.56 $ 1,765,638,948.44 $ 1,768,581,569.53 $ 1,771,529,094.98 $ 1,774,481,532.98 $ 1,777,438,891.71 $ 1,780,401,179.37 $ 1,783,368,404.18 $ 1,786,340,574.36 EBITDA $ 4,298,894,055.23 $ 4,306,058,989.15 $ 4,313,235,864.62 $ 4,320,424,701.56 $ 4,327,625,519.89 $ 4,334,838,339.58 $ 4,342,063,180.64 $ 4,349,300,063.10 $ 4,356,549,007.03 $ 4,363,810,032.54 $ 4,371,083,159.75 $ 4,378,368,408.84 Depreciation Expense $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 $ 6,440.55 Interest $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 Taxes $ 91,996,332.78 $ 92,149,662.37 $ 92,303,247.50 $ 92,457,088.61 $ 92,611,186.13 $ 92,765,540.47 $ 92,920,152.07 $ 93,075,021.35 $ 93,230,148.75 $ 93,385,534.70 $ 93,541,179.62 $ 93,697,083.95 Net Profit $ 4,206,891,281.87 $ 4,213,902,886.20 $ 4,220,926,176.54 $ 4,227,961,172.37 $ 4,235,007,893.18 $ 4,242,066,358.53 $ 4,249,136,587.99 $ 4,256,218,601.17 $ 4,263,312,417.70 $ 4,270,418,057.26 $ 4,277,535,539.55 $ 4,284,664,884.32 Balance Sheet TESLA MOTORS INC Balance Sheet As At: May 5, 2020 May 5, 2021 Current Assets Cash and Cash Equivalents $ 22,320.00 $ 50,931,863,540.40 Accounts Receivable $ - 0 $ 4,350.00 Inventories $ 12,500.00 $ 1,350.00 Total Current Assets $ 34,820.00 $ 50,931,869,240.40 Fixed Assets Electronics e.g., Monitors, Displays $ 12,332.00 $ 3,233,232.00 Less Accumulated Depreciation $ - 0 $ 8,915.38 Light/ Design Equipment $ 234,223.00 $ 254,423.00 Less Accumulated Depreciation $ - 0 $ 46,618.67 Machines $ 33,240.00 $ 67,240.00 Less Accumulated Depreciation $ - 0 $ 18,181.82 Raw Materials $ 25,992.00 $ 31,692.00 Less Accumulated Depreciation $ - 0 $ 3,570.79 Total Fixed Assets $ 305,787.00 $ 3,509,300.34 Total Assets $ 340,607.00 $ 50,935,378,540.75 Current Liabilities Accounts Payable $ 9,223.00 $ 1,500.00 Short Term Notes Payable $ 9,340.00 $ 900.00 Total Current Liabilities $ 18,563.00 $ 2,400.00 Long-term debt Long Term Notes Payable $ 2,334,000.00 $ (10,653,759.95) Total Long Term Debt $ 2,334,000.00 $ (10,653,759.95) Total Liabilities $ 2,352,563.00 $ (10,651,359.95) Owners Equity Owners Equity/Partnership Equity/Retained Earnings $ (2,011,956.00) $ 50,946,029,900.70 Data Summary Metric Value Debt-Equity Ratio 0.0002091152 Debt Ratio 0.0002091152 Return on Assets 0.0833540513 Gross Profit Margin 0.9727 Cash Ratio 21221609.808501 Current Ratio 21221612.183501