Professor Robert Metzfield

Professor Robert Metzfield

FIN 3513 Section 003

Homework #3 – Tesla Motors

1. Do a high level financial analysis of Tesla by reviewing recent:

1.  Income Statements
2. Balance Sheets
3. Statements of Cash Flow

Describe the analysis you performed and what you found.

From the income statement of Tesla Motor, I could tell the sale growth of each year is significant, which is about 70% annually. However, Tesla’s net profit is always showing a negative number, because the annually-increasing R&D expenses, large amount of interest payment due to huge amount of debt, and the constant but high cost of good sold expenses. Maybe they could increase the price of the car and do more marketing instead of product development in order to start making positive profit and survive.

From the balance sheet, they are holding a lot of cash and property in their hand instead of paying the debt. For the debt part, Tesla was borrowing extra debt for about $3 billion annually, which means they are carrying a huge pressure from bank. In additional, the liquidity of Tesla is decreasing every year. If they keep negative net income, they would not able to pay the debt, even they kept $3 billion in hand.

From the statement of cash flow, both operating cash flow and investing cash flow are negative since 2013 and the cash flow from investing is increasing every year, especially the capital expenditure. Even the cash flow from operating is increasing every year and a huge number on the financing cash in-flow could not save the cash out-flow from investment.[pic 1]

1. What must Tesla do to survive?

The first thing they must to do is stopping taking more debts in order to control the huge amount of interest payment. They are public company, so they are able to issue stock. They could raise their fund through issuing stock. What’s more, I looked on Tesla’s marketing expenses compares to R & D expenses. They really underestimated the power of marketing. I think the best the way of make profit to a positive number is increasing the sale through batter marketing. At the same time, make the unearned revenue to profit.