Corporate Finance Assignment Of Tesla Motors Report Example
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Corporate finance is a significance section of finance which is dealing with origins of funding as well as the capital structure of any organization. Corporate finance is also manages the actions of the corporations that are done by the managers to surge the value of the corporation to its shareholders. In order to analyze the financial resources corporate finance is used like a tool to allocate of the same resources. The primary objective of the corporate finance is to increase the value of the shareholder to its possible maximum status. Corporate finance is also a procedure to determine the financial problems of any organization. In this descriptive paper the corporate finance of Tesla Motors has been discussed and analyzed to work out on few notable sections and to recommend some strategies that should be taken in order to make improvements for the company’s prospective. It is noticeable that Tesla Motors Inc is an American based automotive corporation that manufactures, designs and deals in electric automotive cars and electric vehicles’ components. The company is mainly a public firm and it trades on NASDAQ stock exchange. In order to discuss the corporate finance of Tesla Motors the corporate governance strategies, financial performance of the corporation, risk profile of the firm, capital structure choices, dividend policy of the organization, fair valuation of the firm has taken under consideration to deliver the project.
Corporate governance is one of the most interesting factors of corporate sector. The board of directors of Tesla Motors Inc. certainly has taken the aspect into serious consideration and has also set high standards for the employees and directors of the corporation (Berk and DeMarzo, 2007). For any organization it is onus of the corporation to maintain a sound and quite decent corporate governance to ensure the shareholders contribution can be returned to them in span of time. By taking the responsibility of the public Tesla Motors has specific governance guidelines to be followed for every person related to the corporation. These guidelines of Tesla Motors are subjected to modification as per the requirement of time. The board of directors’ responsibility to give the most effective performance is also determined by the corporate governance of the company. The laws and regulations are applicable to maintain the governance in a systematic manner. Many factors have certainly played its part in order to provide the best governance for the corporation and the decisions are made on basis of the governance rules and regulation that can be applicable to the directors as well. The corporate culture of the Tesla Motors Inc obviously helps to improve the corporate governance of the corporation to a high level. The ethics and the responsibilities provided to the company have also dealt with immense promises (Smart, Megginson and Gitman, 2004). The basic importance is given to make further progress in the future to acquire a high margin profit by utilizing the sources available to the company. Corporate governance of Tesla Motors also has helped to regulate the cash flow by maintain a series of decision making by the board of directors. It has to be ensured that the cash is used according to the situation to bring out the best to the automotive business of the company (Helbæk, Lindest and McLellan, 2010). The profit margin has been also governed by the managerial officers to follow the good work.
In a paper to analyze the corporate finance of Tesla motors three main observing numbers are the Annual financial statements of Tesla Motors Inc, Balance Sheet of Tesla Motors, and Cash flow of Tesla Motors. In the below section the three numbers have been showcased in order to discuss the financial performance of the Tesla Motors.
Annual financial statements of Tesla Motors Inc
Source: (Marketwatch.com, 2015)
The detailed table in the above is presented to show the four year annual financial statements of Tesla Motors Inc. The statistics presented in the chart shows the numbers of 2011, 2012, 2013 and 2014 in a parallel way to ensure the company is going on the way to improvement quarter after quarter and year after year. Sales revenue on the year on year basis is quite impressive as far as the numbers have confirmed. The Sales growth is presenting excellent figures of improvements. The numbers of gross income growth is quite impressive too that describes and increases in gross income of the company year on year basis. The investment going in the research work signifies a high amount of demand and production growth (Kim and Nofsinger, 2007). In order to represent the net income it can be showed that 2013 was so unexpected as the company’s net income has been dropped significantly but in 2014 the corporation has managed to pull it back right on track.
Next analysis can be done on the balance sheet of the company. Here in the below section the balance sheet of 2011 to 2014 has been provide to explore the numbers which are quite promising to say the least.
Balance Sheet of Tesla Motors for above mentioned financial years
Source: (inc, 2015)
The numbers for cash or equivalents have been gaining year on year basis to a significant proportion that indicates the company is making significant progress as per the finance is concerned (Ross, Westerfield and Jordan, 2000). The total cash and short term investments have been improving on year on year basis too. The total cash and short term investments for 2014 are showed a number of $ 1905.70 million. The number is obviously a huge number itself. Total current asset for the company is $ 3198.70 million. The total asset is $5849.30 million in 2014. The total liability for the company is also increasing by the time that can be seen in the chart too.
Cash flow of Tesla Motors
Source: (inc, 2015)
The cash flow of the company is also shoed in a chart to represent the situation of the past four years. In the year 2014 the net change in cash flow for the corporation is $ 1059.80 million where in the year 2013 it was $644 million only. So the increasing number of cash flow justifies the progress of Tesla Motors. Therefore it can be said that financial performance of Tesla Motors is very impressive as far as the numbers are concerned.
Source: (Gurufocus.com, 2015)
In case of according to the data presented weighted average cost of capital (WACC) is 14.86 %.
Capital structure of Tesla Motors has been tabled below.
Capital structure of Tesla Motors
Source: (Quotes.wsj.com, 2015)
As per the chart shown in the balance sheet the number for liabilities are significantly high for Tesla Motors. Therefore it can be said that Tesla Motors possibly have more financial risk in compare to the other companies of the automobile industry (Mallin, 2004). The debt to total capital ratio of the company is 73.59 percent. So it can be stated that Tesla Motors is one of the most highly weighted company as per the debt to total capital ratio percentage shows. Also it has to be mentioned the ratio number has been increased in the last financial year too. Apart from this the liabilities and the near term assets confirms that there is lack of enough liquid assets to manage the current obligations of the firm. The revenues have not been collected in the efficient manner and in case of inventories it can be seen that the Inventory Processing Period is maintained significantly at 101.94 days.
Optimality of capital structure choices
In case of capital structure there are mainly few more numbers to be discussed as well. The debt to the total equity is 291.51, the total debt to the assets is 42.54, the long term debt to equity is mentioned to 291.51 and the long term debt to total capital the number is 74.46. In case of efficiency receivables turnover is 23.20 and total asset turnover is 0.77. In order to mention the liquidity of the corporation the current ratio is 1.79 whereas the quick ratio and cash ratio are 1.26 and 1.08 respectively. In order to make the most of the capital structure the company has to make new strategies to explore a few newer projects that provide development for the company to the next level (Managerial Compensation, 2011). The procedure has to be maintained according to the financial structure provided by the firm.
In case of Tesla Motors as far as the dividend is concerned that it is quite noticeable the company has never ever declared dividends to the common stock. The company’s logic is very simple in this case. Tesla Motors intends on keeping all the earnings of future in financing the future growth of the corporation. Therefore the company has not anticipated in paying any kind of dividends in cash.
Prospects and fair valuation of the firm using a valuation model
Potential Tesla Automotive Sales Figure by 2020
The sales figure for the future looks very impressive indeed that certainly helps the net income prospective of the corporation. Other than this the company is planning to build supercharger locations in the US by 2015 that will cover the 98 % of population in the range of Superchargers. The below picture is a model presented by the Tesla Motors.
Supercharger Station in the US by 2015
Now in case of this planning made by the firm the pricing of the Tesla Motors stock can see a jump in the future. According to statistics if the corporation can able to sell 500,000 automotives at an average price of $ 66,500 per year the gross profit margin can jump up to 25 percent. Therefore the company will generate a total of $ 8.3 billion in gross profit.
Recommendations for improvement
The corporation has to make it sure that the liability can be adjusted in the ratio of capital income.
In order to achieve maximum profit the company has to bring down the risk factor ratios to a certain level.
The liquidity ratio has to be maintained in a proper manner.
The current liquid ratio, quick ratio and cash ratio can be calculated in order to make financial decisions (Monks and Minow, 2004).
Financial statements should be analyzed in order to explore new factors related to accounting and finance.
The target figures must have been revised according to the circumstances.
In order to produce maximum numbers in the balance sheet production and the demand sections must have been taken under inspection.
The risk factors have to be minimized to gain the confidence of public to make them invest in the company.
Innovative ideas have to be produced in order to decrease the production cost.
More cash can be invested in research and development section.
A professional managerial group has to be deployed in order to make decisions in case of investing in the newer projects.
Finally after analyzing and discussing several numbers and data regarding to the company’s financial statistics it can be concluded the corporate finance of the Tesla Motors Inc. has too many aspects that can be proved to be vital in making any decision. The board of directors has certainly faced several challenges in order to generate any model that can prove to be helpful in decision making. The sales figure, net income, asset value of the corporation, liabilities, debt, capital ratio, production cost, research investment have posed several challenges for the managerial officers. Some of the numbers are so impressive that it can be certainly predicted the company is going to the right way. The corporate finance of Tesla Motors provides enough evidence in support with the growth of the firm. In order to make further progress some basic changes have to be made by the managerial personnel. There are enough financial resources for Tesla Motors to be one of the best in the automotive market.
Berk, J. and DeMarzo, P. (2007). Corporate finance. Boston: Pearson Addison Wesley.
Gurufocus.com, (2015). Tesla Motors Inc (TSLA) Weighted Average Cost Of Capital (WACC). [online] Available at: http://www.gurufocus.com/term/wacc/TSLA/Weighted%2BAverage%2BCost%2BOf%2BCapital%2B%2528WACC%2529/Tesla%2BMotors%2BInc [Accessed Mar. 2015].
Helbæk, M., Lindest, S. and McLellan, B. (2010). Corporate finance. New York: McGraw-Hill.
inc, t. (2015). TESLA MOTORS INC (TSLA:NASDAQ GS): Financial Statements - Businessweek. [online] Businessweek.com. Available at: http://www.bloomberg.com/research/stocks/financials/financials.asp?ticker=TSLA&dataset=cashFlow&period=A¤cy=native [Accessed Mar. 2015].
Kim, K. and Nofsinger, J. (2007). Corporate governance. Upper Saddle River, N.J.: Pearson/Prentice Hall.
Mallin, C. (2004). Corporate governance. Oxford: Oxford University Press.
Managerial Compensation. (2011). Journal of Corporate Finance, 17(4), p.EX1.
Marketwatch.com, (2015). Tesla Motors Inc.. [online] Available at: http://www.marketwatch.com/investing/stock/tsla/financials [Accessed Mar. 2015].
Mo, C. and Doren, J. (n.d.). Advanced venture capital, 2013.
Monks, R. and Minow, N. (2004). Corporate governance. Malden, Mass.: Blackwell Pub.
Quotes.wsj.com, (2015). TSLA Financial Statements - Tesla Motors Inc. - Wall Street Journal. [online] Available at: http://quotes.wsj.com/TSLA/financials [Accessed 3 Mar. 2015].
Ross, S., Westerfield, R. and Jaffe, J. (2005). Corporate finance. Boston: McGraw-Hill/Irwin.
Ross, S., Westerfield, R. and Jordan, B. (2000). Fundamentals of corporate finance. Boston: Irwin/McGraw-Hill.
Smart, S., Megginson, W. and Gitman, L. (2004). Corporate finance. Mason, Ohio: Thomson/South-Western.
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