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Financial Analysis Assessment - Tesla

University: University of Northampton

  • Unit No: N/A
  • Level: Undergraduate/College
  • Pages: 20 / Words 4943
  • Paper Type: Assignment
  • Course Code: SBLC7010
  • Downloads: 64
Organization Selected : Tesla

INTRODUCTION

Financial analysis is referred as assessment about viability, solvent, stable along with profitability of business. It might be considered as measuring how fund could be invested in effective aspect. The main application of this analysis is to evaluate various economic trends, building long term plans for activity of business, setting financial policy and to determine companies or project for investment. Generally, it is performed by synthesizing financial numbers along with data. The financial analysis could be done by different methods such as ratio analysis, horizontal and vertical analysis. The present report will give brief discussion about Tesla and Daimler along with their comparison during 2014 to 2017. Daimler and Tesla both are in similar industry as Tesla is American energy organization and Daimler as German multinational corporation. In the similar aspect, it will articulate financial weakness and strength by stating strong company with its financial backgrounds. Further, it will reflect cash position of both organization and perform critical evaluation in same time period with specific findings.

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1. Critically contrasting and comparing financial performance of Tesla and Daimler (2014-2017)

Ratio Analysis

a. Liquidity ratio:

Daimler

Tesla

Formula

2014

2015

2016

2017

2014

2015

2016

2017

Current Assets / Current Liability

1.15

1.19

1.21

1.23

1.52

0.99

1.07

0.86

(Current asset- Inventory)/Current Liability

0.84

0.88

0.90

0.92

1.02

0.49

0.69

0.53

b. Current ratio:

Interpretation: The current ratio has been measured of both organization which is articulated in graphical and tabular format of year 2014 to 2017. It has measured capability of organization for repaying long and short term obligation with its current asset as its ideal ratio is 2:1. From the above graph, it has shown no organization is capable to accomplish ideal ratio which signifies less liquidity. While comparing these organizations, Daimler has trend of stability but Tesla was decreasing from year to year such as 1.51, 0.991, 1.074 and 0.856 from 2014 to 2017 respectively.

c. Quick Ratio:

Interpretation: Quick ratio is referred as indicator of short term liquidity along with measure of organization's capability for attaining obligations of short term with its specific liquid assets. The ideal ratio of quick ratio is of 1:1 which was only met by Tesla in year 2014 but as year passes, it decreased and faced various ups and down. The ratio of Daimler was also not according to ideal ratio, but organization was trying to meet criteria as it was 0.83 in 2014, 0.87 in 2015, 0.90 in 2016 and 0.923 in 2017. In simple words, it could be elaborated as Daimler was highly efficient to write off its current liabilities with quick assets as compared to Tesla over specified duration.

d. Profitability Ratio:

Daimler

Tesla

Particulars

2014

2015

2016

2017

2014

2015

2016

2017

Gross profit margin

(GP / Sales)*100

21.70%

21.27%

20.85%

20.89%

27.58%

22.84%

22.84%

18.90%

(ROA) return on Assets

NP / Total Assets

3.70%

3.90%

3.50%

4.10%

-5.00%

-11.00%

-3.00%

-6.80%

(ROCE)Return on capital employed

Net operating profit / Capital employed)

7.70%

9.00%

7.60%

7.70%

-5.00%

-13.60%

-4.00%

-7.80%

(ROE) Return on Equity

Profit / Net worth

15.90%

15.70%

14.70%

16.40%

-32.20%

-81.60%

-14.20%

-46.30%

e. Gross Profit ratio

Interpretation: Gross profit ratio is very important profitability ratio which signifies relationship among net sales revenue and gross profit of organization. It is considered as very interesting tool for evaluating business's operational performance. This graph is presenting ratio of duration of 2014 to 2016. It could be clearly viewed that Tesla has huge gross margin in year 2014 as compared to Daimler has 21.701. However, Tesla's gross profit margin is reducing from year to year such as 22.337, 22.81 and 18.0896 in 2015, 2016 and 2017 respectively. In the similar aspect, Daimler has maintained stability in gross profit margin in all 4 years approx to 20%.

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Return on Asset

Interpretation: It is an indicator which helps in measuring profit is earned by organization with reference to its assets. It also traces efficiency of management of organization for producing earnings through various economic resources in its statement of financial position. This graph is clearly depicting that Daimler is gaining huge return on its assets however, Tesla is getting loss from year 2014 to 2017. Daimler's return has attained huge increment from year 2014 to 2017 as 0.007 to 0.041.

Return on capital employed

Interpretation: It is also a profitability ratio which helps in measuring efficiency of companies for producing margin with context of employed capital. The above graph is representing financial ratio for tracing trend of financial ratio with efficiency aspect for profit with its capital employed. It is viewed that Daimler is generating huge returns on capital employed as compared to Tesla. Daimler is at constant aspect from 2014 to 2017 as 7% on the contrary, Tesla was getting negative returns whereas in 2015, it was facing huge losses.

Return on Equity

Interpretation: It is articulated as appropriate measure of financial performance which is extracted by dividing net profit through shareholder's equity. The graph is replicating efficiency and inefficiency of both Daimler and Tesla over year 2014 to 2017. It could be clearly articulated that Tesla is inefficient for generating return on equity as it faced huge negative return in year 2015. However, Daimler is not making sufficient returns but it is creating 15% return in year 2014 and 2015 and in 2016 and 2017 it was 14% and 16% respectively. Hence, it could be evaluated that Daimler is getting positive return in this specified duration (Return on Equity, 2018).

Efficiency ratio

Daimler

Tesla

Particulars

Formula

2014

2015

2016

2017

2014

2015

2016

2017

Asset Turnover Ratio

Net sales / Average total asset

(in times)

0.73

0.74

0.67

0.66

0.77

0.58

0.46

0.46

Inventory turnover ratio

COGS / Average stock

(In times)

5.32

5.27

4.94

5.09

3.58

2.80

3.23

4.40

Stock turnover ratio

(Closing inventory / COGS)*365

(in days)

74.89

73.70

76.38

72.12

150.29

149.37

139.69

86.66

Asset Turnover ratio

Interpretation: The sales value along with revenue has been measured via asset turnover ratio of Daimler and Tesla on basis of asset value. It is an efficiency indicator with objective of various assets which are deployed for generating revenue. The above table and graph are reflecting division of sales revenue by average of total assets. If ratio is 1 or more than companies are performing in effective method but in this case no organization is capable to meet level of efficiency. While comparing both entities, it had been evaluated that Daimler is generating huge return from year 2015 to 2017 but in 2014, Tesla was having ratio of 0.774 but it decreased to 0.560, 0.456, 0.53 in 2015, 2016 and 2017 respectively.

Inventory Turnover ratio

Interpretation: The ratio of inventory turnover is considered as efficiency ratio which is generally used for purpose of managing its inventory in efficient method along with proper differentiation of cost of goods sold with an average inventory of specified duration. In this ratio, usually higher is better and in this graph it has shown inventory turnover of year 2014 to 2017 of both organization. Tesla's turnover is less which shows weakness in its sales and huge inventory. Daimler has maintained its turnover ratio such as 5.32 in 2014, 5.274 in 2015, 4.93 in 2016 and 5.09 in 2017. With this analysis of inventory turnover it had been founded that Daimler has high sales and speed of company to sell its inventory with context of performance measure.

Day's Sales in Inventory

Interpretation: Days' sales in inventory is replicated for extracting number of days which are used for selling average inventory for specified duration of one year. It is clearly viewed that Tesla's graph has high amount as compared to Daimler but in this aspect lower is referred as better aspect. It could be elaborated as number of days in which inventory could be converted in liquid form and gained profit. Daimler has capability for this specified task in 75 days in 2014, 73 days in 2015, 76 days in 2016 and 72 days in 2017 which is less than Tesla's days' sales in inventory. From the above graph it could be observed that Tesla is working hard to write its inventory.

Leverage Ratio

Formula

Daimler

Tesla

2014

2015

2016

2017

2014

2015

2016

2017

Total liabilities / Total asset

0.77

0.75

0.76

0.75

0.84

0.87

0.79

0.85

Total Equity / Total Assets

0.23

0.25

0.24

0.25

0.16

0.14

0.21

0.15

Total Liabilities / Total Equity

3.34

3.06

3.19

2.99

5.41

6.43

3.77

5.76

Debt Ratio

Interpretation: The debt ratio is replicated as financial ratio which helps in measuring leverage of both organization. It could be extracted as division of total debt to total asset in decimal format. The above graph is reflecting specific proportion of asset of company is directly financed with debt. The criteria of appropriate debt is specified as 0.15 and less than this is healthy, whereas 0.20 is less preferable and more than this is considered as signal of danger and risk. It has been articulated that Tesla and Daimler are facing risk but with comparison Tesla is facing high risk in every year (Annual report of Daimler, 2017).

Equity Ratio

Interpretation: The equity ratio is considered as appropriate indicator about level of leverage of specific business entity. The specific proportion has been measured by total assets of organization are financed by equity and creditors are opposed in this scenario. If there is presence of high equity ratio then it could be interpreted that there is less risk and high financial strength so in short Daimler would be signifying less risk. However, Tesla has 0.15 in 2014, 0.13 in 2015, 0.21 in 2016 and 0.14 in 2017 as they have less assets which are financed via equity so there is high risk and deficiency in financial strength as well.

Debt equity ratio

Interpretation: The debt equity ratio is leverage ratio which is indicator of particular proportion of debt and shareholder's equity as they are directly undertaken by funding organization's assets. The above table and graph is representing proportion of capital structure of Daimler and Tesla. In this specific criteria, 1.5 or less than is best and along with this 2 is also preferable. It would be identified that debt equity ratio of Tesla is very risky as it has huge debt and less equity which is higher than 5 from year 2014 to 2017. On the contrary, Daimler is also facing risk but in comparison, it has less risk from Tesla.

Summary of Ratio analysis

2017

Parameters

Daimler

Tesla

Better

Liquidity ratio

Current Ratio

1.225

0.856

Daimler

Quick ratio

0.923

0.526

Daimler

Profitability ratio

Gross profit ratio

20.891

18.896

Daimler

Return on Asset

0.041

-0.068

Daimler

Return on capital employed

0.077

-0.078

Daimler

Return on Equity

0.164

-0.463

Daimler

Efficiency ratio

Asset Turnover Ratio

0.659

0.458

Daimler

Inventory turnover ratio

5.091 times

4.400 times

Daimler

Leverage Ratio

Days' Sales in inventory

72.119 days

86.657 days

Daimler

Debt ratio

0.75

0.852

Daimler

Equity ratio

0.25

0.148

Daimler

Debt equity ratio

2.992

5.763

Daimler

Interpretation: In nutshell, it had been identified that Daimler has attained financial strength over year 2014 to 2017 in terms of profitability, liquidity, efficiency and leverage ratio as well. It is facing risk also but it is giving profit not like Tesla which is not capable to generate returns on equity, capital employee and asset turnover as well.

Tesla's Horizontal statement of profit and loss

Mentioned in Appendix

Interpretation: The above statement is signifying horizontal analysis of profit and loss statement of year 2014 to 2017 as it has shown percentage change in its each element from previous year. The most important component of every organization is considered as sales revenue which has increment from huge proportions from year to year as it was 26.5% in 2015 and it raised to 73% in 2016. In the similar aspect, it raised but by 65.4%. In the similar aspect, its gross profit also rose by 4.8%, 73.2% and 27.8% in 2015, 2016 and 2017 respectively. Further, the next essential element is operating income which decreased in every year as company was not capable for generating margin in this specified duration.

Tesla's Horizontal statement of Balance sheet

Mentioned in Appendix

Interpretation: The horizontal statement of balance sheet has been shown over duration of 2014 to 2017. In this aspect, its current assets were decreasing in 2015 but with reference to receivable, other current asset and cash there was positive change by 124% and in same series, it raised by 4.97% in 2017. With reference to non current assets, as they were increasing year to year with huge proportion such as 99.96%, 209.45% and 34.63% in 2015, 2016 and 2017 respectively. This effect of current and non current asset is given on total assets by 38.32% in 2015, 180% in 2016 and 26.44% in 2017.

Further, with context of liabilities, its current liability was also increasing which is not good for organization if it is in huge proportion such as 106% in 2016 and in similar aspect, 33.65% and 31.74% in 2015 and 2017 respectively. The non current liabilities were increasing by 48% in 2015, 188% in 2016 and 38.56% in 2017. The most important aspect is about total equity which is beneficial for Tesla but in 2017 it decreased and however in 2015 and 2016 it rose by 19.41% and 336.46% respectively.

Tesla's Vertical statement of profit and loss

Mentioned in Appendix

Interpretation: The above statement is showing vertical analysis of income statement of Tesla where contribution of every element has been specified on its revenue. In year 2014, the gross profit was 27.5% of revenue as organization was not capable to generate net profit as it was having huge operating expenses as compared to gross profit. Further, its gross profit rose by 22.8% in 2016 and 2017 but till 2017 it was not able to generate net profit.

Tesla's Vertical statement of Balance sheet

Mentioned in Appendix

Interpretation: The above statement is showing contribution of essential element's contribution of year 2014 to 2017. The total assets comprise 54.69% as current assets and 45.31% as non current asset in year 2015. In year 2016, current asset's contribution decrease and non current asset increases by 34.50% and 65% respectively. In the similar aspect, current asset rose by 14.97% and non current asset as 72.38% in year 2017.

Daimler's Horizontal statement of profit and loss

Mentioned in Appendix

Interpretation: The above statement is showing horizontal income statement of Daimler as its increment in gross profit is not following any trend. As it is increasing but with 12.82% in 2015, 0.52% in 2016 and 7.41% in 2017. In the similar aspect, its sales revenue was also not following any trend which raised by 15.09%, 2.54% and 7.22% in 2015, 2016 and 2017 respectively. The next important element is operating income which has huge role in generating profit and business operations with increment in 32.32% in 2015 and 7.54% in 2017 but it decreased in 2016 by 3.74%. After deducting tax expense, there is extraction of net income which is in creasing in this specified duration by 21% in 2015, 1.21% in 2016 and 23.45% in 2017.

Daimler's Horizontal statement of Balance sheet

Mentioned in Appendix

Interpretation: In this statement, current assets were raised by 19.06% in 2015 followed by 11.11% in 2016 and increment with small proportion of 4.59% in 2017. In the similar aspect, its non current assets were also raised by 11.40%, 12.46% and 5.63% in 2015, 2016 and 2017 respectively. With context of current liability are raised by 15.09% then in 2016 by 9.57% and in 2017 by 3.14%. The most important component is non current liability which plays major role in every business entity as this is increased in 2015 by 9.53%, in 2016 by 16.25% and in 2017 by 3.87%. Total equities play essential role in measuring total liabilities as they are very beneficial to organization which was increasing by 22.66% in 2015, 8.19% in 2016 and 10.48% in 2017.

Daimler's Vertical statement of profit and loss

Mentioned in Appendix

Interpretation: The above statement is showing contribution of every element in income statement. Its gross profit are contributing to sales revenue by 21.70% in 2015, 21.27% in 2016 and 20.86% in 2017. Further, operating income was 7.30% in 2015, 8.39% and 7.88% of its sale revenue. This impact had affected net income which is raising by approx 5% in every year.

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Daimler's Vertical statement of Balance sheet

Mentioned in Appendix

Interpretation: The current assets and non current assets are contributing 40.68% and 41.66% respectively of its total assets in year 2015. In the similar aspect, in 2016 it was 42.29% and 57.71% and in 2017 it was about 42% and 58% of their total asset.

The current liability and non current liabilities are contributing 35.32% and 41.66% respectively of its total liabilities and equity in year 2015. In the similar aspect, in 2016 it was 35.49% and 39.84% and in 2017 it was about 34.76% and 41.39% of their total equities and liabilities.

2. Cash position

Interpretation: It is clearly articulated that Daimler's cash position is efficient as compared to Tesla (Annual report of Tesla, 2017).

CONCLUSION

From the above study it had been concluded financial analysis helps for reflecting organization's growth with proper existence for accomplishing level of profitability. It had been shown that individual organization and firms are interested for purpose of investing in business with application of various techniques of financial analysis. It is articulated from above report that Daimler is performing in efficient aspect with reference to financial analysis. In the similar aspect, it has shown percentage change with context of vertical and horizontal analysis of financial statements of year 2014 to 2017. Further, it had been researched that Tesla was performing appropriate in year 2016 but due to circumstances and complacency there was decrement in its profitability, liquidity, solvency along with high risk as well. It has been summarised that Daimler's cash position is better than compared to Tesla.

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