Question

Assignment: Finance and Operations This week we look at finance and operations, and apply a bit of quantitative analysis to the effort. Your assignment is to analyze current financial ratios for a given business. 1. Think of a specific business you find interesting, i.e. Apple, UTC, Southwest Airlines, etc. 2. Search the web for that business’ “Financial Statement.” (You will find many hits for the data.) 3. Select the http://www.morningstar.com/ site offering your company’s financial statement. 4. You will now see a number of financial ratios for your company. Below is an example for Apple: http://financials.morningstar.com/ratios/r.html?t=AAPL 5. Now, define the following ratios, note the ratio for your business, and explain what the ratio means for the business moving forward: a) Return on Assets b) Return on Equity c) Return on Capital d) Gross Margin e) SG&A Margin f) Current Ratio g) Quick Ratio h) Total Debt/Equity i) Total Revenue j) Gross Profit Here are some additional resources: Apple (Return on Assets): https://ycharts.com/companies/AAPL/return_on_assets Ratios: https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/Ratios/Profitability/Quarterly-Data#Ratios-Summary Use the following guidelines: Use APA format with a title page, in-text citations and references. No abstract required. Research and cite at least 2 credible sources in APA format. Upload your assignment to the Assignment link by Sunday at 11:59 pm (EST)

Answer 1

We will choose Tesla Inc. for our case

1. Tesla Inc formerly Tesla Motors incorporated in 2003 designs, develops, manufactures and sells fully electric vehicles and energy storage systems, as well as installs, operates and maintains solar and energy storage products.

2. We look on various website for financials of Tesla Inc and choose MorningStar Website

3. For refernce to define and analyse the ratios as asked : (http://financials.morningstar.com/ratios/r.html?t=TSLA)

a) Return on Assets : Return on Assets is a profitability ratio which is defined as the ratio of Net Income to Average Total Assets

b) Return on Equity: Return on Equity is a profitability ratio which is defined as ratio of Net Income to Average Total Equity

c) Return on Capital : Return on Total Capital is also a profitability ratio which is defined as ratio of EBIT (Earnings Before Interest and Tax) to Short and Long Term Debt and Equity

d) Gross Margin : Gross margin is a company's total sales revenue minus its cost of goods sold (COGS), divided by total sales revenue, expressed as a percentage.

e) SG&A Margin: SG&A Margin is defined as Ratio of selling, general and administrative (SG&A) costs to sales (SG&A ratio)

f) Current Ratio : Current Ratio is defined as ratio of Current Assets to Current Liabilities

g) Quick Ratio : Quick Ratio is defined as ratio of cash, short term marketable investments and receivables to Current Liabilites

h) Total Debt/Equity : It is defined as Total Debt to Total Equity

i) Total Revenue : Total revenue is defined as the total receipts from sales of a given quantity of goods or services. It is the total income of a business and is calculated by multiplying the quantity of goods sold by the price of the goods

j) Gross Profit : Gross profit is sales revenues minus the cost of goods sold

Ratios for Tesla Inc. and Indication of Ratios for the company going forward :

These ratios are taken from morningstar.com as reference (http://financials.morningstar.com/ratios/r.html?t=TSLA) and we take 2017 as the base case and is also compared with previous calendar year if required

a) Return on Assets = -7.64% which is a negative number which implies assets are not able to generate the profitability to the company and one should be cautious about the company going forward

b) Return on Equity = -43.63% which is a negative number ,  When a business's return on equity is negative, it means its shareholders are losing, rather than gaining, value. This is usually a very bad sign for investors and managers try to avoid a negative return as aggressively as possible

c) Return on Capital = -11.47% A negative ROI means the investment lost money, so you have less than you would have if you had simply done nothing with your assets.

d) Gross Margin = 18.9% which has decreased year on year basis

e) SG&A Margin = 21.06% which explains our SG&A costs relative to sales are lower which is a good sign

f) Current Ratio = 0.86 which is less than 1 which is not a good sign since current liabilities are more than current assets and company doesn't have enough assets to finance its immediate liabilies, not at all a good sign

g) Quick Ratio = 0.51 which is also less than 1 which is also not a healthy sign for investor going forward

h) Total Debt/Equity = 2.22 means debt is double of that of equity . For some companies like Tesla Inc High Debt to Equity is good since of financial leverage , the concept where company uses high debt to rather than their own funds which is avavilable at costlier rate

i) Total Revenue= 11,759 USD Million which is a good sign as year on year it is rising

j) Gross Profit : Gross margin is 18.9% which has decreased on year on year basis

Going forward company has good sales number which is making company sustainable but balance sheet doesn't look that strong as judged by our Leverage ratios