Question

1. How to calculate efficiency ratios or activity ratios of Tesla company for 2018 and 2019?

2. Compare both years and make some explanation regarding efficiency ratios?

3. To measure how well a Tesla manages various activities, particularly how efficiently it manages its various assets in 2018 and 2019?

(financial statement can take it from internet for years 2018 and 2019)

Answer 1

Question 1:

Efficiency Ratios, also known as Activity Ratios measure the internal efficiency of a Company in effectively utilising its assets and liabilities to generate revenue. The efficiency ratios of Tesla Company can be calculated by using the following formulas and taking the respective values of assets and liabilities from Tesla's Balance Sheet of 2018 and 2019:

1. Total Assets Turnover Ratio: Net Sales/ Total Assets; measures the effiicency of Firm to use total assets to generate sales. Higher the ratio, higher the efficiency.

2. Fixed Assets Turnover: Net Sales/ Fixed assets;  measures the effiicency of Firm to use fixed assets to generate sales. Higher the ratio, higher the efficiency.

3. Current Assets Turnover: Net Sales/ Current assets; measures the effiicency of Firm to use current assets to generate sales. Higher the ratio, higher the efficiency.

4. Working Capital Turnover Ratio: Net Sales/ Net Working Capital; measures the effiicency of Firm to use its working capital to generate sales. Higher the ratio, higher the efficiency.

a) Stock Turnover Ratio: Cost of Goods Sold/ Average Inventory; where, Average Inventory= (opening+Closing stock)/2; measures the effiicency of Firm to use fixed assets to generate sales. Higher the ratio, higher the efficiency.

b) Debtor Turnover ratio: Credit Sales/Average Debtors, where Average Debtor = (Opening+ Closing Debtor)/2 ; measures how well the Company is using its credit and collection policies to efficiently manage the receivables.

c) Creditors Turnover ratio: Credit Purchase/ Average Creditors; Average Creditor = (Opening+ Closing Creditor)/2; measures how well the Company is managing its creditors and ensuring timely payments or how well it is able to secure good credit terms/periods for payment.