Question

Do you think capital structure is irrelevant? Find out the capital structure of Tesla. What is their debt situation? Are they using their debt wisely? How about their convertible bonds?

Answer 1

Capital structure is the way in which the company uses its funds for carrying out its operations. The capital structure is an important and relevant for the company as it helps the company to decide and plan how the funds which are obtained from different sources are to be used. This is needed for the proper growth of the company.

The capital structure of the company Tesla is a combination of debt and equity. The debt equity ratio of the company is 2.12. This means that the debt of the company is twice of its equity. They are relying more on debt than on equity. The debt of the company is creating a negative cash flow for the company. The negative cash flow leads to low earnings per share. This gives a negative impression in the minds of the investors as well. The company is not using its debt well. It is depending more on debt. The overuse of debt is not good for the company. The convertible bond is a good option that the investors can be provided with. The company tesla has sold its convertible bond. This is a good way of reducing debt and increasing equity.