Financial Management Assignment

Description of Assignment: LEASE USE THE ATTACHED WORD DOCUMENT FOR THE ASSIGNMENT. COMPANY FOR THE ASSIGNMENT: TESLA Success in the business world requires participants to have a good understanding of how companies perform. This is made possible by examining the various ratios based on the financial statements. Whereas the ability to calculate ratios is important, the real value of ratios lies in the insight that can be gleaned from them. Therefore, the most important aspect – as well as the goal – of this assessment is the interpretation of ratios. Students are required to produce a 1,500 word paper (font-size 12 and line spacing of 1.5) to analyse a company of their own choosing, using ratios generated based on financial statements of a firm, as well as reports on the chosen company’s recent business performance, strategic decisions and financing decisions. 

Individual Post Course Assignment - FIN-5413 – LEM1
Course: Financial Management EMBA 2019 / 2020
Date: April 2020
Name: Knud H Pedersen
Financial Management
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Table of Contents
INTRODUCTION...............................................................................................................................................3
RATIO ANALYSIS............................................................................................................................................3
Profitability ratios..........................................................................................................................................3
Liquidity ratios..............................................................................................................................................4
Efficiency ratios............................................................................................................................................5
Solvency ratios..............................................................................................................................................6
STRATEGIC DECISIONS.................................................................................................................................7
CONCLUSION...................................................................................................................................................8
REFERENCES....................................................................................................................................................9
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Introduction
The business is required to analyze the performance for the particular period of the operations. In that,
the consideration of the various techniques which are available will be made. For that, all the information
which is available in the annual report will be taken into use. The report will be considering the position and
performance in relation to Tesla. In this the ratios will be calculated and with the help of that performance
will be evaluated and that will be further helping in making the required strategic decisions.
Ratio analysis
The information which is involved and is available is collected and is required to be analyzed. For
that ratio is the best technique as in this all the areas which are important for the company are taken into
account (Innocent et al., 2013). There is the calculation made by using the available data and with that, the
comparison among all the values is made in an adequate manner.
Profitability ratios
The business involves various operations that are performed and in that the revenue is made with the
incurring of various costs. This provides the company with the profits for which all the activities are
performed. It is considered to be the most important objective of the business and shall be properly evaluated
(Khadafi et al., 2014). The calculation is made in this respect and is represented below.
Particulars Formula 2018 2019
Operating profit margin Operating profit/sales*100 -1.81% -0.28%
Return on total assets Net profit/Total assets*100 -3.57% -2.26%
Net profit margin Net profit/sales*100 -4.95% -3.15%
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2018 2019
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
Profitability ratios
Operating profit margin
Return on total assets
Net profit margin
The calculation shows the profits which are made at different stages and in respect of different
elements. It can be noted that there are losses that are made in the business and they are continuing from the
past year. The operating profit margin is the ratio that shows the profit that is made after bearing all the
operating costs on the total sales made. There is a decline in the ratio that is made and the operating margin is
changing from -1.81% in 2018 to -0.28% in 2019 (Tesla, 2019). This change in because of the increase
which is made in the sales revenue and with that the operating losses which are made have been reduced. The
total assets which are available with the business are for the generation of profits by using them in an
adequate manner. The ratio is declining from -3.57% to -2.26% in the one year (Tesla, 2019). The investment
in the total assets has increased and with that decline is made in the losses. There is the same pattern for the
net losses which are reducing from -4.95% to -3.15% in 2019 and this is a better position for the company.
The losses which are involved are reducing and it is a positive aspect for the company as improvement is
being made.
Liquidity ratios
The company is required to manage its assets in such a manner that all the involved liabilities can be
met in the best possible manner. This will be made possible when the company will maintain a strong
liquidity position and that needs to be ascertained. There are several ratios that will be testing the ability of
the company to make timely payments and are calculated hereunder.
Particulars Formula 2018 2019
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Current
ratios
Current assets/current liabilities 0.83 1.13
Quick ratios Quick assets/current liabilities 0.52 0.80
2018 2019
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Liquidity ratios
Current ratios
Quick ratios
The current ratio and quick ratio are calculated to analyze this position and in that the current assets
and current liabilities from the financial statements are taken into use (Delen et al., 2013). The current ratio is
showing the increase from 0.83 in 2018 to 1.13 in 2019. This is a good aspect for the company as the
liquidity is increasing which will enable the company in meeting all the obligations. The rise is also noted for
the quick ratio from 0.52 to 0.80 and that is also beneficial (Tesla, 2019). The ratios are below the set
standard but the increase which is made is beneficial and will further rise.
Efficiency ratios
The sales which are made in the company depends on the efficiency with which the management
carries operations and utilize the assets which are available. There are many resources and if they are used in
the best manner then the revenue of the company is affected in a positive manner. This will be evaluated with
the various ratios which are available in this respect and are calculated.
Particulars Formula 2018 2019
Inventory turnover ratio COGS/Inventory 5.60 5.77
Account receivable turnover ratio Sales/Account receivables 22.6
1
18.56
Assets turnover ratio Sales/total assets 0.72 0.72
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2018 2019
0.00
5.00
10.00
15.00
20.00
25.00
Effeciency ratios
Inventory turnover ratio
Account receivable
turnover ratio
Assets turnover ratio
The inventory turnover is calculated and in that there is an increase which is made from 5.60 to 5.77
and this is not in the favour of the company as it shows the higher cost of goods sold for the inventory that is
maintained. There are accounts receivable in the business which arise due to credit sales and the ratio for
them has been ascertained (Xu et al., 2014). There is a decline which is noted from the 22.61 in 2018 to
18.56 in 2019 and this shows the inefficiency of the management. The rise is because of the increase in the
accounts receivable value more than the increase which is made for the sale. The assets which are available
are also used and the turnover ratio for them is derived to be same in both the years at 0.72 (Tesla, 2019).
This is due to the same proportion of increase which is made in both the sales and assets which are involved.
There is a need to improve the same by using the assets in a more effective and efficient manner.
Solvency ratios
The solvency of the business depends on the capital structure which is maintained by it and for that
the balance shall be created among the available sources. There are mainly two sources that are involved and
they comprise of debt and equity. The evaluation of them is made with the help of solvency ratios that are
present and will be used.
Particulars Formula 2018 2019
Debt equity
ratios
Total liabilities/total equity 4.76 3.96
Debt ratios Total liabilities/total assets 0.79 0.76
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2018 2019
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Solvency ratios
Debt equity ratios
Debt ratios
The debt to equity ratio has been calculated in which the balance of the debt and equity are compared
with one another. The calculation is made and from that, the ratio of 4.76 is derived in relation to the year
2018 and then for 2019, it is maintained at 3.96. There is a decline which is made but then also the balance of
liabilities is far more than the standards available and shall be controlled. The Debt Ratio is also calculated
and it shows that the liabilities in the business are 0.79 of the assets for 2018 and 0.76 portions for 2019.
There is a decline but further decrease will have to be made to improve the situation.
Strategic decisions
The ratios have been calculated and with that, there are various results that are obtained and will be
used to make the decision in relation to the financial position of the company. The profitability of the
company is highly disappointing and in that there are losses which are made. Although the decline has been
noted in the loss still the company needs to be made the proper policies by which the profits will be made
(Bei & Wijewardana, 2012). This will be made possible with the reduction of the expenses which are
involved. This is highly required as then only the profits will be available and they will be used for further
expansion.
The liquidity position of the company also needs improvement and for that, the investment will be
made in the current assets so that liabilities can be met without any hindrance. There will be new strategies
which will be used by the company so that the customers can be attracted. The main among them is to
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improve the quality and provide the services and products as per their preferences (Liang et al., 2015). This
will attract new customers and will also help in retaining existing customers. This will be possible with the
improvement in the efficiency and then raising the sales to the required level.
The solvency position of the company is improving but then also further steps will be taken to reduce
the debt balance of the company. with this the other benefits will also be availed as the expense and cost
associated with that will be declining. There will be saving of the interest which will lead to a decline in the
total expense thereby increasing the profitability of the company. The business overall needs to make the
improvement in its position which is weak and by that long-term sustainability will be ensured.
Conclusion
The complete analysis has been made in respect of Tesla and in that use of ratios is made. The
information is utilized in an effective manner and by those various elements of the business are identified.
There are various loopholes that have been identified and the manner in which the company shall deal with
them has been considered. The overall improvement is required in the company and proper decisions that are
required to be made by the management have been provided in the presented report.
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References
Bei, Z., & Wijewardana, W. P. (2012). Financial leverage, firm growth and financial strength in the listed
companies in Sri Lanka. Procedia-Social and Behavioral Sciences, 40, 709-715.
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree
approach. Expert Systems with Applications, 40(10), 3970-3983.
Innocent, E. C., Mary, O. I., & Matthew, O. M. (2013). Financial ratio analysis as a determinant of
profitability in Nigerian pharmaceutical industry. International journal of business and
management, 8(8), 107.
Khadafi, M., Heikal, M., & Ummah, A. (2014). Influence analysis of return on assets (ROA), return on
equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against
corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of
Academic Research in Business and Social Sciences, 4(12).
Liang, D., Tsai, C. F., & Wu, H. T. (2015). The effect of feature selection on financial distress
prediction. Knowledge-Based Systems, 73, 289-297.
Tesla. (2019). Annual report 2019. https://tesla.gcs-web.com/static-files/07bfcb70-aba1-4a27-af09-
4f101678320c
Xu, W., Xiao, Z., Dang, X., Yang, D., & Yang, X. (2014). Financial ratio selection for business failure
prediction using soft set theory. Knowledge-Based Systems, 63, 59-67.
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