Analyst Report – Financial Statement Analysis for Tesla and Ford Incorporation

Posted: August 27th, 2021

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Analyst Report – Financial Statement Analysis for Tesla and Ford Incorporation

Tesla Incorporation is an automotive company based in the United States of America and is headquartered in n Palo Alto, California. The company majors in the manufacture of electric cars (Corporate Finance Institute). The electric vehicles are part of the vibrant project initiated by the Solar City subsidiary. The subsidiary has specialized in manufacturing multiple production plans in the Tesla factory manufacturing equipment units (“Tesla Motors Financial Analysis and Health Report”). The company is focused on the performance of creating the availability of the automobile and energy-oriented products. It has made plans to explore electric-based automobiles’ production through various strategic aspects defined by the business aspects. On the other hand, Ford Incorporation is an American automobile company and has its headquarters in Michigan. Founded in the year 1960, it operates on an income of over 500 million and has a net income of over 45 million. In the 1960s, Ford faced intense competition from foreign automobile companies such as Japan and Germany. The foreign cars were sold at far lower prices in the United States than the Ford automobiles. Based on this background, this paper conducts an assessment of the two companies’ financial statements over the period ending 31 Dec. 2018. The aim is to perform ratio analysis and ascertain how each company performed during the period. The main ratios utilized in the analysis include profitability, liquidity, activity ratios, and the valuation of the individual company. The methods used are a comparative analysis of secondary and analyzed financial reports using the yahoo.finance.com website and other sites cited in the subsequent discussion.

Ratio Analysis

Table 1 below is a comprehensive analysis of financial ratios for Tesla Motors and Ford Incorporation Company according to their 2018 financial statements obtained from https://finance.yahoo.com/quote/f/key-statistics/ and respective analysis.

Measures	Ratios	Tesla Motors	Ford Incorporation
Activity Ratios	Inventory Turnover	12.145	12.15
	Total Asset Turnover	0.625	0.58
	Receivables Turnover	14.322	13.25
Liquidity Ratios	Current Ratio	1.1996	1.23
	Quick Ratio	0.523	1.11
Solvency Ratios	Debt Ratio	4.2	4.29
	Total Debt to Equity Ratios	1.63	2.89
Profitability Ratios	Gross Profit Margin	20.98%	8.11%
	Return On Assets	-3.28%	3.09%
	Return On Equity	-16.95%	22.90%
	Net Profit Margin	-4.5%	2.48%
Valuation Ratios	Enterprise value (EV)	$ 409,043,000.00	$    44,113,000.00
	EV to EBITDA	112.10%	15.61%

Sources: “Tesla Income Statement 2008-2020 | TSLA.”

Sources: “Ford Motor Company (F) Valuation Measures & Financial Statistics

Table 1 compares the results of the analysis of financial statements for the two companies. The respective discussions are made in the subsequent sections.

Activity Ratios

The activity ratio is used to assess how efficient a company can utilize its assets at its disposal in generating revenues and cash equivalent. The ratios analyzed in this case include inventory turnover, total assets turnover, and receivables turnover based on the 2018 financial statements (Financial Planning & Analysis and Business Performance Management” 8). As revealed in the analysis results under Table 1, Ford Incorporation has a better turnover of 12.15 than Tesla Motors at 12.145. Thus, Ford Incorporation has high efficiency in utilizing its inventory assets in generating revenues at a high rate than Tesla Motors (Corporate Finance Institute). However, Tesla scores well when it comes to receivables and total assets turnover than Ford Motors Incorporation. Ultimately therefore, Tesla Motors is more efficient in asset utilization than Ford Motors.

Liquidity Ratios

The liquidity ratios are majorly applied when analyzing the company’s ability to repay its debts on time without requiring extra support through capital investment. Thus, ratios utilized in assessing the two companies’ liquidity capacity include the quick ratio and current ratio. The quick ratio measures the company’s ability to use its immediate assets in meeting its obligations (Financial Planning & Analysis and Business Performance Management” 7; Corporate Finance Institute). Hence, from the assessment, Tesla reports a low ability to meet its immediate obligation at 0.5 times compared to Ford Incorporation, which has the ability of 1.11 times to meet its short-term obligation. Equally, the current ratio assesses whether a given company has sufficient resources that could help cover its current liabilities. Thus, Table 1 demonstrates that Ford Incorporation has high resource capability (1.23 times) compared to Tesla Motors (1.196) to cover its current liabilities. 

Solvency Ratios

The solvency ratio is utilized in assessing a company’s real cash flow. The ratios help determine if the company can meet its obligations in the long term. In this analysis, two solvency ratios, debt ratio, and debt to equity ratios, were utilized to assess the two companies’ financial statements for ending 2018. The debt ratio determines the number of a company’s assets in debt (“Tesla Motors Financial Analysis and Health Report”). According to Table 1, Tesla Motors has a debt ratio of 4.45, which is higher than that held by Ford Incorporation at 4.29. Thus, this implies that Tesla has about 4.45% of its assets held in debt, thus reduced ability to meet long-term obligations compared to Ford Incorporation, with about 4.29% of its assets in debt. Subsequently, an examination of the debt to equity ratio reveals that Tesla scores 1.63% compare to Ford Motors Incorporation at 2.89%. Therefore, this shows that most operation activities for Ford Motors are being financed through debt (2.89%) compared to Tesla Motors (1.63%).

Profitability Ratios

Profitability ratios evaluate the company’s capability in generating income or profit based on the available resources distributed in terms of current assets, expenses, and shareholder’s equity. The ratios utilized in this case include the gross margin, return on equity, return on assets, and net profit margins. Accordingly, the assessment report in Table 1 shows that in 2018, Tesla Motors reported a 20.98% gross margin, which was higher than what was reported by Ford Motors Incorporation at 8.90% (“Ford Motor Co. (NYSE: F)”). However, Tesla Motors exhibited poor performance as reported in other metrics like the return on equity, return on assets, and overall net profit margins compared to Ford Motors (“Ford Motor Co. (NYSE: F)”). The implication in all these cases is that, although Tesla has the highest potential to generate gross profit margins, Ford Incorporation can utilize its assets and shareholder’s equity to generate income. Likewise, Ford Motors Incorporation has the highest enterprise value with high value against earnings before tax, as reported under valuation assessment (“Ford Motor Co. (NYSE: F)”). Thus, this explains why Tesla Motors reported negative results, while Ford Motors Incorporation reported positive results across the three metrics.

Conclusion

According to the analysis, the best investment choice among the companies would be Ford Motors Incorporation. This is demonstrated by its low insolvency ratio, efficient asset utilization, and stability in capital financing. The company also has the highest value, which promises stability in the market. Even though Tesla is more profitable as a company, it has not achieved the real business perspective in managing its capital basis, as shown in the huge amounts of losses it makes.

Works Cited

“F | Ford Motor Co. Financial Statements – WSJ.” The Wall Street Journal – Breaking News, Business, Financial & Economic News, World News, and Video, www.wsj.com/market-data/quotes/F/financials.

“Financial Planning & Analysis and Business Performance Management.” Financial Planning & Analysis and Performance Management, 2018, pp. 1-9.

“Ford Motor Co. (NYSE: F).” Stock Analysis on Net, www.stock-analysis-on.net/NYSE/Company/Ford-Motor-Co/Valuation/Enterprise-Value.

“Ford Motor Company (F) Valuation Measures & Financial Statistics.” Yahoo Finance – Stock Market Live, Quotes, Business & Finance News, finance.yahoo.com/quote/f/key-statistics/.

“Tesla Income Statement 2008-2020 | TSLA.” Macrotrends | The Long Term Perspective on Markets, www.macrotrends.net/stocks/charts/TSLA/tesla/income-statement.

“Tesla Motors Financial Analysis and Health Report.” The Business Ferret, 5 Oct. 2019, thebusinessferret.com/tesla-motors-financials/.

Corporate Finance Institute. “Ratio Analysis – Overview, Uses, Categories of Financial Ratios.” Corporate Finance Institute, 26 Jan.26 Jan 2020, corporatefinanceinstitute.com/resources/knowledge/finance/ratio-analysis/.”