7-2 FIN Acct

Competencies

In this project, you will demonstrate your mastery of the following competencies:

  • Analyze financial and investment decisions that add value to the organization
  • Analyze financing options to maximize investor value

Scenario

You are a financial analyst for the chosen business that you selected during your Module Two Journal assignment. Your supervisor has discovered last minute that your business’s board of directors is looking for updates on the business’s financial health. Your supervisor has asked you to write a report regarding the business’s current financial health and the available financial options for improving the business. You’ve also been asked to make recommendations as to which options the business should choose to best support its financial health. Your supervisor will then use your report to present to the business’s board of directors, whose members all have varying levels of knowledge in terms of finance.

Directions

Using the business you chose from the Project Two Business Options List (TESLA), create a report for your supervisor to share with the board of directors during their presentation. Keep in mind that your report needs to be easy for someone unfamiliar with finance to understand, as not all of the board members for your business fully understand finance.

Using Mergent Online, locate the most recent quarterly financial statements for your chosen company, and use these statements to support your analysis throughout the project. Refer to the Project Two Financial Assumptions document located in the Supporting Materials section for the assumptions you need in order to analyze the three available financial options outlined in the Financial Analysis section of the project directions.

You are encouraged to use the Project Two Financial Analyst Report template located in the What to Submit section to help complete this project.

Specifically, you must address the following:

  1. Financial Analysis: In this section of the report, you will use the most recent quarterly financial statements for your chosen business and the Project Two Financial Formulas spreadsheet (located in the What to Submit section) to calculate appropriate financial formulas for assessing the business’s financial health. You will also analyze all three available financial options for improving the business based on your calculations and the provided Project Two Financial Assumptions document.
    1. Financial Calculations: Calculate accurate financial formulas to assess the business’s current financial health. Specifically, you must calculate the following:
      • Working capital
      • Current ratio
      • Debt ratio
      • Earnings per share
      • Price/earnings ratio
      • Total asset turnover ratio
      • Financial leverage
      • Net profit margin
      • Return on assets
      • Return on equity
    2. Working Capital Management: Explain the impact of working capital management on the business’s operations. Provide examples to support your claims.
    3. Bond Investment: Analyze the risks and benefits of the business choosing to invest in a corporate bond, including the necessary ethical considerations, appropriate calculations, and examples to support your analysis.
    4. Capital Equipment: Analyze the risks and benefits of the business choosing to invest in capital equipment, including the necessary ethical considerations, appropriate calculations, and examples to support your analysis.
    5. Capital Lease: Analyze the risks and benefits of the business choosing to purchase a capital lease, including the necessary ethical considerations, appropriate calculations, and examples to support your analysis.
  2. Financial Evaluation: In this section of the report, you will now determine if the three available financial options in the Project Two Financial Assumptions document are appropriate for the business, considering the analysis you did in the first section. You will also explain financing and describe the business’s likely future performance.
    1. Financing: Explain how a business finances its operations and expansion.
    2. Bond Investment: Assess the appropriateness of a bond investment as a financing option for the business’s financial health, using your financial analysis and other financial information to your support claims.
    3. Capital Equipment: Assess the appropriateness of a capital equipment investment as a financing option for the business’s financial health, using your financial analysis and other financial information to support your claims.
    4. Capital Lease: Assess the appropriateness of a capital lease purchase as a financing option for the business’s financial health, using your financial analysis and other financial information to support your claims.
    5. Short-Term Financing: Explain how potential short-term financing sources could help the business raise needed funds for improving its financial health. Base your response on the business’s current financial information.
    6. Future Financial Considerations: Describe the business’s likely future financial performance based on its current financial well-being and risk levels. Use financial information to support your claims.
  3. Financial Recommendations: In this section of the report, you will recommend which financing option(s) are the best for the business to choose depending on its financial health.
    1. Financial Recommendation(s): Recommend the most appropriate financing option(s) based on the business’s financial health, including a rationale for why the option(s) are best.

What to Submit

To complete this project, you must submit the following:

Financial Analysis Report
Submit your completed report as a 3- to 5-page Word document with 12-point Times New Roman font, double spacing, and one-inch margins. Or, you may use the provided Project Two Financial Analyst Report Word Document template if you so choose to help you complete your report.

You will also need to submit the Excel files for your chosen business’s balance sheet, income statement, and cash flow statement from Mergent Online (https://www-mergentonline-com.ezproxy.snhu.edu/basicsearch.php ) .

Spreadsheet: Project Two Financial Formulas Spreadsheet
Use this Excel spreadsheet to complete your calculations for the project. You should have already completed parts of the spreadsheet for your Project Two Milestone assignment.

SNHU logo

FIN 320 Project Two Financial Analyst Report

[Note: To complete this template, replace the bracketed text with your own content. Remove this note before you submit your report.]

Financial Analysis, Financial Evaluation, and Financial Recommendation(s)

Financial Analysis

Financial Calculations:

Using the most current quarter’s financial statements for your chosen business and the

Financial Formulas spreadsheet, calculate the financial formulas below to assess the

business’s financial health.

Working capital:

[Write the result of the calculation and what it says about the company’s health.]

Current ratio:

[Write the result of the calculation and what it says about the company’s health.]

Debt ratio:

[Write the result of the calculation and what it says about the company’s health.]

Earnings per share:

[Write the result of the calculation and what it says about the company’s health.]

Price/earnings ratio:

[Write the result of the calculation and what it says about the company’s health.]

Total asset turnover ratio:

[Write the result of the calculation and what it says about the company’s health.]

Financial leverage:

[Write the result of the calculation and what it says about the company’s health.]

Net profit margin:

[Write the result of the calculation and what it says about the company’s health.]

Return on assets:

[Write the result of the calculation and what it says about the company’s health.]

Return on equity:

[Write the result of the calculation and what it says about the company’s health.]

Working Capital Management:

[In one paragraph, explain the impact of working capital management on the business’s operations. Provide examples to support your claims.]

Bond Investment:

[In one paragraph, analyze the risks and benefits of the business choosing to invest in a

corporate bond, including the necessary ethical considerations, appropriate calculations, and examples to support your analysis.]

Capital Equipment:

[In one paragraph, analyze the risks and benefits of the business choosing to invest in capital equipment, including the necessary ethical considerations, appropriate calculations, and examples to support your analysis.]

Capital Lease:

[In one paragraph, analyze the risks and benefits of the business choosing to purchase a capital lease, including the necessary ethical considerations, appropriate calculations, and examples to support your analysis.]

Financial Evaluation

In this section of the report, you will evaluate the three available financial options for the business and recommend which option(s) are the best for the business to choose.

1. Financing:

[In one paragraph, explain how a business finances its operations and expansion.]

Bond Investment:

[In one paragraph, write your assessment on the appropriateness of a bond investment as an option for the business’s financial health, using your financial analysis and other financial information to support your claims.]

Capital Equipment:

[In one paragraph, write your assessment on the appropriateness of a capital equipment investment as an option for the business’s financial health, using your financial analysis and other financial information to support your claims.]

Capital Lease:

[In one paragraph, write your assessment on the appropriateness of a capital lease purchase as an investment option for the business’s financial health, using your financial analysis and other financial information to support your claims.]

Short-Term Financing:

[In one paragraph, explain how potential short-term financing sources could help the business raise needed funds for improving its financial health. Base your response on the business’s current financial information.]

Future Financial Considerations:

[In one paragraph, describe the business’s likely future financial performance based on its current financial well-being and risk level. Use financial information to support your claims.]

Financial Recommendation(s)

[In 1 to 2 paragraphs, recommend the most appropriate financing option(s) based on the business’s financial health, and include a rationale for why the option(s) are the best.]

3

RATIOS

ACCOUNTING & FINANCIAL RATIOS
CURRENT RATIO (Current Assets / Current Liabilities) TOTAL ASSET TURNOVER RATIO (Total Revenue / Total Assets)
Current Assets Total Revenue
Current Liabilities ERROR:#DIV/0! Total Assets ERROR:#DIV/0!
WORKING CAPITAL (Current Assets – Current Liabilities)
: *Note to students: Be mindful of the scale being used in Mergent Online when filling this out. If a number is written as 12.53, that does not mean the total for that item is $12.53. There could be numerous zeros written after it, depending on the scale labeled above. In this example, 12.53 is actually $12,530,000. (To delete this comment, right-click on the “WORKING CAPITAL” box, then select Delete Comment from the drop-down menu.)
FINANCIAL LEVERAGE (Total Assets / Shareholder’s Equity)
Current Assets Total Assets
Current Liabilities 0 Shareholder’s Equity ERROR:#DIV/0!
DEBT RATIO (Total Liabilities / Total Assets) NET PROFIT MARGIN (Net Income / Total Revenue)
Total Liabilities Net Income
Total Assets ERROR:#DIV/0! Total Revenue ERROR:#DIV/0!
EARNINGS PER SHARE (Net Income / Weighted Average Common Shares Outstanding) RETURN ON ASSETS (Net Income / Total Assets)
Net Income Net Income
Shares Outstanding ERROR:#DIV/0! Total Assets ERROR:#DIV/0!
PRICE EARNINGS RATIO (Share Price (end of quarter / EPS) RETURN ON EQUITY (Net Income – Preferred Dividends / Shareholder’s Equity)
Stock Price NI – Pref. Div.
EPS ERROR:#DIV/0! Shareholder’s Equity ERROR:#DIV/0!

Monthly

Time Value of Money – Monthly Compounding
Rate of Return Year 1
Initial Investment Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 2
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 3
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 4
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 5
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 6
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 7
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 8
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 9
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Year 10
Month 1 2 3 4 5 6 7 8 9 10 11 12
Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Annual

Time Value of Money – Annual Compounding
Rate of Return Year 1 2 3 4 5 6 7 8 9 10
Initial Investment Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

PV

Time Value of Money – Present Value Annuity
Number of Years
Rate of Return $0.00
Payment

FV

Time Value of Money – Future Value Annuity
Number of Years
Rate of Return $0.00
Payment

PV – Lump Sum

Time Value of Money – Present Value of Lump Sum
Rate
Years $0.00
Initial Investment

FV – Lump Sum

Time Value of Money – Future Value of Lump Sum
Rate
Years $0.00
Initial Investment

NPV

Net Present Value (NPV) Calculator
Building
Initial Investment Year 1 2 3 4 5 6 7 8 9 10
Annual Cash Inflows Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Discount Rate NPV = $0 Year 11 12 13 14 15 16 17 18 19 20
Number of Years Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Salvage Value
Equipment
Initial Investment Year 1 2 3 4 5 6 7 8 9 10
Annual Cash Inflows Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Discount Rate NPV = $0 Year 11 12 13 14 15 16 17 18 19 20
Number of Years Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Salvage Value
Bonds
Initial Investment
Annual Cash Inflows
Discount Rate NPV = $0 Year 1 2 3 4 5 6 7 8 9 10
Number of Years Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Principal Returned

7

Tesla Analysis

Evelyn Aponte

March 31, 2022

Outline:

· Tesla Inc – Its business

· Importance of financial statements

· Importance of cash flow management

· Case study on cash flow management

Tesla Inc is engaged in the business of designs, development, manufacture, lease, and sale of electric vehicles, and energy generation and storage systems globally, primarily the United States and China. It also offers vehicle service centers, supercharger station, and self-driving capability. It sells its vehicles through direct and used, and offers financing and leasing options. It also offers non-warranty after-sales vehicle services, retail merchandise, and vehicle insurance. Design, manufacture, installation, sale, and leasing of solar energy generation and energy storage products, and related services is also a part of its business. For these products as well, it offers service and repairs, including warranty and various financing options to its customers. The company was founded by Jeffrey B. Straubel, Elon Reeve Musk, Martin Eberhard, and Marc Tarpenning on July 1, 2003 and is headquartered in Palo Alto, CA.

Financial statements act as a gauge to understand the health of a company. They are crucial to an entity as they serve as a tangible proof to the claim as to how a company is functioning. Its role in understanding the current financial health of an organization is well indicated in the below points:

· They offer a clear picture of profitability and financial position of an entity for a given period.

· They offer an understanding of the operational efficiency of the business.

· It helps the entity appropriately classify revenue and expenses that pertain to a particular period. When they are based on accrual concept, instead of entire receipt or payment, what effects the profitability of a period is only what accrues during that period.

· They help in taking important decisions as a clear picture of resource availability is on

· Its displays the exact values of the assets and liabilities. For instance, assets are shown at a value they actually represent by appropriately deducting depreciation.

· Whether the business is financed by equity or debt or a mix of both, financial statements present a clear picture of how the funds sourced are being utilized in the business.

· What business owes is usually known but financial statement help us understand what portion of debt is due in the near future. Similarly, of the total receivable, an entity can clearly see what can expect to receive in the near future.

· The shareholder’s equity component helps a business identify the worth of owner’s share in the entity.

· Major financial decisions like declaration of dividends can be made more effectively with the help of financial statements that show a clear picture of the reserves at the reporting date.

Cash flow management is crucial to a company’s financial health. The management needs to closely monitor and employ effective policies for cash flows. Right from collection from sales, payment for related expenses to raising capital, capital expenditure, all decisions have direct impact on a company’s credibility and performance. Cash monitoring is highly significant. This is why a separate report solely reflecting cash inflow and outflow forms part of financial statements of an entity which is named as ‘cash flow statement.’ This statement aptly tracks cash flow from operating, investing and financing activities. A user can easily understand the source of cash and where exactly it is being absorbed. A U.S. Bank conducted a study and discovered that 82% of the time, poor business cash flow management or poor understanding of cash flow contributes to the failure of a small business (Jessie Hagen, cited on the SCORE/Counselors to America’s Small Business, 2019)

A recent example of cash flow mismanagement leading to business failure is the case of Patisserie Valerie. The company operated a chain of cafes in the United Kingdom with over 200 stores. It has been a popular brand with number of cafes at prominent locations. The management failed to maintain appropriate levels of cash. The company went into administration in 2019 as the worsening cash situation forced company to undertake major accounting misstatement including concealing of overdrafts accounts of up to £10m. the profit and cash flow situation had been overstated to show a healthy financial situation which was actually false.

Mismanagement of cash flow led to an unsecured, interest-free loan from owner of £3m to help ensure that the wages are paid. As debt became due, the talks with two of its bankers failed and its debts became overdue. There had been quite a few cash injections from its equity investors as well before ultimately accepting in a stock exchange statement that it doesn’t have sufficient funding to meet its liabilities as they fall due. The funds the company could secure had only helped it pay off a section of what was overdue. It had become solely dependent on external cash injections to survive. Ultimately, the company had to close 70 of its stores. It had to cease trading of its stocks.

In case Tesla decides to further improve its financial health they can use the following short term financing options: a small business loan to finance salaries, materials, and other daily operations. Invoice financing, using unpaid invoices to get cash from a lender. Last, a line of credit in case sales become unsteady and cashflow injections are needed to throughout unpredictable times in the year to continue operations. Equity finance, issuing more shares to the public. Short term financing is a good way to increase cash quickly without long term commitments (Wood 2020). However, short term financing usually comes at higher interest rates and more frequent payments as well. I would recommend a line of credit for Tesla just in case there are turbulent times ahead caused by macroeconomic factors. Overall, Tesla seems to be a healthy company with a perhaps overvalued stock, but only time will tell.

Thus, cash can be truly called a lifeline of the business. While its mismanagement can create chaos, proper management can help a company secure further cash inflow as lenders base their decision on the financial health of a company.

Project Two

References

Ross, S. (2021, May 22). What Is a Good Debt Ratio? Investopedia. https://www.investopedia.com/ask/answers/021215/what-good-debt-ratio-and-what-bad- debt-ratio.asp#:~:text=In%20general%2C%20many%20investors%20look,more

%20difficult%20to%20borrow%20money.

CSIMarket. (n.d.). Auto & Truck Manufacturers Industry EPS Net Growth Rates. CSIMarket. https://csimarket.com/Industry/industry_growth_rates.php?epsnet&ind=404.

Murphy, C. B. (2021, May 19). Assessing a Stock’s Future With the Price-to-Earnings Ratio and PEG. Investopedia. https://www.investopedia.com/investing/use-pe-ratio-and-peg-to-tell- stocks-future/#:~:text=A%20high%20P%2FE%20could,to%20earnings%20and

%20possibly%20overvalued.&text=For%20example%2C%20a%20company

%20with,compared%20to%20the%20overall%20market.

Bloomberg. (2020, January 7). How Elon Musk Built a Tesla Factory in China in Less Than a Year. Fortune. https://fortune.com/2020/01/07/elon-musk-tesla-gigafactory-shanghai-

china-ceremony/.

Stock Dividend Screener. (n.d.). Tesla vs GM in Asset Turnover Ratio Comparison. Tesla vs GM in Asset Turnover Ratio Comparison | Cash Flow Based Dividends Stock Screener. https://stockdividendscreener.com/auto-manufacturers/tesla-vs-general-motors-asset- turnover-ratio/.

Ganti, A. (2021, May 19). What Is an Equity Multiplier? Investopedia. https://www.investopedia.com/terms/e/equitymultiplier.asp.

Wood, M. (2020, October 13). The Best Short-Term Finance Options for Business Owners. https://www.fundera.com/business-loans/guides/short-term-finance.

Mergent. (n.d.). Tesla Inc [NMS: TSLA]. Retrieved MAY 28, 2021, from https://

www.mergentonline.com/login.php

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