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Financial Statement Analysis

Student’s Name

Institution Affiliation

Course Name

Instructor’s Name

Date
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Financial Ratio Analysis

The two companies in the same industry that will be compared to one another are TESLA and

FORD.

Current Ratio:

The current ratio is a liquidity ratio that measures a company's ability to pay short-term

obligations. The current ratio for TESLA inc was 1.38 in 2021 and 3.66 in 2020. The company

recorded a decrease in its current ratio. This suggests that the company may have difficulty

paying off its short-term liabilities. The current ratio for FORD inc was 1.20 in 2021 and 1.20 in

2020. This suggests that the company can maintain a consistent level of current assets relative to

its current liabilities. This is generally seen as a positive sign, as it indicates that the company

can meet its short-term obligations regularly.

The Acid-test ratio

The Acid-test ratio for TESLA inc was 1.08 in 2021 and 1.59 in 2020, while the Acid-test ratio

for FORD inc was 1.07 in 2021 and 1.09 in 2020. This means that TESLA inc's Acid-test ratio

improved from 1.59 in 2020 to 1.08 in 2021, while FORD inc's Acid-test ratio remained

relatively unchanged. This suggests that TESLA inc is better positioned to pay off its short-term

obligations than FORD inc.

The working capital

The working capital of TESLA inc was 7,395,000 in the year 2021, 12,469,000 in the year 2020

and FORD inc, which was 18,269,000 in the year 2021 and 19,552,000 in the year 2020. Both
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two companies recorded a positive value which suggests that the two companies can pay their

short-term obligations and can reinvest in their business and grow.

Inventory turnover

Inventory turnover is a measure of how many times a company's inventory is sold and replaced

over a period of time. Tesla's inventory turnover for 2020 was 6.07, while Ford's was 10.43.

Tesla's turnover increased to 6.99 in 2021, while Ford's decreased to 9.50. This indicates that

Tesla is selling its inventory faster than Ford. This could be due to a number of factors, such as

higher demand for Tesla's products or more efficient inventory management.

Accounts receivable turnover

The accounts receivable turnover for FORD inc was 2.48 in 2020 and 2.23 in 2021. The accounts

receivable turnover for TESLA inc was 14.17 in 2021 and 14.17 in 2021. The accounts

receivable turnover ratio measures a company's ability to collect its receivables. A higher ratio

indicates that a company can better collect its receivables faster. The accounts receivable

turnover ratio for FORD inc decreased from 2.48 in 2020 to 2.23 in 2021. This means that FORD

inc's ability to collect its receivables decreased from 2020 to 2021. TESLA inc's accounts

receivable turnover ratio remained the same at 14.17 in 2021. This means that TESLA inc's

ability to collect its receivables remained unchanged from 2020 to 2021.

Debt Ratio

The debt ratio measures the proportion of a company's debt to its overall assets. The DEBT ratio

for FORD inc is 1.13 for 2020 and 1.23 for 2021. This means that FORD inc has more debt than

TESLA inc. However, the DEBT ratio for TESLA inc is 0.49 in 2021 and 0.55 in 2021, which

means that TESLA inc is more efficient in managing its debt.

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The Times-interest-earned ratio measures a company's ability to make interest payments on its

outstanding debt.

The Times-interest-earned ratio

The Times-interest-earned ratio for TESLA inc was 2.54 in 2020 and 18.10 in 2021, and for

FORD inc was 3.52 in 2021 and 0.89 in 2020. For every $1 of interest expense, FORD earned

$3.52 in 2021 and $0.89 in 2020. TESLA's Times-interest-earned ratio improved significantly

from 2020 to 2021, while FORD's ratio worsened significantly during the same period. This

indicates that TESLA was much better at generating income to cover its interest expenses in

2021 than in 2020, while FORD was much worse at generating income to cover its interest

expenses in 2020 than in 2021.

The return on net sales

The return on net sales for Tesla was 0.06 in 2020 and 0.12 in 2021. Ford's return on net sales

was 13.91 in 2020 and 5.49 in 2021. Tesla's return on sales increased from 0.06 in 2020 to 0.12

in 2021, while Ford's return on sales decreased from 13.91 in 2020 to 5.49 in 2021. This

indicates that Tesla is more efficient in generating sales revenue, while Ford is less efficient.

Return on total assets

Tesla's return on total assets improved from 0.01 in 2020 to 0.09 in 2021. This means that for

every dollar of assets that Tesla had in 2020, they generated 1 cent in profit. In 2021, they

generated 9 cents in profit. This is a significant improvement and shows that Tesla is becoming

more efficient at using its assets to generate profit. Ford's return on total assets improved from -

0.01 in 2020 to 0.16 in 2021. This means that for every dollar of assets that Ford had in 2020,

they generated a 1-cent loss. In 2021, they generated 16 cents in profit. This is a significant
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improvement and shows that Ford is becoming more efficient at using its assets to generate

profit.

The return on common stockholders' equity (ROE)

The return on common stockholders' equity (ROE) measures how much profit a company

generates with the money that shareholders have invested. FORD's ROE was negative in 2020 (-

0.04), meaning that the company lost money for shareholders that year. In 2021, FORD's ROE

improved to 0.37, meaning that the company generated a profit for shareholders. TESLA's ROE

was positive in 2020 (0.18) and 2021 (0.03). However, TESLA's ROE declined in 2021, meaning

that the company was less profitable for shareholders in 2021 than it was in 2020.

The earnings per share

The earnings per share for FORD inc were 3.51 in 2020 and 5.26 in 2021. The earnings per share

for TESLA inc were 4.39 in 2020 and 2.30 in 2021. The earnings per share for FORD inc

increased by 49% from 2020 to 2021, while the earnings per share for TESLA inc decreased by

47% over the same period. One possible interpretation is that FORD inc is doing a better job than

TESLA inc of generating profits for its shareholders.

Price/earnings ratio

The P/E ratio for FORD inc. was 11668.70 in 2020 and 7789.81 in 2021. The P/E ratio for

TESLA inc. was 434.39 in 2020 and 227.77 in 2021. The P/E ratio for FORD inc. is significantly

higher than the P/E ratio for TESLA inc., which indicates that FORD inc. is a more expensive

stock than TESLA inc. One possible interpretation is that FORD inc. is expected to have higher

earnings growth than TESLA inc. in the future. This could be due to FORD's stronger brand

recognition and history of profitability, as well as its larger size and scale. Another interpretation
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is that investors are willing to pay more for FORD stock because they believe it is a safer

investment than TESLA stock. This could be due to FORD's more established business model

and track record and its experience dealing with cyclicality in the automotive industry.
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References

Yahoo! Finance. (2022). F [Balance Sheet]. Retrieved October 8, 2020, from

https://finance.yahoo.com/quote/F/balance-sheet?p=F

Yahoo! Finance. (2022). F [Income Statement]. Retrieved October 8, 2020, from

https://finance.yahoo.com/quote/F/balance-sheet?p=F