Ford Motor Company and Tesla: Financial Statement Analysis

Background Information

Brief Overview of the Company

Tesla

Founded in 2003 in Silicon Valley by a group of engineers, Tesla Motors is focused on designing, developing, manufacturing, and selling high-performance fully electric cars that are more efficient relative to gasoline-powered cars (Tesla Motors, Inc, About Tesla, 1). Tesla is recognized as an exemplary carmaker with a focus on technology and design, as well as energy innovation.

Ford Motor Company

Henry Ford established the company in 1919 in Delaware. The company, which is one of the largest automakers, made the first acquisition of a Michigan—based firm also known as Ford Motor Company, which was incorporated to produce and sell vehicles manufactured by Henry Ford. Ford Credit provides “auto finance to customers” (Ford Motor Company, FORM 10-K Annual Report 2014, 1).

Major markets

Tesla currently concentrates across North America, Europe, and the Asia Pacific using a direct sales model.

Ford’s major markets include “North America, South America, Europe, Middle East & Africa, and the Asia Pacific” (Ford Motor Company, FORM 10-K: Annual Report 2013, 1).

Leadership team

The CEO, Elon Musk, and other Silicon Valley engineers who support a culture innovation lead Tesla. Conversely, Executive Chairman, William Clay Ford leads the company, and he is assisted by several other directors.

Major geographical/industrial segments

Ford deals in automobile manufacturing and sales. It also has a financing subsidiary referred to as Ford Credit to finance a motor vehicle purchase.

Tesla only has one line of business that manufactures and direct sales to consumers. In the recent past, the company has also ventured into power back business. The company also accepts leasing.

Industry Analysis

It is generally acknowledged that the global automotive industry is experiencing slightly stronger growth noted in demands. Nevertheless, significant uncertainty remains in the future (Hirsh et al. 1). For instance, the global markets show elements of unevenness. The industry executives and professionals are optimistic that the US market would grow with increased sales volumes. The European markets’ outlook is weak while sales in emerging economies such as Russia and South American countries could decline. The declining growth in China will also affect the largest auto market while India also demonstrates similar trends.

Major Developments

Tesla and Ford have had no merger and acquisition activities in the recent past. Regulations for gasoline vehicles have changed to account for emissions. Conversely, regulations for the electric vehicle industry and other sources of energy have not been fully developed, and they continue to evolve. Thus, Tesla and Ford face risks related to changes in new laws.

Auditors & Auditing Report

Tesla and Ford work with PricewaterhouseCoopers LLP as their independent registered public accounting firm.

The Audit Committee is made up of four directors who have all met the independence standards required by the NYSE Listed Company rules, SEC regulations, and the companies’ governance rules. The Audit Committee must work within the written charter certified by the Board of Directors.

The Audit Committee is responsible for selecting the companies’ independent registered public accounting firm, which must be ratified by shareholders during annual meetings.

Tesla and Ford management teams are responsible for internal controls of the organizations and financial reporting processes. On the other hand, PricewaterhouseCoopers LLP, as the independent registered public accounting firm, is responsible for conducting independent audits of Ford and Tesla consolidated financial data and internal control over the financial reporting and provision of opinions. The PricewaterhouseCoopers must consider the levels of conformity of those audited financial statements based on the US generally accepted accounting principles and the efficacy of both firms’ internal control over their financial reporting processes.

The companies’ Audit Committees are responsible for monitoring their firms’ financial reporting practices and then reporting t the Boards of Directors on their findings.

Management Report and Management Discussion and Analysis

Both companies recognize their major sources of revenues sales of vehicles, accessories, and parts. Ford also recognizes revenues generated from its credit department while any sales and marketing incentives are viewed as reductions to revenues.

The companies have also recognized their management opportunities, risks, and challenges. For instance, Ford has classified its costs and expenses into costs of sales and selling, administrative, and other expenses for clarity of management. On the other hand, Tesla focuses on its increasing operating expenses while providing a thorough selling, general, and administrative (SG&A) expenses that majorly relate to personnel and facilities costs at its Tesla stores, marketing, sales, executive, finance, human resources, information technology, and legal organizations, as well as litigation settlements and fees for professional and contract services.

In addition, these companies recognize a wide range of factors that affect their business, including trade policies, economic factors, profitability, sales trends for specific models, price pressures, changes in supporting industries such as the energy industry, and currency rate volatility among others.

The management teams of Ford and Tesla recognize that the applied critical accounting policies reflect significantly a larger extent of judgment and complexity, which they believe can expressively assist users to comprehend and assess the consolidated financial statements and operations.

Financial Analysis

Comparative Common Size Income Statements and Balance Sheet

Balance Sheet.

Tesla December 31, 2014 December 31, 2013
Total current assets $ 3,198,657 $ 1,265,939
Total assets $ 5,849,251 $ 2,416,930
Total current liabilities $ 2,107,166 $ 675,160
Total liabilities $ 4,879,345 $ 1,749,810
Total stockholders’ equity $ 911,710 $ 667,120
Total liabilities and stockholders’ equity $ 5,849,251 $ 2,416,930
Ford (in millions) (in millions)
Total assets $ 208,527 $ 202,179
Total liabilities $183,353 $ 175,703
Total equity $ 24,832 $ 26,145
Total liabilities and equity $ 208,527 $ 202,179

Both companies have recorded growths in their balance sheet statements. From the above financial information, it can be observed that Tesla has more than doubled its balance sheet within the last one fiscal year (between 2013 and 2014). For instance, the company noted a large increment in the size of total assets from $ 5,849,251 $ to $ 2,416,930 (Tesla Motors, Inc., FORM 10-K: Annual Report 2014, 89).

On the other hand, Ford has also continued to grow. Although the company has the largest balance sheet, its growth rate is rather slow relative Tesla. For instance, the size of total assets of Ford increased marginal from $ 202,179 to $ 208,527 in the same fiscal period (Ford Motor Company, FORM 10-K Annual Report 2014, 109).

Income Statements.

Ford December 31, 2014
in millions
December 31, 2013
in millions
Total revenues $ 144,077 $ 146,917
Total costs and expenses $ 140,637 $ 141,439
Net income $ 3,186 $ 7,175
Net income attributable to Ford Motor Company $ 3,187 $ 7,182
Tesla Absolute figures Absolute figures
Total revenues $ 3,198,356 $ 2,013,496
Total operating expenses $ 1,068,360 $ 517,545
Net loss $ (294,040 ) $ (74,014 )

Ford did note a decline in total revenues between fiscal year 2013 and 2014 from $ 146,917 to $ 144,077. At the same time, the company also noted a negligible decline in total costs and expenses at $ 140,637 from $ 141,439. On the same note, Ford also noted a decline in net income from $ 7,182 to $ 3,186 between the fiscal year 2013 and 2014. These figures could reflect the uncertainties in the auto industry (Ford Motor Company, FORM 10-K: Annual Report 2013, 100).

Conversely, Tesla total revenues increased from $ 2,013,496 in the fiscal year 2013 to $ 3,198,356 in the fiscal year 2014. The company also doubled its total operating expenses from $ 517,545 to $ 1,068,360 in the same period. Consequently, Tesla net loss grew from $ (74,014) in the fiscal year 2013 to $ (294,040) in the fiscal year 2014. Overall, the company is still in the loss-making bracket.

Profitability Analysis

Gross profit margin

Gross Profit Margin = Gross Profit / Net Sales = ____

Tesla

2012

30,067 / 413,256 = 0.0727 = 7.28%

2013

456,262 / 2,013,496 = 0.2266 = 22.67%

2014

881,671 / 3,198,356 = 0.2756 = 27.57%

For the last three years, Tesla has recorded an impressive growth in gross profit margin ratios. The company ratios have increased from 7.28% in 2012, 22.67% in 2013 and 27.57% in 2014. These increments can be attributed to increased total revenues and related gross profits.

Ford

2012

7,638 / 133,559 = 0.05718 = 5.72%

2013

7,040 / 146,917 = 0.0479 = 4.78%

2014

4,342 /144,077 = 0.0301 = 3.01%

Fluctuations in total revenues, particularly declines have led to low gross profit margins for the company. Perhaps Ford is not currently managing its inventory effectively.

Net profit margin

= Net Income (Loss) /Net Sales = _____

Tesla

2012

-396,213 / 413,256 = -0.95875 = -95.88%

2013

-74,014 / 2,013,496 = -0.0367589506013421= -3.68%

2014

-294,040 / 3,198,356 = -0.0919 = -9.2%

Tesla currently does not make any profits from every dollar invested after recovering all expenses. Instead, the net profit margins have declined significantly from -95.88% to -9.2%.

Ford

2012

5,612 / 133,559 = 0.042 = 4.2%

2013

7,175 / 146,917 = 0.0488 = 4.9%

2014

3,186 /144,077 = 0.0221 = 2.21%

The company makes marginal earnings from every dollar invested at a low rate that has declined from 4.2% in 2012 to 2.21% in 2014.

Return on assets

Net Income (Loss) /Total Assets = _____

Tesla

2012

-396,213 / 1,114,190 = -0.3556 = -3.56%

2013

-74,014 / 2,416,930 = -0.0306 = -3.06%

2014

-294,040 / 5,849,251 = -0.0503 = -5.03%

Tesla cannot currently use its available assets to generate profits.

Ford

2013

7,175 / 202,179 = 0.03545 = 3.55%

2014

3,186 /208,527 = 0.01527 = 1.53%

Ford can use its assets to generate profits, although the ratios are low.

Return on equity

= Net Income/Stockholder’s Equity = _____

Tesla

2013

-74,014 / 667,120 = -0.11095 = -11.1%

2014

-294,040 / 911,710 = -0.3225148347610534 = -32.25%

The stockholders’ equity increased in the last two fiscal years. Currently, shareholders should not expect returns from their investments.

Ford

2013

7,175 / 202,179 = 0.03545 = 3.55%

2014

3,186 /208,527 = 0.01527 = 1.53%

Ford has low ratios, which are not good for potential investors.

For Ford, income statements format/presentation focuses on two critical core business areas, namely Automotive and Financial Services for revenues. In addition, costs and expenses, automotive interest expense, net income, and net income attributable to Ford Motor Company, as well as earnings per share are also included.

Tesla recognizes its two major sources of revenues as automotive sales and development services. The company also accounts for total operating expenses, net loss, and related net loss per share of common stock, basic and diluted.

Liquidity Analysis

Current ratio = current assets/current liabilities

Tesla

2013

2,416,930/ 1,749,810 = 1.38

2014

5,849,251/4,879,345 = 1.2

Tesla can meet is short-term obligations.

Ford

2013

202,179/175,703 = 1.15

2014

208,527/183,353 = 1.137

Ford can meet is short-term obligations.

Quick ratio = (current assets – inventories) / current liabilities

2013

2,416,930-340,355= 2076575

2076575/1,749,810=1.187

2014

5,849,251-953,675= 4895576

4895576/4,879,345=1.00

Tesla can meet its short-term obligations through its very liquid assets.

Ford

2013

202,179- 7,708 = 194471

194471/175,703=1.11

2014

208,527-7,866 = 200661

200661/183,353 = 1.09

Ford can meet its short-term obligations through its very liquid assets.

Operating cash flow to current debt ratio

Cash Flow to Debt Ratio = Operating Cash Flow/Total debt

Ford

2013

7,738+ 3,352= 11090

11090/175,703= 0.063

2014

8,764+4,810=13574

13574/183,353 = 0.074

Ford has adequate capacity to meet its total based on operating cash flow.

Tesla

2013

-264,804/1,749,810= -0.15

2014

-57,337/4,879,345= -0.012

Tesla cannot use its operating cash flow to meet its total debts.

Ford relies on two major sources of cash flows from operating activities, namely automotive and Finance services. The company has positive net incomes from both divisions, and it has been able to control declines related to accounts receivable, inventories and other services. On the other hand, Tesla negative values from related to net losses affect its net cash flows from operating activities. Besides, The company also deals with huge inventories and operating lease vehicle, foreign currency transaction losses, account receivables and other prepaid expenses, as well as asset depreciation.

Activity/Efficiency Analysis

Accounts receivables turnover

2014

Tesla

216.3 /[226,604,000/2] 113302000

216,300,000/113302000=1.909057209934511

365/2=182.5 days

Tesla is not usually engaged in account receivable because payments are always made before the vehicle delivery. Nevertheless, amounts may be due from commercial financial institutions based on specific financial arrangements with customers and financing bodies.

Ford

Ford lacks credit sales. Instead, the company refers to credit losses. Ford considers accounts uncollectible after 120 days delinquent.

2440 /1448.5 = 1.68

355/1.68 = 211 days

Inventory turnover

2014

Tesla

3,198,356/953,675=3.35

The company needs to turn more of its inventories into sales to generate more revenues

Ford

135,782/7,866 = 17.26

Ford seems to be turning its inventory fast into revenues.

Days in inventory

Ford: 1/17.26*365 = 21 days

Tesla: 1/3.35*365 = 109 days

Accounts payables turnover

2014

Tesla

Accounts payables turnover

268,884/126390.5=2.127

365/2.127= 172 days

Tesla could be taking longer to pay its suppliers and other parties.

Ford

6,229/2= 3114.5

32,888/3114.5 = 11

365/11= 33 days

Ford frequently pays its suppliers.

Fixed asset turnover

2014

Tesla

3,198,356/2650594=1.21

Ford

144,077/208,527=0.69

These companies do not sufficiently use their fixed assets to generate revenues.

Revenue Recognition Methods

Ford

Revenues are recognized when they are risk-free. Operating leases are recognized during the lease period while interests are recognized, but uncollectible accounts are discarded.

Tesla

Tesla’s revenue is recognized when “(i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) fees are fixed or determinable, and (iv) collection is reasonably assured” (Tesla Motors, Inc, FORM 10-K: Annual Report 2014, 49).

Inventory policies

Tesla’s valuation is based on the low costs or market costs (Tesla Motors, Inc, FORM 10-K: Annual Report 2013, 51). Conversely, Ford conducts regular inventory audits based on dealers’ risks rating and Ford’s security position and onsite vehicle audit is only performed if need be.

Depreciation policies

Tesla uses the straight-line method for a given period for useful lives of the assets while Ford focuses on residual values noted each month and provides quarterly figures.

The companies believe that these provisions are adequate to enhance revenue recognition, inventory management, and control of depreciation.

Works Cited

Ford Motor Company. Ford Motor Company: FORM 10-K Annual Report 2014. Washington, DC: Securities & Exchange Commision, 2014.Print.

FORM 10-K Annual Report 2013. Washington, DC: Securities Exchange Commission, 2014. Print.

Hirsh, Evan, Arjun Kakkar, Akshav Singh and Reid Wilk. 2015 Auto Industry Trends. 2015. Web.

Tesla Motors, Inc. About Tesla. 2015. Web.

Tesla Motors, Inc. FORM 10-K: Annual Report 2013. Washington, D.C: EDGAR Online, Inc., 2014. Print.

FORM 10-K: Annual Report 2014. Washington, D.C: EDGAR Online, Inc, 2015. Print.

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BusinessEssay. "Ford Motor Company and Tesla: Financial Statement Analysis." December 17, 2022. https://business-essay.com/ford-motor-company-and-tesla-financial-statement-analysis/.