Financial Statement Analysis Project

Analyzed and written by: Emma Brown, Andy Hoffman, Noor

Khosla, and Jay Tseng

Tesla, Inc. & General Motors Company

Team Member % Contributed
Emma Brown 25%
Andy Hoffman 25%
Noor Khosla 25%
Jay Tseng 25%
1. Introduction

Tesla and General Motors are both considered leaders by many in the automobile industry. Both companies differ in many ways. The purpose of

this paper is to analyze the ratios and financial statements of both companies. Once we have analyzed both companies we will conclude about

which company we should invest in. Tesla is an American company that specializes in electric vehicles, energy storage, and the manufacturing of

solar panels. Tesla’s headquarters is in Palo Alto, California. Elon Musk who is the CEO of Tesla has stated numerous times that the goal of the

company is to offer electric cars for affordable prices to the average consumer. The founders of Tesla were influenced to start Tesla after GM

destroyed all their electric cars in the early 2000s. A main differentiator in Tesla is that they have a marketing budget of $0 and the company is

rapidly growing whereas other companies are spending millions of dollars on marketing but their sales are declining.

General Motors Company is also an American company that is usually referred to as GM. GM is known for designing, building and selling cars,

trucks and automobile parts. GM’s headquarters is in Detroit, Michigan. Unlike Tesla, GM is one of the top companies each year in terms of the

amount of money spent on advertising. In 2014, GM spent $137.8 billion on advertising alone and that amount increases by 2% each year. In

recent years, GM has been in a little bit of financial trouble. In 2009, GM filed for bankruptcy protection but was luckily bailed out of this crisis

with help from the U.S. government. Most recently GM announced plans to file for bankruptcy in South Korea but has reached a deal with the

union in South Korea that will prevent that for now.

2. Significant Changes

I. General Motors:

In the past couple years, there have been some important changes in General Motors financial statements, namely the balance sheet.

Current assets is a balance sheet account that represents the value of all assets that can reasonably expect to be converted into cash within one

year. Starting with assets, there has been an decrease in current assets from 2014 when current assets were $81,501 million to 2017 when current

assets were $76,203 million. Now this can be explained by the increases in goodwill, accounts receivable and treasury stock, and decreases in

additional paid-in capital. If this trend were to continue, GM might potentially face problems with liquidity as they will have a low reserve of

current assets to pay for current obligations. In terms of liabilities, there was an increase in current liabilities from 2014 when current liabilities

were $62,412 million to 2017 when current liabilities were $85,185 million. There has also been an increase in accrued expenses.The increase in

liabilities means that GM is using more of financial institutions as a method of financing instead of shareholders. With the increase in liabilities

come a decrease in shareholders equity. Thus, for investors this means they may have more influence, but also, their money is more at risk.

The income statements for the years 2014-2015 show a decline in revenue for General Motors Company. Net income also decreased

over the years, with GM incurring a loss in 2017. It is surprising to note that despite the decrease in revenue and net income, cost of goods sold

has actually decreased rather than increased, because it could have been an indicative factor for the decrease in revenue. These decreases plus the

decrease in gross profit, are not good signs for investors since it indicates inefficiency in handling goods and services provided. However, the

decrease in cost of goods sold show the company’s ability to make the production more efficient. In general, when looking at the income

statements for General Motors, the declining net income figures are bad news for the investors because there is less money available to pay off

any dividends declared or room to invest in other investments or securities from other companies.
 II. Tesla:

Looking at the Tesla balance sheets, there has been an increase in current assets from 2014 when current assets were $2,411,186 to

2017 when current assets were $8,067,939, as opposed to the increase in current assets seen for General Motors. Total assets in general have also

increased over this period of time. Cash and cash equivalents have more than doubled since 2014. Having more cash can be good, but it can also

hurt a company. Having excess cash indicates that it’s not being efficient with its money, and a decrease in inventory, property, plant and

equipment means there may be less resources used to help increase its revenues. In terms of liabilities, there has been a significant increase in

current liabilities from 2014-2017. Again, this shows that Tesla turns to financial institutions rather than shareholders for their method of finance,

so for investors this means they may have more influence, but also, their money is more at risk. It is interesting to note that despite the increase in

cash, there has been a major increase in long term debt and accounts receivable for Tesla, which could mean that they are wasting their money by

either neglecting its debt or investing in more fixed assets or current assets to help increase revenues.

For Tesla, the income statements reflect some different changes. Revenue from 2014-2017 has increased. This indicates financial

stability to outsiders. To investors, this means Tesla is making more money and expanding its reach. An increase in gross profit and net income is

also seen. The decrease in gross profit is attributed to the increase cost of goods sold, which mean that the company needs to improve efficiency

in producing its products. Furthermore, the increase in selling and administrative expenses and R&D expenses offset the decrease in gross profit.

The increase in R&D expenditure, though, can be based on the new technology that Tesla is hoping to expand and build the company on. Akin to

GM’s net income, Tesla also faced a decline in its net income (an increase in the net loss) since 2014, and this is not good for investors as there is

less money available to pay off any dividends declared or room to invest in other investments or securities from other companies.

3. Ratios

I. Liquidity Ratios

a. Current Ratio:

Current ratio calculates the liquidity of the business entity, in terms of its ability to pay short-term and long-term obligations. If the current ratio is

greater than 1, it’s indicative of the fact that the business has sufficient current assets to pay off any current debt; or, that it has the resources

available to convert into cash, which would ultimately be used to pay off any current liabilities. GM and Tesla since 2015 show a decrease. Tesla

in 2015 had a ratio of 0.989 but over the years, has decreased to 0.86 in 2017. As for General Motors, the ratio in 2015 was 1.0, which decreased

to 0.89 in 2017. This indicates that both companies are facing liquidity issues, which make it harder for them to pay off current debt. Cash level

can be increased by selling unused fixed assets. Otherwise, the money is unnecessarily blocked into them and idle money accrues interest cost.

b. Quick Ratio:

Quick ratio is similar to the current ratio in terms of its purpose. It, though, more specifically focuses on the ability of quick assets to be

liquidated into cash readily, including near-cash equivalents. Both Tesla and GM, have quick ratios less than 1, and the ratio has increased from

0.48 in 2015 for Tesla to 0.51 in 2017. And for GM, the ratio has gone down from 0.7 to 0.68. A low quick ratio is generally a more risky

position since you don't have adequate current assets, without inventory, to cover near-term debt. This also means that GM relies heavily on

efficient inventory turnover to keep you afloat in the short-term. A low ratio also causes concern with potential investors and creditors because of

your short-term risks, but since Tesla’s quick ratio is increasing, it is more attractive to investors.

c. Cash Ratio:
The Cash ratio has a similar purpose and reflects a similar trend to the above. It focuses on how much cash the company has, on hand, to pay for

its current debt. Tesla’s cash ratio declined from 0.88 to 0.44 (in 2017), and General Motors also declined, with 0.43 in 2014 and 0.31 in 2017.

Comparing the two companies, it can be said that Tesla is better off as its ratio is higher, and thus, is more likely than General Motors to pay off

its current debts faster.

II. Profitability Ratios

a. Earnings per share:

EPS indicates to investors how much a company makes for each outstanding share it has. Both companies show significant growth trends. Both

GM and Tesla show a decline in their earnings per share, which indicates that both companies are paying out lower, or in Tesla’s case, no

dividends as the years progress. This is not a very attractive quality for investors, however, the profits as in the case of Tesla, are being pumped

back into the business and can be fruitful in the future.

b. Net profit margin:

Focuses on how much of a company’s income is left after covering all expenses, excluding dividends. It indicates how effective the company is at

making money and covering all expenses. The net profit margin has decreased considerably for both Tesla and General Motors. In 2015, GM had

a margin of 6.36%, and in 2017 it had -2.65%. As for Tesla, in 2015, it was -21.96 which then increased to -16.68 in 2017. This indicates that

Tesla’s improved where as GM’s performance worsened over the past three years. An economic slowdown can greatly decrease the value of a

company's inventory. Thus, Tesla is a more attractive option for investors.

c. Operating profit margin:

Represents how much of income is left after all operating expenses, such as selling, general and administrative expenses have been deducted.

General Motors has seen an increase in the operating margin from 2015 to 2017 (3.21% to 6.88%). A high operating profit margin shows that the

company is effective in handling its operating costs, and is able to have money leftover to pay for interest and tax expenses in the future. Tesla

also improved their operating profit margin from -18.70% in 2015, to -14.78% in 2017, though stallion the negatives.

d. Return on equity:

ROE hows how much profit a company makes from money and capital contributed by its shareholders. Tesla and GM have both seen an increase

in the return on equity. GM’s ROE increased significantly, with 0.01% in 2015 to 0.25% in 2017. Tesla, too, showed improvements in ROE (-

87.01% to -40.78% in 2017). Overall, GM is doing much better than Tesla in terms of the Return on equity.

e. Return on assets:

ROA shows how the company uses its total assets to make a profit. It shows how efficient the company is in handing its asset usage. A higher

percentage indicates a more efficient use of all types of assets. Tesla’s ROA has improved since 2015, with -12.79% in 2015 and -7.64% in 2017.

GM, on the other hand, has seen a decline. In 2015, it was doing well with ROA of 4.53%, however, in 2017 this dipped to 2.3%. This decline

showcases inefficiency in the manner in which the company handles its assets, where as Tesla’s figures show better asset management.

f. Fixed asset turnover:

This ratio is indicative of the company’s use of its fixed assets to generate sales. The higher the number, the more efficient the company is in its

usage of fixed assets to generate sales. Once again, Tesla and GM show a decrease in the fixed asset turnover, but the change is not too drastic.
The declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets. This could scare off potential

investors as both companies seem to be inefficient in asset management.

g. Financial Leverage:

Financial Leverage is calculated by subtracting ROA from ROE. Financial Leverage focuses more on how the company uses debt to finance its

assets. A lower financial leverage is preferred for investors as it shows that the company is relatively more willing to use its shareholders to help

finance the purchase of assets. Both Tesla and GM have witnessed increasing leverage ratios from 2015 to 2017. The higher financial leverage

means that the company uses more debt to pay for its assets rather than gaining capital from selling stocks.

III. Working Capital Ratios

a. Accounts receivable turnover ratio:

It measures a company’s efficiency in using its assets. Over the course of the past 3 years, the Accounts Receivable Turnover ratios of Tesla and

General Motors have been on a downward trend. This indicates that both these companies are either loosening up their credit policy or getting

more customers who take their time to honor their credit purchases. Out of these two companies, Tesla is the one with the higher ratio of 23.18%

in 2017. This could mean that Tesla has a higher amount of bad debt than GM.

b. Days outstanding receivable ratio:

This is used by companies to estimate the average collection period of their accounts receivable. Both Tesla’s and GM’s ratios are on an upward

trend for the past 3 years. This indicates that the time it takes for its customers to pay its invoices is getting longer and longer. Even though they

have the same general trend, GM’s DOR ratio rose much more than that of Tesla’s, thus showing GM’s inefficiency in collecting receivables

over time.

c. Inventory Turnover ratio:

It measures how many times a company’s inventory is replaced over the course of that fiscal year. In the cases of GM and Tesla, their inventory

turnover ratios have not changed drastically. There have been minor fluctuations over the years. In fact, both these companies have an average of

around 5 inventory turnovers a year. This is a decent value in terms of inventory turnover ratio, suggesting that both companies are moving

through their stock pretty quickly, but there is definitely room for improvement as they need to start increasing their revenues.

d. Days outstanding inventory:

Days Outstanding Inventory ratio measures how long a company has to hold on to its inventory before it sells it. Both companies have a

downward trend for this ratio, and this is a good sign as it shows better levels of inventory effectiveness.

e. Accounts payable turnover ratio:

Measures a company’s ability in the short run to pay off its suppliers, in other words, it quantifies a company’s short term liquidity. Tesla and

GM both have relatively stable, though slowly decreasing rates of APT. In 2014, Tesla had an APT ratio of 5.42 days, and in 2017 had 4.58 days.

GM in 2014 had a ratio of 5.97 and in 2017, it dropped to 4.84 days.

f. Cash conversion cycle:

It is a measure of the amount of time it takes a company to sell inventory, collect receivables and pay its accounts payable. We see a negative

trend in Tesla’s and General Motors ratios over the years. GM fell a lot more as opposed to Tesla. In 2015, the ratio was 58.92 days, and in 2017,

it was 18.92 days. Tesla’s fell from 35.06 in 2015 to 26.22 in 2017. This makes GM more attractive to investors when compared to Tesla as it

shows greater liquidity as the ratio has fallen by less than Tesla’s.

IV. Bad Debt Ratio

a. Allowance for doubtful accounts to accounts receivable ratio:

This measures the receivables a company forfeits with respect to its total receivables. Both companies showed an increase in the bad debt ratio,

which means that with a higher ratio, the companies have to write off more debt due to doubtful accounts, thus, lowering net income as seen in

the previous sections.

V. Solvency Ratio:

a. Debt to equity ratio:

Debt to Equity ratio is a measure of how much debt a company is incurring to finance its assets, with regards to its stockholders’ equity. GM’s

debt to equity ratio increased from 129.94% in 2014 to 260.27% in 2017. These statistics suggest that the company is financing its activities and

projects through incurring debt, leading to greater interest expenses. As a result, investors may be weary of GM for fear of volatile return on

investments. As for Tesla, the ratio has decreased, thus, looking comparatively better.

b. Times Interest earned ratio:

This measures how well a company is able to cope with its debt obligations, the higher the ratio, the better it looks to investors. Tesla’s ratio for

this has decreased, pushing away investors in fear of inefficient of debt management, whereas GM’s ratio has increased from 3.8% in 2014 to

17.42 % in 2017. Thus, GM is more attractive of a company to invest in for potential investors.

VI. Dividend Policy Ratios

a. Dividend payout ratio:

Represents the percentage of earnings paid to shareholders in dividends. General Motors dividend payout decreased from 2014 to 2017. This

hints to potential investors that GM is having trouble in managing its liabilities/debts, therefore having to slash its dividend payments. However,

both companies could perhaps be lowering its dividend payments and in Tesla’s case, not paying dividends at all, in order to fund new projects by

reinvesting its earnings. This is good news for both its stockholders and potential investors in the future.

b. Growth Rate ratio:

This ratio measures the change of dividend payments with regards to that of past years.

Tesla’s growth ratio is 0, as no dividends were paid out for the last 4 years. As for GM, the growth rate increased to 5.62% in 2016 from -29.16%

in 2014, but then fell back down to -5.7% in 2017, reflecting the decrease in the dividend payout ratio. This is congruent to the previous ratio.

These two ratios give investors an idea of what to expect in terms of dividend payouts in the future as they represent trends from previous years.

VII. VII. Market Ratios

a. Price earnings ratio:

This values a company by measuring its current share price relative to its per-share earnings. For Tesla, since they reported a loss, the PE ratio is

N/A. As for General Motors, the ratio increased initially from 5.27% to 5.58% in 2016 but then the company incurred a loss, thus, the PE ratio

was N/A for 2017. This drop in its P/E ratio could be attributed to the its falling stock price

due to its falling out of favor with investors because of its bad showings in its other metric ratios.

b. Dividend yield ratio:

Refers to how much dividends a company pays out each year with respect to its share price. The dividend yield for Tesla is N/A since the

company does not pay out dividends as seen in prior ratio computations. General Motors Dividend Yield fell from 4.23% in 2015 to 3.71% in

2017. This indicates that Tesla is looking at pumping money back into the business and GM is trimming the amount of dividends it gives.

VIII. VIII. Quality of Income Ratio

It accounts for the fluctuations of earnings due to higher sales revenue or lower costs. A ratio of greater than 1.0 usually indicates high-quality

income, while a ratio of less than 1.0 indicates low-quality. Tesla initially had a ratio of 0.59% in 2015, which decreased to 0.03% in 2017.

Conversely, GM’s quality of income ratio increased from -4.48% to 1.21% in 2017. This makes GM more attractive to investors as it shows an

upward trend given that the ratio in 2017 was greater than 1 unlike Tesla.

4. Inventory costing method

Tesla uses the first in, first out (FIFO) method of inventory cost flow. Similarly, General Motors utilizes the FIFO method of inventory costing,

as seen in both the companies’ 10K reports.

5. Depreciation Methods

Depreciation is provided primarily on a straight-line basis for both General Motors and Tesla unless noted otherwise, taking into consideration

the estimated useful life of owned assets.

General Motors

Property, plant and equipment is recorded at cost. Major improvements that extend the useful life of property are capitalized. Expenditures for

repairs and maintenance are charged to expense as incurred. Estimated useful life for assets are as follows:

(Format: Category – Depreciation Method – Estimated useful lives)

 Buildings – Straight-line – 25 years

 Furniture, fixtures and equipment – Straight-line – 3 to 5 years

 Machinery
 – Straight-line – 5 to 20 years

 Toolings other than non-powertrain tools – Straight-line – 5 years

 Non-powertrain special tools – Accelerated Depreciation – 5 years

Additionally, Intangible assets such as technology licenses are amortized on a straight-line basis over the shorter of the life of license or the

planned life-cycle of the vehicles or products associated with the license, ranging from 45 months to 98 months.

Tesla

Solar Energy Systems, Leased and To Be Leased

Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the respective assets, as follows:

Solar energy systems leased to customers – 30 to 35 years

Initial direct costs related to customer solar energy system lease acquisition costs – Lease term (up to 25 years)

Property, Plant and Equipment

Property, plant and equipment, including leasehold improvements, are recognized at cost less accumulated depreciation and

amortization. Depreciation is generally computed using the straight-line method over the estimated useful lives of the respective assets, as

follows:

 Machinery, equipment, vehicles and office furniture – 2 to 12 years

 Building and building improvements – 15 to 30 years

 Computer equipment and software – 3 to 10 years

Additionally, Depreciation for tooling is computed using the units-of-production method whereby capitalized costs are amortized over

the total estimated productive life of the respective assets. Leasehold improvements are amortized on a straight-line basis over the shorter of their

estimated useful lives or the terms of the related leases. Intangible assets with definite lives are amortized on a straight-line basis over their

estimated useful lives, which range from two to thirty years.

6. Contingent Liabilities

GM has contingent obligations over the course of one year of 265 million Euros to their restructuring plan of Opel/Vauxhall (GM 10-

K 54). The restructuring of Opel/Vauxhall will lead to an increase in total assets on the balance sheet because property/equipment falls under the

non-current asset category on the balance sheet. Based on the 10-K reports for both Tesla and GM, they record their leases as operating leases

(GM 10-K 7, 53, 54, Tesla 10-K 67, 71). When a company labels a lease as an operating lease, the person analyzing the 10-K report will have to

realize that this leads to fewer liabilities having to be reported on the balance sheet. This will lead to the person that is analyzing the 10-K report

to think that GM has more assets then they do because some liabilities are not accounted for. GM also has maximum liabilities of $15.3 billion

and $22.1 billion related to Ally Financial repurchase obligations (GM 10-K 112). A class action lawsuit was filed against Tesla in November

2013 (Tesla 10-K 122). Tesla chose to disclose this liability as contingent because it considered hard to calculate and they are also unable to

predict the outcome of the lawsuit. Tesla has the right to adjust the contingent liabilities as liabilities if they expect the outcome or can estimate

the liability over time.

7. Statement of Stockholders’ Equity

(Numbers are in millions of USD for both companies)

General Motors’ ending balance for 2017 (ended on December 31st, 2017) was $35,001. This was a decrease of $8,835 from 2016’s

$43,836. Gross profit dropped by $504 from 2016 in which it was $20,164 to $20,668 in 2017. The operating income increased by $89 though

from $ 10,614.0 in 2016 to $10,703.0 in 2017 because of a decrease to Sales, General & Administrative; which resulted in an increase in the

company’s total stockholders’ equity. Net income from continued operations (Net Earnings) were $330 which was $8,939 less than it was 2016

when it was $9,269 because of an increase in the income tax expense by $8,794 from 2016 to 2017. After reductions in loss of earnings from

discontinued ops., the net income of General Motors in 2017 was a loss of ($3,864), a reduction of $13,291 from the net income of 2016 in which

it was $9,427. The resulting decrease to the overall stockholders’ equity for 2017 negatively impacted the 120 million shares of outstanding

common stock repurchased for treasury stock during the period as shown by a drop in basic EPS from 6.12 in 2016 to (2.65) in 2017. If General

Motors’ statement of stockholders’ equity has a greater deal of debits rather than credits, investors will be displeased with their decision to invest.

From 2015-2017, GM dividends declared per common share were $1.52, $1.52 and $1.38 and total dividends paid on common stock were $2.2

billion, $2.3 billion and $2.2 billion for the years ended December 31, 2017, 2016 and 2015. Dividends rise and fall with General Motors’

income. Based on the steady trend in dividend payouts for General Motors, it would be wise for conservative investors to commit to a dividend

reinvestment plan where the money is automatically reinvested into the company rather than spent after receiving the dividends if they are strong

backers in the stock. Moderate and aggressive investors of General Motors should look to wait on reinvesting their dividends if they expect to see

quicker returns on investment as net earnings have affected the stockholders’ equity, decreasing it by $4,123 from 2015 to 2017. General Motors

is the biggest of the Big Three American automakers who have traditionally dominated the North American market. GM's bankruptcy has given

incentive to downsizing, calling for closing 14 factories and 2,400 dealerships, canceling nearly $80 billion in debt. GM's survival cannot be

assured by cost cuts forever. GM hopes that new products will raise profits soon to overcome their necessity to cut from the company’s

infrastructure.

Tesla’s total stockholders’ equity balance has dropped between 2016 and 2017 by $272.80. The balance for 2016 and 2017, $5,905.10

and $5,632.30 respectively, were both considerably higher than years before with an average balance from 2013 to 2015 of $887.50, less than a

fifth of more recent years. Tesla also did not have treasury stock on their balance sheet until 2016 when they reported a difference between the

number of shares issued and the number of shares outstanding by a ratio of (3.6) and then (23.7) in 2017. Tesla reported Minority Interest of

$1,152.20 on their balance sheet for the first time in 2016, followed by $1,395.10 in 2017. Tesla's CEO has a complex form of control over the

company through his 22% equity stake on the one hand, and the company's supermajority voting rules on the other, as it is unconventional to

control a company with only minority ownership stake. Comparatively, GM sells commercially and in fleets, including stripped-down models to

rental car companies. Recent reductions in the latter have succeeded in somewhat bolstering GM's profit per car sold. Tesla on the other hand

sells their cars directly to individual consumers with a focus on advanced electronics and AI based computer systems. Because of this, Elon Musk

with supermajority voting rule of Tesla has doubled down on investments in software enterprise both in its automobiles and other commerce. The

movement to focus on its growth and development began in 2013 when Tesla raised $1,020 ($660 from bonds) partially to repay debt after their

first profitable quarter. In February 2014, the company sold $2,000 in bonds to build GigaFactory 1, the largest lithium-ion battery factory in the

US. In August 2015 Tesla sold $738 in stock for its product, the Model X, and $1,460 in stock ($1,260 for the Model 3). The company’s return
on equity reported (22.1%) in 2016 and (38.8%) in 2017, which is still higher than it was in 2015 at a deficit of (89.1%) when it first started

producing and selling its first line of electric SUVs. Tesla’s automotive branch had a gross margin of 23.1% in 2016, and has generally been

above 20%. However, expenditures for expanding future production are bigger than product profit, resulting in a net income loss of $(674.90) in

2016 and $(1,961.40) in 2017. Finally, Tesla surpassed General Motors in 2017 in market capitalization, making it the most valuable American

automaker of 2017 at $52,327.80 while GM reported $58,222.50. Investors should note that while Tesla may not seem like a “profitable”

company as of right now, it’s growth beyond automobiles into energy storage, sustainable battery manufacturing, and photovoltaics could soon

promote the company to unchallenged dominance over industry leading competitors and the American economy, should it chose to begin

maximizing efforts to reduce its impact on the climate through switching to electric cars, and sustainable energy production and storage.

Alternatively, Tesla could easily lose ground to electric-based competitors since Tesla does not trademark their technology, by choice of Elon

Musk as to encourage competition and growth in the industry.

8. Statement of Cash Flows

(Numbers are in millions of USD for both companies)

Since General Motors net income averaged only $2,781 in 2016 and 2017, its main sources of productive cash flows are operating

activities and financing activities. In 2017, the company reported $17,328 in cash and cash equivalents from operating activities and $12,584

from financing activities. For operating activities, the main source of cash in 2016 was depreciation & amortization of $9,228 which then rose to

$11,508 in 2017, resulting in an increase to cash flow by operating activities of $721 and a resulting balance of $17,328. For cash flow by

financing activities, GM’s main source of cash is debt issued, reporting $42,036 in 2016 and $52,187 in 2017, denoting an increase of $10,151.

GM also repaid a significant amount of debt in 2016 and 2017 of ($21,009) and ($33,732) which decreased overall cash from financing activities

to $17,077 in 2016 and $12,584 in 2017. GM’s cash flow by investing activities is its primary source of debt on the cash flow statement. To be

more specific, GM’s capital expenditures of ($27,633) in 2016 and ($27,879) in 2017 make up most of its loss of cash from investing activities

for which the balance was ($35,643) in 2016 and ($27,572) in 2017. In 2017, GM reported a positive net change in cash of $2,688 for the first

time since 2013, after reporting ($2,172) in 2016. GM’s levered free cash flow and unlevered free cash flow both continued to decrease; ($3044)

in 2016 and ($13,128) in 2017 for levered; ($2,692) in 2016 and ($12,769) in 2017 for unlevered. The change in net working capital was $4377

for 2017, an increase of $12,617 from a deficit of ($8,240) in 2016 indicating GM has utilized its assets more efficiently as of recent.

Similarly, Tesla’s Net Income has averaged a deficit of ($1,318) between 2016 and 2017, but it’s main source of cash would be cash

from financing activities. The balance of cash from financing activities for 2017 rose by $671 to $4415 from $3,744 in 2016. The rest of Tesla’s

cash flow statement is almost all deficits with cash from operating activities and investing activities reported ($124) and ($1,416) in 2016; as well

as ($61) and ($4,419) in 2017. Tesla’s levered and unlevered free cash flows were also deficits at ($139) and ($122) in 2016, as well as ($625)

and ($616) in 2017. Tesla’s change in net working capital was reported at ($602) in 2017 which was a drop from ($912) in 2016 showing they’re

getting somewhat better with their utilization of assets.

9. Reports of the Independent Auditors

(Numbers are in millions of USD for both companies)

 Both General Motors and Tesla appear to have to have a standard unqualified audit report. General Motors and Tesla both appear to

abide with the US GAAP. Both companies are large corporations with minimal financial errors, if any. The audit report does trials and keeps a

system of internal controls, so that the management can hold a sense of accountability on all the transactions. For both companies, the audit and

compliance committee appoints independent auditors by the board of directors, which is approved by the shareholders. Neither company has

departed from standard reporting principles as designated by the opinions of DELOITTE & TOUCHE LLP for General Motors and

PricewaterhouseCoopers LLP for Tesla. Both auditors have stated that each company has presented its financial statements fairly, in all material

respects, the financial position, results of operations, and cash flows of the entity in conformity with generally accepted accounting principles. It

is favorable for both companies to continue these procedures as both companies are public and have stockholders for which moving away from

the standards could pose a risk to management as they could potentially experience pressure from the stockholders and the board of directors.

10. If you had $50,000 to invest in one of the companies you have analyzed, which would be the better investment and why?

After analyzing both companies, it is evident that Tesla is the better company to invest in. Both GM and Tesla show a decline in their

EPS. An investor would want their EPS to be high because that would mean that other investors would be willing to pay more for the higher

profits. Tesla has a decline in their EPS because of the delay of production of the Model 3 electric car. Tesla has also never declared dividends

which makes some investors concerned about not receiving a return. Tesla is the company of the future considering that carmakers expected

investment into the electric car industry will be $100 billion by 2020. GM has also seen a sharper decline in REO compared to that of Tesla,

which gives investors assurance that the company does well with assets on hand.
 Bibliography

"10-K TSLA.” SEC.gov, n.d. Web. 2 Apr. 2018.

"10-K GM.” SEC.gov. n.d. Web. 2 Apr. 2018.

"Balance Sheet for Tesla." S&P Capital IQ. S&P, 2017. Web. 2 Apr. 2018.

"Balance Sheet for General Motors." S&P Capital IQ. S&P, n.d. Web. 2 Apr. 2018.

"Income Statement for Tesla." S&P Capital IQ. N.p., n.d. Web. 2 Apr. 2018.

"Income Statement for General Motors." S&P Capital IQ. S&P, n.d. Web. 2 Apr. 2018.

"Ratios for Tesla." S&P Capital IQ. S&P, n.d. Web. 2 Apr. 2018.

"Ratios for General Motors." S&P Capital IQ. S&P, n.d. Web. 2 Apr. 2018.
Ratios – GM

Ratios for Tesla FTYE 31 FTYE 31 FTYE 31 How Ratio is

Dec. 2017 Dec. 2016 Dec. 2015 Calculated
Current Ratio 0.9x 0.9x 1.0x Total Current
Assets/Total Current
Liabilities
Quick Ratio 0.7x 0.6x 0.7x Total Cash&Short-
term
Investments/Total
Current Liabilities
Cash Ratio 0.2x 0.2x 0.2x Cash from
Operations/Total
Current Liabilities
EPS (2.65) 6.12 6.11 Net
Income/Weighted
Average Shares
Outstanding
Gross Profit 13.8% 13.9% 13.4% Gross Profit/Total
Margin Revenues
Operating Profit 15.3% 13.3% 10.5%
Margin EBIT/Total Revenues
Net Profit Margin (2.7%) 6.3% 7.1% Net Income/Total
Revenues
Return on Equity 0.8% 22.0% 25.1% Net Income/Avg.
(ROE) Total Equity
Return on Assets 3.1% 3.2% 2.6% (EBIT-Taxes)/Avg.
(ROA) Total Assets
Fixed Asset 4.2x 4.7x 4.6x Total
Turnover Rrevenutes/Avg.
Total Fixed Assets
Financial 6.1x 5.1x 4.9x
Leverage ROE-ROA
Accounts 15.8x 16.5x 14.9x
Receivable Total Revenues/Avg.
Turnover Acc. Receivable
Days Outstanding 23.1x 22.2x 24.5x Avg. Acc.
Receivable Receivable/Total
Revenues *365 days
Inventory 10.5x 9.7x 8.2x Cost of Goods
Turnover Sold/Avg. Inventory
Days Outstanding 34.6x 37.7x 44.5x Avg.
Inventory Inventory/COGS
*365 days
Accounts Payable 75.6x 73.8x 75.6x Avg. Acc.
Turnover Payable/(COGS+Avg.
Inventory)*365 days
Cash Conversion (17.9x) (13.8x) (6.6x) Avg. days
Inventory+Avg. days
Receivable-Avg.
days payable
Allowance for 23.2x 21.0x 20.5x Allowance for
doubtful doubtful
accounts/accounts accounts/accounts
receivable receivable

Debt to Equity 260.3% 170.4% 156.5% Total

Liabilities/Total SE
Times Interest 38.6% 35.2% 33.6% EBIT/Interest
Earned Expense
Dividend Payout 34.9% 31.9% 22.4% Dividend paid/ Net
Ratio income
Growth Rate 68.0% 73.0% 26.5% DPS(current
yr)/DPS(previous yr)
P/E N/A - N/A - N/A -
Company Company Company
Reported a Reported a Reported a
Loss Loss Loss Stock Price/EPS
Dividend Yield 3.71% 4.36% 4.23% DPS/Price of Share
Quality of Income -4.5x 1.8x 1.2x Net Income/ Cash
from operating
activities

Ratios for GM FTYE 31 FTYE 31 FTYE 31 How Ratio is

Dec. 2017 Dec. 2016 Dec. 2015 Calculated
Current Ratio 0.9x 0.5x 0.6x Total Current
Assets/Total Current
Liabilities
Quick Ratio 0.7x 0.7x 1.0x Total Cash&Short-
term
Investments/Total
Current Liabilities
Cash Ratio (0.0x) (0.0x) (0.2x) Cash from
Operations/Total
Current Liabilities
EPS (11.83) (4.68) (6.93) Net
Income/Weighted
Average Shares
Outstanding
Gross Profit 18.9% 22.8% 22.8% Gross Profit/Total
Margin Revenues
Operating Profit 0.3% 4.3% (7.3%)
Margin EBIT/Total Revenues
Net Profit Margin (16.7%) (9.6%) (22.0%) Net Income/Total
Revenues
Return on Equity (38.8%) (22.1%) (89.1%) Net Income/Avg.
(ROE) Total Equity
Return on Assets (3.9%) (2.6%) (6.4%) (EBIT-Taxes)/Avg.
(ROA) Total Assets
Fixed Asset 0.7x 0.7x 1.0x Total
Turnover Rrevenutes/Avg.
Total Fixed Assets
Financial Leverage 6.76x 4.77x 7.43x ROE-ROA
Accounts 23.2x 21.0x 20.5x
Receivable Total Revenues/Avg.
Turnover Acc. Receivable
Days Outstanding 15.7x 17.5x 17.8x Avg. Acc.
Receivable Receivable/Total
Revenues *365 days
Inventory 4.4x 3.2x 2.8x Cost of Goods
Turnover Sold/Avg. Inventory
Days Outstanding 82.9x 113.3x 130.4x Avg.
Inventory Inventory/COGS
*365 days
Accounts Payable 79.7x 82.1x 89.7x Avg. Acc.
Turnover Payable/(COGS+Avg.
Inventory)*365 days
Cash Conversion 18.9x 48.7x 58.6x Avg. days
Inventory+Avg. days
Receivable-Avg.
days payable
Allowance for 15.8x 16.5x 14.9x Allowance for
doubtful doubtful
accounts/accounts accounts/accounts
receivable receivable

Debt to Equity 215.1% 145.4% 267.5% Total

Liabilities/Total SE
Times Interest 0.1x 1.6x N/A EBIT/Interest
Earned Expense
Dividend Payout N/A - N/A - N/A -
Ratio Company Company Company
does not pay does not pay does not pay Dividend paid/ Net
dividends dividends dividends income
Growth Rate (2.4%) 9.9% (13.0%) DPS(current
yr)/DPS(previous yr)
P/E N/A - 5.6x 5.3x
Company
Reported a
Loss Stock Price/EPS
Dividend Yield N/A - N/A - N/A -
Company Company Company
does not pay does not pay does not pay
dividends dividends dividends
DPS/Price of Share
Quality of Income 0.03x 0.18x 0.59x Net Income/ Cash
from operating
activities