Today I will be analyzing the documents I've obtained from the company Tesla (TSLA)
Specifically I am going to calculate the corporation's working capital. The financial document
that is required to do such calculations is the company's balance sheet. The balance sheet is
essentially a summary of the financial balances of Tesla, but to calculate the working capital we
should focus specifically on the company's current assets and current liabilities. In order to
calculate the working capital, you must subtract the current liabilities from the current assets
(Working Capital = Current Assets - Current Liabilities). The working capital is a numeric
representation of the capital used by a business in its day-to-day trading operations. As a
financial metric working capital is used to help plan for future needs, while ensuring a company
has enough cash to pay off short-term obligations. If a company has a positive working capital, it
has enough cash, liquid assets, and accounts receivable to cover its short-term obligations;
Companies with an adequate working capital can better equip themselves for fluctuations in cash
flows or revenue. A healthy business may also utilize working capital to fund growth without
incurring debt. A company that demonstrates a positive working capital may even find it easier to
qualify for various forms of credit. On the other hand, a company with negative working capital
simply does not have enough current assets to cover short-term obligations. Companies with
negative working capital will often have trouble paying suppliers, in addition they may find
trouble finding funds to put towards growth. Businesses that are struggling financially will often
experience a negative working capital; Negative working capital is often associated with and
predictive of poor debt management. In order for a business to be considered healthy or
financially sustainable, they must possess a positive working capital.
The total current assets reported on Tesla's balance sheet was ($27,100 Million), while the
current liabilities stated was ($19,705 Million). The working capital of Tesla is ($7,395 Million),
this was found using the working capital equation mentioned in the last paragraph (27,100 -
19,705 = 7,395). As we can see Tesla has a positive working capital. Tesla's working capital ratio
is approximately 1.375, meaning the company is in a position of adequate liquidity. Usually a
ratio between 1.2 and 2 is a reflection of financial health. This ratio had been calculated by
dividing Tesla's current assets by their current liabilities. In short, Tesla has sufficient working
capital on hand to address their bills to suppliers.
Although Tesla has a stable working capital for their most recent quarter, it does not
necessarly provide a complete picture of the overall direction of Tesla. As we know, the balance
sheet is only a snapshot from a precise period of time. In order to obtain a more sufficient
understanding of the direction Tesla is heading, we must compare the company's working capital
value today to its value from years prior. Using data provided from Mergent Online, I was able to
see a decrease