The size of Tesla Inc (NASDAQ:TSLA), a US$51.64B large-cap, often attracts investors seeking a reliable investment in the stock market. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. But, the health of the financials determines whether the company continues to succeed. This article will examine Tesla’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into TSLA here. View our latest analysis for Tesla
How does TSLA’s operating cash flow stack up against its debt?
TSLA has built up its total debt levels in the last twelve months, from US$8.59B to US$12.12B , which comprises of short- and long-term debt. With this growth in debt, TSLA currently has US$3.37B remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of TSLA’s operating efficiency ratios such as ROA here.
Can TSLA pay its short-term liabilities?
With current liabilities at US$7.67B, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.86x, which is below the prudent industry ratio of 3x.
Is TSLA’s debt level acceptable?
With total debt exceeding equities, Tesla is considered a highly levered company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. However, since TSLA is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
With a high level of debt on its balance sheet, TSLA could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for TSLA to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. This is only a rough assessment of financial health, and I’m sure TSLA has company-specific issues impacting its capital structure decisions. I suggest you continue to research Tesla to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TSLA’s future growth? Take a look at our free research report of analyst consensus for TSLA’s outlook.
- Valuation: What is TSLA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether TSLA is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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