Ratio 1 Name

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Feb 20, 2024

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Ratio 1 Name & Formula: Current Ratio = CR = CA/CL 1. What does this ratio tell you? The current ratio is a measure of liquidity, indicating a company's capacity to fulfill its short- term financial commitments. 2. In general, would you like this ratio to be higher or lower? Why? A higher current ratio is desired as it indicates that the company possesses enough liquid assets to cover its short-term liabilities. 3. Compute this ratio for Year 2: Year 2 Ratio is 2.26 4. Trend Analysis: Compute this ratio for Year 1. Did the ratio get better or worse from year 1 to year 2? Year 1 Ratio is 2.03, the ratio got better from year 1 to year 2 5. Industry Analysis: Estimates of industry averages for this ratio: How does the ratio compare with the industry? Upper quartile 2.6 Middle quartile 1.8 Lower quartile 1.4 Both Year 1 and 2 are in the upper quartile when compared to the industry averages shown above. When compared to the standards applicable to the industry Tesla Inc is in between the Middle Quartile and Upper Quartile. 6. What are some risks or concerns if this ratio is TOO LOW? A current ratio that is excessively low suggests that the company might struggle to meet its short-term obligations and is not utilizing its current assets effectively. 7. What are some actions that could INCREASE this ratio? To enhance the current ratio, the company might consider liquidating its liabilities and disposing of non-performing assets. 9. What are some risks or concerns if this ratio is TOO HIGH? If the current ratio is excessively high, it could indicate that management is not effectively utilizing the company's assets. 10. What are some actions that could DECREASE this ratio? The company can lower this ratio by increasing its current liabilities and shortening the term of its long-term debts. 11. Why would this ratio be commonly considered as a key ratio at your organization, and in organizations in general? As a manufacturing company, it's important for them to focus on the current ratio. This ratio helps make sure they can pay their short-term bills and find the money needed to do so within the next year. 12. What actions and/or decisions (if any) in your operational area/unit could influence this ratio? I think that, at this moment, there is no need for the company to take any action to enhance this ratio.

Ratio Analysis Activity Ratio 4 Name & Formula: Debt to Equity = total debt / total equity 1. What does this ratio tell you? Debt Ratios assess how much a company relies on borrowed funds from lenders as opposed to capital from shareholders to finance its activities. The debt-to- equity ratio evaluates the total debt against total equity. 2. I n general, would you like this ratio to be higher or lower? Why? Typically, the company prefers a smaller figure for this ratio, aiming for its total debts to be a lower proportion in relation to its total equity. 3. Compute this ratio for Year 2: = 36440/44704 = 0.815 4. Trend Analysis: Compute this ratio for Year 1. Did the ratio get better or worse from year 1 to year 2? =30548/30189 =1.01 The ratio improved between the first and second year. 5. Industry Analysis: Estimates of industry averages for this ratio: How does the ratio compare with the industry? Upper quartile 2.4 Middle quartile 0.78 Lower quartile 0.33 Relative to the industry average, Year 1 and 2 fall between the upper and middle quartiles. 6. What are some risks or concerns if this ratio is TOO LOW? If the figures are excessively low, it might suggest that the company is not taking advantage of the leverage provided by financing its operations. 7. What are some actions that could INCREASE this ratio? The company can raise this ratio by acquiring more loans and accumulating debt instead of predominantly self- funding its operations, thereby freeing up available cash. 10. What are some risks or concerns if this ratio is TOO HIGH? If the ratio is excessively high, it might result in difficulties in obtaining loans or meeting existing financial commitments. 11. What are some actions that could DECREASE this ratio? The ratio can be lowered by using available cash to diminish debt or by boosting total equity through the issuance of additional stock. 12. Why would this ratio be commonly considered as a key ratio at your organization, and in organizations in general? Maintaining this figure at a low level, at or beneath the middle quartile, demonstrates to prospective investors that the company can cover most of its debts with shareholder equity.

13. What actions and/or decisions (if any) in your operational area/unit could influence this ratio? Increasing shareholder equity would positively impact on this ratio.

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Ratio Analysis Activity Ratio 5 Name & Formula: Operating Profit Margin = (revenues – total operating expenses) / total revenues 1. What does this ratio tell you? Operating Profit Margin ratio represents the percentage of revenue remaining after deducting expenses from sales. 2. In general, would you like this ratio to be higher or lower? Why? Ideally, a company aims for a higher figure in this context, as it indicates whether the business is operating at a profit or a loss. 3. Compute this ratio for Year 2: =(81462-7197)/81462 = 74265/81462 =0.912 4. Trend Analysis: Compute this ratio for Year 1. Did the ratio get better or worse from year 1 to year 2? =(53823-7083)/53823 = 46,740/53823 =0.868 The ratio improves from the first year to the second year. 5. Industry Analysis: Estimates of industry averages for this ratio: How does the ratio compare with the industry? Upper quartile n/a %, BUT Net PM = 4.9% Middle quartile n/a, BUT Net PM = 1.5% Lower quartile n/a, BUT Net PM = 0.5% Upon comparison with industry averages, both years fall between the middle quartile and the lower quartile. 6. What are some risks or concerns if this ratio is TOO LOW? The danger of a ratio that is too low lies in the business's inability to produce sufficient cash flow to sustain its operations. 7. What are some actions that could INCREASE this ratio? The company could boost this ratio by reducing operating expenses and enhancing revenues. 8. What are some risks or concerns if this ratio is TOO HIGH? If this ratio is excessively high, it might raise concerns about inefficiency in managing, investing, and allocating the company's funds. This could also disrupt future financial projections. 9. What are some actions that could DECREASE this ratio? The company might organize a major sale of their product to reduce inventory, potentially even reducing prices to the point where they do not make a profit. Alternatively, a situation where fixed expenses remain elevated while revenue decreases could also be considered. 10. Why would this ratio be commonly considered as a key ratio at your organization, and in organizations in general?

This ratio is important to track as it effectively reflects a company's profitability. A higher ratio typically signifies that the company is being managed efficiently. 11. What actions and/or decisions (if any) in your operational area/unit could influence this ratio? I believe raising salaries could impact a company's operating profit margin.

Ratio Analysis Activity Ratio 6 Name & Formula: Net Profit Margin = net income / total revenues Aka Return on Sales 1. What does this ratio tell you? The net profit margin indicates the proportion of sales remaining after all expenses have been subtracted. 2. In general, would you like this ratio to be higher or lower? Why? Typically, a company aims for a higher ratio, as it signifies that a larger portion of each sale contributes to the company's profitability. 3. Compute this ratio for Year 2: =12587/81462 =0.1545 or 15.5% 4. Trend Analysis: Compute this ratio for Year 1. Did the ratio get better or worse from year 1 to year 2? =5644/53823 =0.1048 or 10.5% The ratio improved from the first year to the second year. 5. Industry Analysis: Estimates of industry averages for this ratio: How does the ratio compare with the industry? Upper quartile 4.9% Middle quartile 1.5 Lower quartile 0.5 Both Years for Tesla Inc were in the Upper quartile when compared to industry averages. 6. What are some risks or concerns if this ratio is TOO LOW? If the net profit margin is excessively low, it could suggest that the company's pricing strategy is not effective. 8. What are some actions that could INCREASE this ratio? The company can boost its net income by cutting down on the cost of goods sold or by decreasing operating expenses. 9. What are some risks or concerns if this ratio is TOO HIGH? A high ratio might worry investors as it could indicate that the company is growing complacent and losing focus on expansion. 10. What are some actions that could DECREASE this ratio? A drop in sales or a rise in operating expenses will lower this ratio. 11. Why would this ratio be commonly considered as a key ratio at your organization, and in organizations in general? Net profit margin assists investors in evaluating whether management is efficiently producing sufficient profit from sales and effectively controlling costs.

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12. What actions and/or decisions (if any) in your operational area/unit could influence this ratio? Increasing wages can have an impact on the net profit margin.

Ratio Analysis Activity Ratio 7 Name & Formula: Return on Assets = net income / total assets 1. What does this ratio tell you? The Return on Assets ratio, a measure of profitability, evaluates how effectively management uses the company's assets to produce returns for common shareholders. 2. In general, would you like this ratio to be higher or lower? Why? Typically, a company prefers a higher ratio as it suggests greater efficiency in profit generation. 3. Compute this ratio for Year 2: = 12587/82338 =0.153 4. Trend Analysis: Compute this ratio for Year 1. Did the ratio get better or worse from year 1 to year 2? =5644/62131 =0.091 From Year 1 to Year 2 the ROA gets better. 5. Industry Analysis: Estimates of industry averages for this ratio: How does the ratio compare with the industry? Upper quartile 10% Middle quartile 3.3 Lower quartile 1.3 When compared to the industry average, Tesla Inc ranks in the upper quartile in year 2 and in between the upper and middle quartiles in Year 1. 6. What are some risks or concerns if this ratio is TOO LOW? A low Return on Assets (ROA) could indicate issues with strategic management or suggest that the company is trying to expand too rapidly. 7. What are some actions that could INCREASE this ratio? Enhancing net income through attention to operating expenses or lowering the cost of goods sold would result in an increase in this ratio. 8. What are some risks or concerns if this ratio is TOO HIGH? An excessively high Return on Assets (ROA) could lead to complacency. 9. What are some actions that could DECREASE this ratio? Investing in non-revenue-generating assets would be a step that lowers this ratio. 10. Why would this ratio be commonly considered as a key ratio at your organization, and in organizations in general? ROA holds significance for a company as it provides investors and management with insights into the company's financial health and its effectiveness in resource utilization.

11. What actions and/or decisions (if any) in your operational area/unit could influence this ratio? Taking measures to reduce the cost of goods sold can have an impact on this ratio.

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Ratio Analysis Activity Ratio Analysis Activity Ratio 9 Name & Formula: Cash Flow Statement Ratios = Cash Flow from Operations (CFO) relative to other items, such as: Note: CFO = top category of CF Statement. Year 2 Year 1 CFO / Revenue = =14724/81462= 0.18 =11497/53823= 0.21 CFO / Operating Income = =14724/13656= 1.08 =11497/6523= 1.76 CFO / Total Assets = =14724/82338 = 0.18 =11497/62131= 0.19 CFO / Total Equity = =14724/44704= 0.33 =11497/30189= 0.38 CFO / Total Debt = =14724/82338 =0.18 =11497/62131= 0.19 1. In general terms, what do these ratios & ratios like these tell you? These ratios indicate the relationship between cash flow and their respective denominators. For instance, CFO/Revenue reveals the amount of cash generated for every dollar of revenue. By using Operating Cash Flow, a company can assess each line item in comparison to its Operating Cash Flow to evaluate how effectively it manages cash in relation to its assets, debt, and equity. 2. In general, would you like these ratios to be higher or lower? Why? Typically, these ratios are ideally higher as they serve as a crucial gauge of a company's liquidity. 3. Compute these ratios for Years 1 & 2 in the columns above: See above 4. Trend Analysis: In general terms, did the ratios generally get better or worse? Based on the data, there was a decline from Year 1 to Year 2. 5. Industry Analysis: Why would it be valuable to evaluate how a firm’s CFO ratios (such as the ones above) compare with the industry averages for the ratios? Assessing how a company's CFO ratios stack up against industry averages is valuable as it enables the company to determine whether its financial performance is on an upward or downward trajectory. 6. What are some risks or concerns if these ratios are TOO LOW? Insufficient cash flow from operations poses the risk of the business being unable to fund future opportunities and sustaining operations when available cash is depleted. 7. What are some actions that could INCREASE these ratios? Through the sale of excess inventory, providing discounts, pre-selling new products, and implementing other income-generating initiatives, these ratios could be boosted. 8. What are some risks or concerns if these ratios are TOO HIGH? Consistently high Operating Cash Flow might raise concerns that the company is not efficiently reinvesting the cash flow to foster its growth. 9. What are some actions that could DECREASE these ratios?

Making additional investments in capital expenditures will restrict cash flow and result in a reduction of the ratio. 10. Why would these ratios be commonly considered as key ratios at your organization, and in organizations in general? This ratio is valuable for gauging a company's capacity to convert sales revenue into cash, and it is usually assessed over a period of time to smooth out periods of suppressed free cash flow. 11. What actions and/or decisions (if any) in your operational area/unit could influence these ratios? There are no quick actions that can directly impact these ratios since they primarily relate to cash flow from operations. However, by operating the business more efficiently, cutting operational expenses, and reducing debt, the business can enhance its financial position over time.