analysis of motor vehicles companys financial report

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FPT UNIVERSITYGROUP ASSIGNMENT

Analysis Of Motor Vehicles Company’sFinancial Report

Semester: SUMMER– YEAR 2023

Group’s members & Student ID

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1. Nikola Corporation (NASDAQ: NKLA)

● Company profile:

- Nikola Motor Company (2014-2020), now a subsidiary of Nikola Corporation,was founded in 2014 by Trevor Milton in Salt Lake City, Utah. (Johnston,2023)

- Nikola Corporation is an American automobile company specializing in theproduction of heavy-duty commercial battery-electric vehicles, fuel cell electricvehicles, and energy solutions.

- Nikola Corp. is headquartered in Phoenix, Arizona, USA.

- Nikola Corp. operating in industrial fields such as: Automotive & Auto Parts-

●Business Activities:

- Nikola Motor Company’s main products are electric vehicles, vehiclecomponents and engines, energy storage systems, and electric vehicledrivetrains.(Johnston, 2023)

- Nikola Corp. has designed and manufactured heavy-duty commercial electric (BEV) and hydrogen-electric vehicles (FCEV) and given energyinfrastructure solutions. (Johnston, 2023)

battery-2. General Motors Company (NYSE: GM)

●Business Activities:

- General Motors has established manufacturing plants in 8 countries and has becomea distribution center throughout the US, Canada and many other countries aroundthe world.(Britannica, 2019)

- General Motors specializes in manufacturing products such as automobiles, trucks,automotive components and engines(Britannica, 2019)

- Military vehicles production (BrightDrop) for the United States government andmilitary.

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1. Liquidity Ratios 1.1 Acid-test ratio

1.1.1 Definition: The acid-test ratio, also known as the quick ratio, is

a financial ratio that measures a company's liquidity. The acid-test ratio is amore conservative measure of liquidity than the current ratio, as it excludesinventory and other current assets that may be more difficult to quicklyconvert to cash in the short term.

1.1.2 Formula:

Acid-Test Ratio= QuickAsset

Analysis of performance in financial ratios for each company:

Nikola Corporation (NKLA):

- Acid-test ratio: The ratio decreased from 17.16 in 2020 to 0.82 in 2022. This shows thecompany's ability to immediately pay off liabilities using assets readily convertible to cash,without considering inventory. However, the value remains relatively high.

General Motors Company (GM):

- Acid-test ratio: The ratio remained below 1 throughout the three years, ranging from 0.88 to0.93. This indicates the company's ability to immediately pay off liabilities using assetsreadily convertible to cash, without considering inventory, but at a relatively low level.

Comparison of operational efficiency between the two companies:

- Acid-test ratio: Both companies have a stable Acid-test ratio, but Nikola Corporation has ahigher ratio compared to General Motors.

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1.1.1 Definition:

- The current ratio is a financial ratio that measures a company'sability to pay off its short-term liabilities using its current assets.It is a commonly used measure of liquidity, which is acompany's ability to meet its short-term obligations.

- Helps assess the company’s ability to pay its debts in the nearfuture

Analysis of performance in financial ratios for each company:

Nikola Corporation (NKLA):

- Current ratio: The ratio decreased significantly from 17.16 in 2020 to 1.14 in 2022. Thisindicates a decline in the company's liquidity and ability to meet short-term obligations.General Motors Company (GM):

- Current ratio: The ratio remained stable above 1 over the three-year period, indicating thecompany's ability to meet short-term obligations and maintain liquidity.

Comparison of operational efficiency between the two companies:

- Current ratio: Both companies have the ability to meet short-term obligations, but NikolaCorporation experienced a significant decline in its current ratio, while General Motorsmaintained stability.

Identifying operational issues and creditworthiness:

- The significant decrease in Nikola Corporation's current ratio from 2020 to 2022 indicatespotential issues in meeting short-term obligations and providing sufficient financing forbusiness operations.

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- However, both companies' Acid-test ratios ensure the ability to immediately pay offliabilities using assets readily convertible to cash, although the ratios are consistently highfor Nikola Corporation and relatively low for General Motors.

- Based on the Acid-test ratio, customers may qualify for credit limits from both companies,but a comprehensive evaluation of repayment capability and financial strength shouldconsider additional factors.

2. Profitability Ratios2.1 Gross profit margin

1.1.1 Definition: Gross profit margin is a financial ratio that measures

a company's profitability. It represents the percentage of sales revenue that isavailable to cover expenses and provide a profit. The gross profit marginindicates how efficiently a company is utilizing its resources and managing itsproduction costs.

1.1.2 Formula:

Gross Profit Margin = NetSales−Cost Of GoodsSold

1.1.3 Data:

1.1.4 Analysis:

Analysis of performance in financial ratios for each company:

Comparison of operational efficiency between the two companies:Identifying operational issues and creditworthiness:

2.2 Net profit margin

1.1.1 Definition: Net profit margin is a financial ratio that measures a

company's profitability. It represents the percentage of sales revenue that

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remains after deducting all expenses, including COGS, operating expenses,interest expenses, taxes, and other expenses.

1.1.1 Definition: Return on assets (ROA) is a financial ratio that

measures a company's profitability relative to its total assets. It indicates howeffectively a company is utilizing its assets to generate profits.

1.1.2 Formula: ROA = NetIncomeAverageInvested Assets

1.1.3 Data:

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2.4 Return on equity

1.1.1 Definition: Return on equity (ROE) is a financial ratio that

measures a company's profitability relative to the amount of shareholderequity. ROE indicates how effectively a company is using its equity togenerate profits.

1.1.2 Formula: ROE = NetIncomeAverage TotalEquity

1.1.3 Data:

1.1.4 Analysis: 3. Growth

3.1 Asset growth

1.1.1 Definition: Asset growth refers to the increase in the total value

of a company's assets over a period of time. Assets can include tangible

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assets such as property, plant and equipment, inventory, and accountsreceivable, as well as intangible assets such as patents, trademarks, andgoodwill.

1.1.1 Definition: Revenue growth refers to an increase in revenue

over a period of time. In accounting, revenue growth is the rate of increase intotal revenues divided by total revenues from the same period in the previousyear. Revenue growth can be measured as a percent increase from a startingpoint.

1.1.2 Formula:

Revenue growth = Current Period Revenue–PreviousPeriod RevenuePreviousPeriod Revenue

1.1.3 Data:

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3.3 Net profit growth

1.1.1 Definition: The accounts receivable turnover ratio, also known

as the debtor’s turnover ratio, is an efficiency ratio that measures howefficiently a company is collecting revenue – and by extension, how efficientlyit is using its assets. The accounts receivable turnover ratio measures thenumber of times over a given period that a company collects its averageaccounts receivable.

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1.1.1 Definition: Accounts receivable turnover is a financial ratio that

measures how efficiently a company collects payments from its customers forthe products or services it has sold. This ratio is important in evaluating acompany's cash flow and liquidity.

1.1.1 Definition: Inventory turnover is a financial ratio that measures

how efficiently a company is managing its inventory. It represents the numberof times a company's inventory is sold and replaced over a period of time.

1.1.2 Formula: Inventory Turnover = Cost of Goods Sold / Average

1.1.3 Data:

1.1.4 Analysis:

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1.1.1 Definition:

- Days sales receivable (DSR), also known as days sales outstanding (DSO), is afinancial ratio that measures the average number of days it takes for a company tocollect payments from its customers. It provides an indication of how efficiently acompany is managing its accounts receivable, and how quickly it is turning its salesinto cash.

- How much time is likely to pass before we receive cash receipts from credit sales.-

1.1.2 Formula: Days Sales Receivable = AccountsReceivableNetSales × 365

1.1.3 Data:

1.1.4 Analysis:

Nikola Corporation:Days sales receivable for Nikola Corporation

shows an decrease , from 1264.05 in 2020 to 0.00 in 2021 and increase alittle bit to 124.30 in 2022. This indicates that a company is able to collectpayments from its customers quickly.

General Motors Company:Days sales receivable for General Motor

shows an increase highest in 2020 and lower step by step 98.13 in 2021 and 94.31in 2022. This indicates that a company is able to collect payments from its customersquickly.This indicates that a company takes a longer time to collect payments from itscustomers

Comparison: Nikola Corp had good at controlled 4.4 Days’ Sales in Inventory

1.1.1 Definition: Days' sales in inventory (DSI), also known as days'

inventory on hand, is a financial ratio that measures the average number ofdays it takes for a company to sell its inventory. It provides an indication ofhow efficiently a company is managing its inventory and how quickly it isturning its inventory into sales.

1.1.2 Formula: Days' Sales in Inventory = EndingInventoryCostof GoodsSold× 365

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1.1.4 Analysis:

Nikola Corporation: Days' sales in inventory for Nikola Corporation shows a

balance from 0.00 in 2020 to 0.00 in 2021 had nothing and further to 289.02 in 2022rapidly. This indicates that a company takes a longer time to sell its inventory, theaverage number of days it takes for a company to turn its inventory into sales. It iscalculated by dividing the average inventory by the cost of goods sold per day.

General Motors Company: Days' sales in inventory for General Motors

shows an increase from 34.33 in 2020 to 43.44 in 2021 and lower than previous yearto 41.31 in 2022. This shows that it had great performance in 2021 but in 2022 thecompany low inventory to meet customer demand. Striking the right balance betweeninventory turnover and maintaining sufficient stock levels is crucial for operationalefficiency and customer satisfaction

Comparison: There is a significant difference in the performance of the two

companies in terms of Days' sales in inventory. While Nokila Corp had stand twoyear 2020 and 2021 but increased rapidly in 2022 and higher than General Motorsevery year just one year

5. Leverage Ratios5.1 Debt to Equity

1.1.1 Definition: Debt to equity is a financial ratio that measures the

amount of debt a company has relative to its equity. It indicates the degree towhich a company is using debt to finance its operations, as well as its level offinancial risk.

1.1.2 Formula: Debt to Equity = TotalLiabilitiesTotalEquity

1.1.3 Data:

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Nikola Corporation: The debt equity ratio for Nikola Corporation shows an

increasing trend over the years, from 0.07 in 2020 to 0.43 in 2021 and further to 1.35in 2022. This indicates that the company's debt has been increasing relative to itsequity. Higher debt equity ratios suggest higher financial risk and potential difficultiesin meeting debt obligations.

General Motors Company: General Motors Company has consistently maintained a

low debt equity ratio over the years, with a ratio of 0 in 2021 and 2020, and anegligible ratio of 0.01 in 2022. This implies that the company has a relatively lowlevel of debt compared to its equity, indicating a lower financial risk.

Comparison: There is a significant difference in the performance of the two

companies in terms of debt equity. While Nikola Corporation's ratio has beenincreasing, indicating higher financial risk, General Motors Company has maintaineda low and stable ratio, suggesting lower risk.

5.2 Times interest earned (Interest Coverage ratio)

1.1.1 Definition: The times interest earned (TIE) ratio, also known as

the interest coverage ratio, is a financial ratio that measures a company'sability to make its interest payments on outstanding debt. It indicates howmany times a company's earnings before interest and taxes (EBIT) cover itsinterest expenses.

1.1.2 Formula: Times Interest Earned = EBITInterestExpense

1.1.3 Data:

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- Nikola Corporation: The times interest earned ratio for Nikola Corporation is

not provided for 2020, and in 2021, it is exceptionally low at -1426.97. Thisnegative ratio suggests that the company's earnings are insufficient to coverits interest expenses, indicating financial difficulties and potential insolvency.- General Motors Company: General Motors Company has shown

comparatively healthier performance in terms of times interest earned ratio. Ithas consistently posted positive ratios, with 8.37 in 2020, 14.39 in 2021, and12.75 in 2022. These ratios indicate that the company's earnings arecomfortably covering its interest expenses.

- Comparison: There is a stark contrast in the performance of the two

companies regarding times interest earned. While Nikola Corporation hasnegative ratios and is facing challenges in covering interest expenses,General Motors Company has positive ratios and demonstrates the ability tomeet its interest obligations.

- Potential Operational Problems: The fluctuations and poor performance in

the ratios for Nikola Corporation indicate potential operational problems. Itcould be experiencing issues such as inadequate profitability, increasing debtburden, or inefficient cost management. These problems may suggestfinancial stress and operational inefficiencies, which raise concerns about thecompany's ability to repay debt or manage additional credit.

- Conclusion on Eligibility for Line of Credit: Based on the analysis of the ratiosand operational problems, Nikola Corporation appears to be facing significantfinancial and operational challenges. Considering the increasing debt equityratio, negative times interest earned ratio, and potential operational problems,it may not be eligible for a line of credit due to the higher financial risk anduncertainties surrounding its ability to repay debt. On the other hand, GeneralMotors Company's consistent performance, low debt equity ratio, and positivetimes interest earned ratios make it a more reliable borrower and potentiallyeligible for a line of credit.

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In summary, from analyzing the data and ratios, we can see how the financial position ofeach company is. Nikola Corporation is facing great financial difficulties and challenges. Forexample, an increasing debt-to-equity ratio, negative earnings and potential operatingproblems, low or even negative growth and profitability ratios. About General Motors, it canbe seen that the company is still showing its stable performance year after year withconsistent performance, low debt-to-equity ratio, and positive time-earnings ratio,maintaining stable growth rate and profitability ratios.

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analysis of motor vehicles companys financial report

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