Liquidity Ratios 1.1 Acid-test ratio1.1.1 Definition: The acid-test ratio, also known as the quick ratio, isa financial ratio that measures a company''''s liquidity.. This indicates the com
Trang 1FPT UNIVERSITY GROUP ASSIGNMENT
Analysis Of Motor Vehicles Company’s Financial Report
Semester: SUMMER– YEAR 2023
Group’s members & Student ID
Trang 31 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 the production of heavy-duty commercial battery-electric vehicles, fuel cell electric vehicles, 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, vehicle components and engines, energy storage systems, and electric vehicle drivetrains.(Johnston, 2023)
- Nikola Corp has designed and manufactured heavy-duty commercial battery-electric (BEV) and hydrogen-battery-electric vehicles (FCEV) and given energy infrastructure solutions (Johnston, 2023)
2 General Motors Company (NYSE: GM)
● Company Profile:
- General Motors is an American multinational automotive manufacturing company founded on September 16, 1908, with headquarters in Detroit
- Through a long process of formation and development, GM has become one of the leading automobile manufacturing companies in the world during the 20th and early 21st centuries.(Britannica, 2019)
● Business Activities:
- General Motors has established manufacturing plants in 8 countries and has become
a distribution center throughout the US, Canada and many other countries around the 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 and military
Trang 41 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 a more conservative measure of liquidity than the current ratio, as it excludes inventory and other current assets that may be more difficult to quickly convert to cash in the short term
1.1.2 Formula:
Acid-Test Ratio
= QuickAsset
Current Liabilities=
Cash Short+ −Term Investment+Receivables
CurrentLiabilities
1.1.3.Data:
1.1.4 Analysis:
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 the company'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 to 0.93 This indicates the company's ability to immediately pay off liabilities using assets readily 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 a higher ratio compared to General Motors
Trang 51.1.1 Definition:
- The current ratio is a financial ratio that measures a company's ability to pay off its short-term liabilities using its current assets
It is a commonly used measure of liquidity, which is a company's ability to meet its short-term obligations
- Helps assess the company’s ability to pay its debts in the near future
1.1.2 Formula:
Current Ratio = CurrentAssets
CurrentLiabilities
1.1.3 Data:
1.1.4 Analysis:
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 This indicates 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 the company'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 Nikola Corporation experienced a significant decline in its current ratio, while General Motors maintained stability
Identifying operational issues and creditworthiness:
- The significant decrease in Nikola Corporation's current ratio from 2020 to 2022 indicates potential issues in meeting short-term obligations and providing sufficient financing for business operations
Trang 6- However, both companies' Acid-test ratios ensure the ability to immediately pay off liabilities using assets readily convertible to cash, although the ratios are consistently high for 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 should consider additional factors
2 Profitability Ratios
2.1 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 is available to cover expenses and provide a profit The gross profit margin indicates how efficiently a company is utilizing its resources and managing its production costs
1.1.2 Formula:
Gross Profit Margin = NetSales−Cost Of GoodsSold
GrossProfit NetSales
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
Trang 7remains after deducting all expenses, including COGS, operating expenses, interest expenses, taxes, and other expenses
1.1.2 Formula:
Net Profit Margin = NetIncome
NetSales
1.1.3 Data:
1.1.4 Analysis:
2.3 Return on asset
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 how effectively a company is utilizing its assets to generate profits
1.1.2 Formula: ROA = NetIncome
AverageInvested Assets
1.1.3 Data:
Trang 82.4 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 shareholder equity ROE indicates how effectively a company is using its equity to generate profits
1.1.2 Formula: ROE = NetIncome
Average 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
Trang 9assets such as property, plant and equipment, inventory, and accounts receivable, as well as intangible assets such as patents, trademarks, and goodwill
1.1.2 Formula:
Asset Growth Rate = EndingTotal Assets−BeginningTotalAssets
BeginningTotalAssets
1.1.3 Data:
1.1.4 Analysis:
3.2 Revenue growth
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 in total revenues divided by total revenues from the same period in the previous year Revenue growth can be measured as a percent increase from a starting point
1.1.2 Formula:
Revenue growth = Current Period Revenue–PreviousPeriod Revenue
PreviousPeriod Revenue
1.1.3 Data:
Trang 103.3 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 how efficiently a company is collecting revenue – and by extension, how efficiently
it is using its assets The accounts receivable turnover ratio measures the number of times over a given period that a company collects its average accounts receivable
1.1.2 Formula:
Accounts Receivable Turnover = NetSales
Average AccountsReceivable
1.1.3 Data:
1.1.4 Analysis:
4 Turnover Ratios
4.1 Accounts receivable turnover
Trang 111.1.1 Definition: Accounts receivable turnover is a financial ratio that
measures how efficiently a company collects payments from its customers for the products or services it has sold This ratio is important in evaluating a company's cash flow and liquidity
1.1.2 Formula:
Accounts Receivable Turnover = NetSales
Average AccountsReceivable
1.1.3 Data:
1.1.4 Analysis:
4.2 Inventory Turnover
1.1.1 Definition: Inventory turnover is a financial ratio that measures
how efficiently a company is managing its inventory It represents the number
of 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
Inventory
1.1.3 Data:
1.1.4 Analysis:
Trang 121.1.1 Definition:
- Days sales receivable (DSR), also known as days sales outstanding (DSO), is a financial ratio that measures the average number of days it takes for a company to collect payments from its customers It provides an indication of how efficiently a company is managing its accounts receivable, and how quickly it is turning its sales into cash
- How much time is likely to pass before we receive cash receipts from credit sales
-1.1.2 Formula: Days Sales Receivable = AccountsReceivable
NetSales × 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 a little bit to 124.30 in 2022 This indicates that a company is able to collect payments 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 94.31
in 2022 This indicates that a company is able to collect payments from its customers quickly.This indicates that a company takes a longer time to collect payments from its customers
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 of days it takes for a company to sell its inventory It provides an indication of how efficiently a company is managing its inventory and how quickly it is turning its inventory into sales
1.1.2 Formula: Days' Sales in Inventory = EndingInventory
Costof GoodsSold× 365
Trang 131.1.4 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 2022 rapidly This indicates that a company takes a longer time to sell its inventory, the average number of days it takes for a company to turn its inventory into sales It is calculated 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 year
to 41.31 in 2022 This shows that it had great performance in 2021 but in 2022 the company low inventory to meet customer demand Striking the right balance between inventory turnover and maintaining sufficient stock levels is crucial for operational efficiency 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 two year 2020 and 2021 but increased rapidly in 2022 and higher than General Motors every year just one year
5 Leverage Ratios
5.1 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 to which a company is using debt to finance its operations, as well as its level of financial risk
1.1.2 Formula: Debt to Equity = TotalLiabilities
TotalEquity
1.1.3 Data:
Trang 14Nikola 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 1.35
in 2022 This indicates that the company's debt has been increasing relative to its equity Higher debt equity ratios suggest higher financial risk and potential difficulties
in 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 a negligible ratio of 0.01 in 2022 This implies that the company has a relatively low level 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 been increasing, indicating higher financial risk, General Motors Company has maintained
a 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's ability to make its interest payments on outstanding debt It indicates how many times a company's earnings before interest and taxes (EBIT) cover its interest expenses
1.1.2 Formula: Times Interest Earned = EBIT
InterestExpense
1.1.3 Data:
Trang 15- 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 This negative ratio suggests that the company's earnings are insufficient to cover its 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 It has consistently posted positive ratios, with 8.37 in 2020, 14.39 in 2021, and 12.75 in 2022 These ratios indicate that the company's earnings are comfortably covering its interest expenses
- Comparison: There is a stark contrast in the performance of the two
companies regarding times interest earned While Nikola Corporation has negative ratios and is facing challenges in covering interest expenses, General Motors Company has positive ratios and demonstrates the ability to meet its interest obligations
- Potential Operational Problems: The fluctuations and poor performance in
the ratios for Nikola Corporation indicate potential operational problems It could be experiencing issues such as inadequate profitability, increasing debt burden, or inefficient cost management These problems may suggest financial stress and operational inefficiencies, which raise concerns about the company's ability to repay debt or manage additional credit
- Conclusion on Eligibility for Line of Credit: Based on the analysis of the ratios and operational problems, Nikola Corporation appears to be facing significant financial and operational challenges Considering the increasing debt equity ratio, 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 and uncertainties surrounding its ability to repay debt On the other hand, General Motors Company's consistent performance, low debt equity ratio, and positive times interest earned ratios make it a more reliable borrower and potentially eligible for a line of credit