Question

Compute and Interpret Liquidity and Solvency Ratios

Selected balance sheet, income statement and cash flow statement information from Tesla, Inc. for 2017 and 2016 follows ($ thousands).

December 31 2017 2016
Cash and cash equivalents $3,701,247 $3,726,549
Restricted cash 156,545 106,741
Net receivables 515,381 499,142
Inventory 2,263,537 2,067,454
Other current assets 268,365 194,465
Current assets 6,905,075 6,594,351
Current liabilities 7,674,670 5,827,005
Total liabilities 23,022,980 16,750,167
Stockholders' equity 5,965,725 6,247,242
Year ended December 31, 2017
Loss before income taxes $(2,209,032)
Interest expense 504,592
Cash flows from operating activities (59,432)
Capital expenditures (3,748,147)
a. Compute the current ratio and quick ratio for each year.

Note: Round answers to two decimal places.

2017 2016
Current ratio Answer
0.9

Answer
1.13

Quick ratio Answer Answer
b. Compute the debt-to-equity ratio for 2017 and 2016 and the times-interest-earned ratio for 2017.

Note: Round answers to two decimal places. Use a negative sign with your answer, if appropriate.

2017 2016
Debt-to-equity ratio Answer
3.86

Answer
2.68

Times interest earned ratio Answer
c. Compute the cash burn rate for 2017.

Note: Round answer to the nearest whole number. Use a negative sign with your answer, if appropriate.

$Answer

thousand per day

Answer 1

Answer:

See answers below

Explanation:

1. Compute current ratio

Current ratio(2016) = Current assets / Current liabilities

= $6,594,351 / $5,827,005

= 1.13:1

Current ratio(2017) = Current assets / Current liabilities

= $6,905,075 / $7,674,670

= 0.89:1

Compute quick ratio

Quick ratio (2016) = Cash + Net receivables / Current liabilities

= $3,726,549 + $499,142 / $5,827,005

= $4225691 / $5827005

= 0.72:1

Quick ratio (2017) = Cash + Net receivables / Current liabilities

= $3,701,247 + $515,381 / $7,674,670

= $6,905,075 / $7,674,670

= 0.55:1

b. Compute debt to equity ratio

Debt to equity (2016) = Total liabilities / Stockholder's equity

= $16,750,167 / $6,247,242

= 2.68:1

Debt to equity (2017) = Total liabilities / Stockholder's equity

= $23,022,980 / $5,965,725

= 3.86:1

Compute times interest earned ratio

Times interest ratio(2017) = Earning before interest and income tax / Interest expense

• Please note that in 2017, loss before income taxes ($2,209,032) , hence no ratio is computed

c. Compute the cash burn rate for 2017.

Cash burn rate (2017) = Opening cash balance - Closing cash balance / Months

= $3,726,549 - $3,701,247 / 12

= $2,108