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The company that I will be examining is Tesla Motors, using its 2017 financial statements.
Net Income
The net income for Tesla in 2017 was a loss of $2.2 billion. In the year prior, the company recorded a net loss of $773 million. The net income figure is important for investors because the net income is basically what the company has earned in the prior year. The value of the company is determined by its net assets, and if the company has lost money, then it has lowered the value of the shareholders' equity, which means that any increase in assets has come with an increase in debt. For investors, the net income is one of the most basic measures of the company's financials – is it profitable or not?
For Tesla, the key concern is that the net income is that the company recorded a significantly larger loss for 2017 than for 2016. It has higher gross profit, but its operating expenses were significantly higher, as were its interest expenses. Thus, despite the fact that revenues are increasing and the company continues to increase its gross profits, it owes more money on debt to fuel its growth, and the increases in things like selling, general and administrative expenses likely also relate to higher spending in order to position the company for growth in the future. Investors thus are likely to take the worse loss with a grain of salt, because it represents an investment in future growth. Whether...
This figure is important for investors, especially equity investors, because it represents the total book value of equity in the company, of which they own a share. When this figure declines in a year, that usually means that the company lost money, which is exactly the case with Tesla in the past year. However, the decline was not as great as the loss, which makes sense because there was an additional amount of paid-in capital on the balance sheet, which helped offset some of the decline that resulted from the drop in retained earnings. Tesla has a substantial accumulated deficit at this point – it almost doubled last year with that massive loss.
Investors have to be careful with the total equity figure, and understand how that equity comes about. But under most circumstances, a decline in shareholders' equity is not a good thing for investors, because it means their investment is worth less than it was before.
Assets
The total value of Tesla's assets is $28.655 billion, compared with $22.664 billion the year before. This figure is important because it shows that despite the losses, Tesla is a growing company.…
References
Investopedia (2018) Financial statement analysis. Investopedia. Retrieved March 11, 2018 from https://www.investopedia.com/terms/f/financial-statement-analysis.asp
Tesla Motors 2017 Form 10-K. Retrieved March 11, 2018 from http://ir.tesla.com/secfiling.cfm?filingID=1564590-18-2956
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