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Highlights
- Free Cash flow of 3.297 billion
- EBITDA of 4.968 billion
- Income of operations of 3.688 billion
- Gross Profit of 5.382 billion
- Debt to equity ratio of .81
- P/E (Price to Earnings) Ratio of 204.2
- EPS (Earnings per Share) of 1.05
- Total Debt to Current Assets is 2.688 billion surplus in assets
- P/S ratio of 37.78
- Enterprise Value of 646.412 billion
- Enterprise Multiple of 133.9
- Working Capital of 11.379 billion
- Altman Z Score of 12.3139
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Tesla is known for their famous electric cars and there have been ambivalent opinions throughout the market of whether Tesla is overbought, oversold or even heading into bankruptcy. Tesla flaunted its achievements for Q3, highlighting on the first section of their financial statement a new record of 3.297 billion dollars in free cash flow profit. Tesla was able to achieve this by paying off all of their operating expenses and bringing in 5.1 billion dollars in operating activities. Free cash flow compared to last quarter increased by 431% and there was a 89.7% increase when comparing the average of all free cash flows for the year. Likewise, from the increase in free cash flow also came Tesla’s record revenue quarter of 21.45 billion dollars.
EBITDA stands for earnings before interest, taxes, depreciation and amortization, it’s used as an alternate measurement for net income. EBITDA is also similar to free cash flow where the formula exemplifies profit from a companies operations, the only difference is it doesn’t factor in taxes or capital expenditures (money invested back into the company). Tesla has an EBITDA of 4.968 billion dollars from its operations alone, when compared from on average for the past year, there was a 17.86% increase this quarter. The company is seeing steady growth and a healthy EBITDA margin of 23.2%.
What’s impressive about Tesla is the company doesn’t take nearly as much debt as other EV manufacturing companies or automobile companies. If the total debt were to be compared to all its liquid assets on hand, Tesla would be able to pay off all of its debt and still have 2.68 billion dollars left in liquid. Furthermore, Tesla has a very healthy debt to equity ratio of .81, indicating that there’s 81 cents of debt for every dollar of equity.
The downside of Tesla that most investors are worrying about is just how highly overbought the stock is as a whole. It’s important to have confluence between multiple financial ratios to tell whether Tesla is overpriced. For one, Tesla has a P/E ratio of 204.2 which is excessively high considering most companies have an average P/E of 20-25 and investors are warry about companies with high P/E ratios. Another indicator is the P/S ratio, Tesla has a P/S of 37.78. This means that for every dollar of sales the company makes, the investor is technically paying $37.78, indicating how overvalued the stock is and whether individuals are willing to pay that much in the future. A third indicator which is considered a more reliable way to compare whether a company is overvalued to other competitors is the Enterprise Multiple. The enterprise multiple is the enterprise value (which is the sum of market cap and all debt) divided by EBITDA. Typically an enterprise multiple is seen as value and is healthy if its lower than 10, Tesla’s is 133.9.
Is Tesla going to go bankrupt? Definitely not anytime soon, Tesla right now is able to comfortably pay off its debts and create consistent free cash flow every quarter. The Altman Z score is a powerful indicator that checks whether a company is close to bankruptcy. This financial ratio is a multitude of many parts of the financial statement and tells how many standard deviations a company is in, in terms of its financials. Most companies typically go bankrupt if they have a z score below 1.8, while other companies are in good shape if they have a z score above 3. Tesla has a z score of 12.31, indicating it’s in amazing shape overall.
Even with just how good Tesla looks from its financial statements the price is significantly volatile due to nervous investors that aren’t willing to pay for Tesla at such a high price and market capitalization. Other investors are also warry about the recent news of Tesla dropping costs of their vehicles in China, furthering implications that demand is shrinking in some parts of the world because of interest rates going up. Tesla continues to prove why it’s the top EV company, but can they keep this consistency like in Q3, or will they succumb to supply or demand issues.
