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Finance: Debt to equity ratio (Essay Sample)

Instructions:
The company to use is Tesla Motors Balance Sheet and Market Value of Your Company's Liabilities and Equity Refer to your company's most recent balance sheet. Review the 'liabilities and equity side' of the balance sheet. (a) Short term liabilities (or debt) and long term liabilities Find our from the balance sheet of the company the total of the short term liabilities (also called 'short term debt') and long term liabilities (also called 'long term debt') (b) Equity The market value of equity is by definition equal to the number of shares outstanding times the market price per share. Find out the number of shares outstanding and the recent price per share. Then multiply one by the other in order to find the market value of equity of your company. If you have a problem finding our the number of shares outstanding you may go to http://finance.google.com and insert the name of your company. The market value of equity of your company is what is called 'Mkt Cap' (that is, Market Capitalization) that is market capitalization. An alternative site is http://finance.yahoo.com where again you insert your company's name and get the market capitalization. Once you have this information, prepare a two page paper with the following: 1. Compute the debt ratio of your company (total liabilities divided by the total liabilities plus equity) and the debt to equity ratio, (total liabilities divided by total equity). Also, show these two ratios for short-term liabilities only and for long-term liabilities only (instead of total liabilities use just short-term liabilities and long-term liabilities). Show all of your work and calculations. 2. Give your recommendation as to whether or not you consider these ratios to be too small or too large. Should your SLP company increase its debt or take steps to pay off its debt? 3. Compute the debt to equity ratios to two other companies in the same industry as your SLP company. Which of these three companies has the highest debt to equity ratio, and why do you think it chose to have a relatively high ratio? Which of these three companies has the lowest debt to equity ratio, and why do you think it chose to have a relatively lower ratio? Session Long Project Expectations This paper will be graded with the following criteria in mind: A. Provide a direct answer to all three assignment questions, focus only on these three questions. B. Reference all of your sources of information, both within the text as well as with a bibliography at the end. C. For all calculations, show all of your work and demonstrate that you understand the steps. D. Your paper should be two pages in length. source..
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Running Head: FINANCE
Finance
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1. Compute the debt ratio of your company (total liabilities divided by the total liabilities plus equity) and the debt to equity ratio, (total liabilities divided by total equity). Also, show these two ratios for short-term liabilities only and for long-term liabilities only (instead of total liabilities use just short-term liabilities and long-term liabilities). Show all of your work and calculations
Debt ratio = Total Liabilities / Total Liabilities + Equity
= 64,720,000 / 64,720,000 + 1,840,000,000
= 3.4%
Using short term liabilities;
Debt ratio = Total Liabilities / Total Liabilities + Equity
= 57,490,000 / 57,490,000 + 1,840,000,000
= 3.03%
Using long-term liabilities;
Debt ratio = Total Liabilities / Total Liabilities + Equity
= 2,530,000 / 2,530,000 + 1,840,000,000
= 0.1373%
Debt to equity ratio = Total Liabilities / Total Equity
= 64,720,000 / 1,840,000,000
= 3.5%
Using short-term liabilities;
Debt to equity ratio = Total Liabilities / Total Equity
= 57,490,000 / 1,840,000,000
= 3.12%
Using long-term liabilities;
Debt to equity ratio = Total Liabilities / Total Equity
= 2,530,000 / 1,840,000,000
= 0.1375%
2. Give your recommendation as to whether or not you consider these ratios to be too small or too large. Should our SLP Company increase its debt or take steps to pay off its debt?
Tesla Motors has a debt ratio of 3.4%. This means for every dollar of assets Tesla motors has, 3.4 cents was financed with borrowed money. As a result 96.6 cents came from equity financing. Given that Tesla motors operates in an industry that invests heavily on fixed plant and equipments, the ratios are very low and give the company a great leeway for borrowing in the future. Additionally, not withstanding that it operations are primarily focused in electric vehicles and their power train components,...
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