See Rubic, Anything with a check mark and 0 points needs to be added the Financial Analysis section.
ACC 345 Business Valuation Report Template Summary Business Valuation Report of Tesla Inc. Tesla Inc. Report Date, 2021 Contents INTRODUCTION3 Nature, Background, and History4 Facilities4 Customers4 Management4 Competition4 Strengths and Weaknesses4 Ownership4 Major Shareholder Transactions4 Business Risks4 FINANCIAL ANALYSIS5 Financial Analysis Overview5 Balance Sheets5 Assets5 Liabilities5 Stockholder’s Equity6 Income Statements6 Normalization Adjustments6 ECONOMIC OUTLOOK7 Industry Analysis7 Industry Overview7 Competitive Landscape7 Products, Operations and Technology7 Sales and Marketing7 Finance and Regulation7 Regional and International Issues7 Labor Trends7 General Economic Analysis7 Interest rates7 GDP7 International and Domestic Trade Policy7 Monetary Policy7 Fiscal Policy7 BUSINESS VALUATION8 Valuation Approaches8 Asset Approach8 Income Approach8 Market Approaches8 Selected Method - Income Approach8 Prospective Analysis8 Discount rate9 Valuation calculation10 DISCOUNTS AND PREMIUMS11 Discount for Lack of Control11 Discount for Lack of Marketability11 FINAL CALCULATION OF VALUE12 SOURCES13 INTRODUCTION Description of the Assignment Guidance: Assume the intended use is for the sale of a minority stake of the company you’re valuing. This should be stated in this section of the report. Standard of Value Guidance: Assume the premise of value is that the business is a “going concern” as opposed to liquidation or other premise. Assume the standard of value is fair market value, as opposed to fair value, investment value, liquidation value or some other standard. This should be stated in this section. Tesla Inc. Brief History/Overview Tesla is an American Electric and Clean Energy based company founded in the year 2003. The company was named Tesla as a tribute to the Nikola Tesla. The company was formed to develop electric sports cars. The headquarters of the company is based in California and the other locations where the facilities of the company are based are in Europe, Middle East, Asia and Australia. The first retail store of the company was opened in the year 2008 in Los Angeles. The main segment for the company is plug-in market and purely electric market. The major model introduced by the company are Model S, Model X and Model 3. The management team of the company consists of Elon Musk who joined the company as the CEO in the year 2008. He provided the company most of the initial required funding and also much of the Brand Value. The Chairwomen of the company is Robyn Denholm who joined the company in the year 2014. The board of the company consists of 4 other independent directors. The major competitors of the company are the traditional and old companies like Ford Motors, GM Motors etc. These companies are not only competing with their oil-based car models but also trying to enter the electric car segment to compete with Tesla in their filed as well. The major strengths of the company are Innovation, ability to attract the top talent and best in class Electric Vehicles. The company spends a fortune in Research and Development so that it can continuously develop new technologies for its cars. In the year 2019, Tesla Model 3 was the most sold electric vehicle in the US market and the annual sales of the company has been growing each year. The largest Individual Shareholder of the company is Elon Musk with over 21% of the total ownership and this is the percentage of ownership that will be valued. Institutional Investors hold over 48% of the total ownership and remaining ownership is held by several Mutual Funds. There has not been any major shareholder transaction incurred in the company for the past number of years. The last major transaction was when the founders of the company Martin Eberhard and Marc Tarpenning left the company and sold their majority holdings. The major business risks of the company are that the products offered by the company are very expensive and can be purchased by high worth individuals only. The company has a very limited capacity to manufacture the batteries which are used to power the cars due to the difficulty in manufacturing the lithium-based batteries. Due to this the company cannot scale the production of its vehicles. The company is also facing stiff competition from other car manufacturers who are also trying to enter the electric car segment and have huge capital to fulfill the dream. Also, one of the major risks of the company is the Key Personnel Risk. The company is heavily reliant on its CEO Elon Musk and have stated this fact in their annual report as well. But since Musk is only part time CEO and does not devote his entire time to Tesla, this is a huge risk for the company. 4 FINANCIAL ANALYSIS Financial Analysis Overview Balance Sheets Assets: Total Assets (in Thousands) of the company as on 31//12/2020 are USD 52,148,000. The largest component of the total assets is the Cash and Short-term investments. Cash and Short-term investments cover almost 37% of the total assets of the company. The next major component of the total assets is the Net Property and Plant which amounts to 24% of the total assets of the company. The major change in the total assets of the company in the year 2020 in comparison to the year 2019 is due to the increase in Cash and Short-term investments which the company raised due to the issue to additional share capital. Liabilities: Total Liabilities (in Thousands) of the company as on 31//12/2020 are USD 29,923,000. The largest component of the total liabilities is the Long-term Debt and Leases. This amount to 32% of the total liabilities of the company. Next major component is the Accounts Payable and Accrued Expenses of the company, this component amounts to 30% of the total liabilities of the company. In comparison to the previous year the change has incurred in Accounts Payable which increased 60% in comparison to previous year. Stockholder’s Equity: The total amount of Shareholders (in Thousands) of the company as on 31/12/2020 are USD 22,225,000. The largest component of the Stockholders Equity is Additional Paid-In-Capital. The major change in the current year in comparison to the previous year is the increase of 114% in the Stockholders Equity of the company. The company issued additional shares to raise money for future expansion. Income Statements The Sales revenue (in Thousands) of the company for the year ended 2020 is USD 27,236,000, which has increased 31% in comparison to the previous year. The Direct Costs of the company is USD 24,906,000 which has increased 21% in comparison to the previous year. This is in line with the rising revenue of the company and also shows that the company has achieved greater efficiency. The Operating Income of the company is USD 1,994,000 which has increased 2990% in comparison to the previous year. The Net Income of the company is USD 721,000 which has increased 184% in comparison to the previous year. Normalization Adjustments The company did not have any extra-ordinary items or any accounting changes in 2020 or in any of the previous years. ECONOMIC OUTLOOK Industry Analysis Guidance: Research your industry by reviewing a select group of your company’s peers. By reviewing the annual report of 2-3 competitors you will get an understanding of these items below. You may also search the web for scholarly articles on your chosen industry or recent industry reports. Focus on the suggested items below: Industry Overview Competitive Landscape Products, Operations and Technology Sales and Marketing Finance and Regulation Regional and International Issues Labor Trends General Economic Analysis Guidance: Research the primary economy in which your company operates. Use the U.S. as the default if it’s a global firm, but try to incorporate any important global factors if a majority of its operations is abroad. Focus on the factors suggested below: Interest rates GDP International and Domestic Trade Policy Monetary Policy Fiscal Policy BUSINESS VALUATION Valuation Approaches Guidance: Discuss the major approaches below even though you’ll only be calculating the Income Approach. Explain what they are and how they’re derived. Asset Approach Income Approach Market Approaches Selected Method - Income Approach Guidance: Explain the mechanics of the calculation below. Discuss your selection for the cells in yellow – annual growth rate, and percentage of revenue for Gross Profit and Operating Expenses. Prospective Analysis Discount rate Guidance: Discuss the purpose of the discount rate in the valuation process. You do not have to explain each of these components, but note that they assign risk to different categories of the company. The risk-free rate is what a company would earn on a riskless government security. The equity risk premium is the risk above the risk-free rate one should expect on an equity security. The industry premium is the risk associated with a particular industry (i.e. manufacturing or retail). The specific company risk is a subjective amount applied by the valuation analyst based on his or her perception of the company’s risk. Valuation calculation Guidance: Discuss the mechanics of the calculation below. Provide your reasoning for the amounts chosen for the items in yellow (Depreciation, Capital expenditures, and Debt Reduction). DISCOUNTS AND PREMIUMS Discount for Lack of Control Guidance: You may choose a default discount amount of 15% or if you want to justify a higher or lower amount then you may do so. The following factors below should be considered in this discussion. Explain why each of these factors could only be done by a party with majority control and why a lack thereof could affect the value. Ability to appoint or change management Ability to determine management compensation and perquisites. Able to negotiate and consummate mergers and acquisitions. Can liquidate, dissolve, sell out or recapitalize the company. Able to declare and pay cash dividends. Able to decide what investments to hold and to sell. Block any or all of the above actions. Discount for Lack of Marketability Guidance: Similar to the DLOC, you may choose a default value. Use 25% or if you want you may justify a higher or lower amount. The following factors should be considered because these factors affect a company’s liquidity, which in turn affects its marketability. Suggested factors that should be considered: Company’s Dividend Policy Nature of the Company Company Management Amount of Control to be Transferred Restrictions on Transferability of Stock Holding Period for Stock Company’s Redemption Policy Costs Associated with a Public Offering Note: In practice there is a lot of effort spent on determining these discounts, but due to a lack of free resources and time it is impractical to require that in this course. 12 FINAL CALCULATION OF VALUE Guidance: Summarize the table below and what it is telling the reader. SOURCES The following sources were used to derive the conclusions in this report and the ultimate calculation of value: Current and historical financial statements were obtained for years ended: Industry data from: Economic data from: Other sources: 13 Tesla, Inc. Balance Sheets (in millions) December 31, 2016 through 2020 Common-size analysis 2016201720182019202020162017201820192020 Assets Current Assets Cash and cash equivalents3,393,216$ 3,367,914$ 3,685,618$ 6,268,000$ 19,384,000$