Balance Sheet Analysis
Order Instructions
Overview: This milestone will help you to complete Sections II and III of the final project. You will review balance sheets, statements of cash flows, and income
statements. You will also analyze different valuation standards and focus on the difference in standards used for recording revenue, expenses, and fair values of
assets and liabilities.
Prompt: Produce a financial statement analysis and valuation report that summarizes the financial health, projected future performance, and estimated value of
Tesla. As an independent financial accounting analyst working for a major
trade journal, your report is intended to inform a general audience about the overall financial well-being of the company and how it compares to a major
competitor. Your report should cover information of interest to both internal and external stakeholders—summarizing major findings, suggesting ways to
improve operational performance, and assessing investment potential. Keep in mind that brief, clear communications are essential in effectively reaching
business and media audiences.
Specifically, the following critical elements must be addressed:
I. Balance Sheet Analysis. In this section, use financial statements and accompanying notes to:
A. Analyze what the company’s current and prior year liquidity and debt-to-equity ratios say about the company’s financial health, justifying your
response. Consider the appropriate level of debt and how this year’s performance compares to the previous year.
B. Consider normalization adjustments when adjusting the balance sheet to be comparable to competitors, when creating the prospective balance
sheet, and when calculating the final company valuation as either a premium or discount. (Include your analysis spreadsheet in Excel as an
appendix.)
C. Analyze the company’s balance sheet for the current and previous year using a horizontal analysis. (Include your horizontal analysis spreadsheet
in Excel as an appendix.) Explain your findings.
D. Comparison. Analyze the competitor’s balance sheet indicators for opportunities for the selected company to improve its own performance.
Justify your response using the financial statements of both the company and its competitor.
II. Income Statement and Cash Flow Analysis. In this section, use financial statements and accompanying notes to:
A. Analyze the profitability of your selected company using appropriate profitability ratio(s) and a vertical analysis of the company’s current and
prior year income statement. (Include your vertical analysis spreadsheet in Excel as an appendix.) Be sure to explain your findings.
B. Normalization adjustments. Analyze historical income statements to determine whether there were any non-recurring or extraordinary items
that should be removed from the income statement. An example would be aggressive expense recognition or conservative revenue recognition,
which could either depress or inflate earnings. Adjusting these items will make the target company more comparable to the others.
C. Free cash flow. Analyze what your selected company’s free cash flow figures for the current and prior year say about the company’s financial
health. Consider other sources or uses of available discretionary cash.
D. Dividend paying capacity of the company. Determine if the company is on track to pay out dividends this year and whether the dividend payout
ratio increase or decrease.
Guidelines for Submission: Your milestone should be completed using the Financial Analysis Section of the Business Valuation Report template. Sources should
be cited according to APA Style. For the analysis, use and submit the pertinent sections of the Business Valuation Model Excel file. Include a link to Tesla’s financial information for confirmation purposes.
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