Tesla Financial Structure Discussion

Question Description

I’m working on a accounting project and need an explanation and answer to help me learn.

Discuss the financial structure of the firm: how much debt relative to equity is the company using? What is, in your opinion, the optimal amount of debt that the company should use? In certain cases, for example, a company may be very close to being non-investment grade (check its debt rating) and be at risk of losing its investment grade status; or it may be more highly levered than its peers or relative to its free cash flows or cash flow from operations. These may indicate situations in which the company may be better-off reducing leverage.

In other cases, a company may have very favorable credit ratios which may indicate under-utilization of debt. Consider whether the company is in a position to borrow more without severely hurting its debt rating? Compare ratios in lecture 3 and evaluate how much extra debt the company may use. You may want to reconnect your recommendation about debt capacity to your forecasted business plan for the next 5 to 10 years will the company have enough cash on hand to pay the extra debt?

Is the company growing? If it is growing, evaluate how much capital it will need and discuss a financing plan (which may include equity). If the company is not growing or is mature, examine how much cash it is generating and discuss its planned uses of cash? How much of it should it invest, how much should it return to shareholders in dividends or share repurchase?

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