Balance sheet example

Welcome to an example of how to read and analyze a balance sheet: Tesla Inc.

Where do you start if you want to gain insights from a balance sheet? Start with a high level review of the total balance sheet. Then identify and review the large and/or unexpected items that are bound to tell you a big part of the story. And then move on to the fine-tooth comb approach to the other balance sheet line items, you never know what can turn up there.

⏱️TIMESTAMPS⏱️
00:00 Balance sheet example
00:28 Tesla financial statements
01:16 How to read a balance sheet
02:52 Liquidity: current ratio
03:39 Solvency
04:13 Balance sheet comparison
05:22 Major balance sheet items
06:48 Cash
07:47 Inventory
08:33 Property plant and equipment
09:41 Digital assets
11:03 Accounts Payable
11:29 Debt
12:13 Equity
14:31 Detailed balance sheet analysis
14:57 Accounts receivable
16:25 Customer deposits
16:42 Operating leases
17:19 Accrued liabilities
17:44 Deferred revenue
18:20 Commitments and contingencies

So what kind of major insights about Tesla will we uncover in this balance sheet example? What will we have found at the end of the road? First of all: Tesla’s balance sheet is nearly debt-free by year-end 2022, as equity (shareholder capital) has grown significantly and debt has been paid down. Second: Tesla’s balance sheet has lots of optionality. Having $22B of cash, cash equivalents and short term investments ready to go, gives the company the opportunity to move very fast on expanding capacity, and designing and launching new models. Third: as capacity expands, the balance sheet expands. I will show you what each of these balance sheet insights mean, and how I arrived at them.

The balance sheet is an overview what a company owns and what a company owes at a point in time. What is owned (assets) is on the left, what is owed (liabilities and equity) is on the right. When reading a balance sheet, start off at the highest level: by category. Current assets and non-current assets on the left. Current liabilities, non-current liabilities, and equity on the right. As the word balance sheet suggests, the total amount owned (on the left) equals the total amount owed (on the right). Both sides of the balance sheet sum to $82.3 billion per December 31st, 2022. Per the accounting equation: assets equal liabilities plus equity.

For a fast-growing company like Tesla, it is interesting to put this year’s and last year’s balance sheet side by side, and see how it has developed.
The balance sheet totals are up 33% which equates to an increase of $20.2B, year-over-year, on both sides.

Where does most of that increase come from? On the left-hand side, assets, primarily in current assets: up 51% or $13.8B year-over-year.
If you zoom into the line item detail of current assets on the balance sheet, you see this being driven mainly by an increase in inventory, and an increase in the balance of short-term investments.

On the right-hand side, the increase is mainly in equity: up 45% or $14.3B.
If you zoom into the line item detail here, you find that retained earnings (profits made that have not been distributed to shareholders) are the main driver.

Time to zoom into the 2022 year-end balance sheet in more detail… We will review what is in each of the #balancesheet categories: current assets, non-current assets, current liabilities, non-current liabilities, and equity. Same five categories, just a lot more detail to dig into. In the American format of the balance sheet, assets are listed from most liquid at the top to least liquid at the bottom. Liabilities are listed from due first to due last.

A balance sheet has a lot of different line items, so let’s identify first which ones are the largest and/or the most interesting. On the left, property, plant and equipment, cash and cash equivalents, and inventory, are by far the largest assets. These three make up 64% of total assets. Digital assets are not very large in $ value, but such a rare and unusual item that we will look into it as well. On the right, equity and accounts payable are by far the biggest: together, they form 74% of total liabilities and equity. Additionally, debt and finance leases are not very large, but that is exactly why they are interesting to review, as you would expect these to be a lot bigger for a company the size of Tesla.

Philip de Vroe (The Finance Storyteller) aims to make accounting, finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, livestreams, classroom sessions, and webinars. Connect with me through Linked In!

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