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Tesla Motors Profits (Losses)-Revenues Analysis and a New Measure of Profitability (MPR)

Tesla Motors Profits (Losses)-Revenues Analysis and a New Measure of Profitability (MPR)

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Published by VJLaxmanan
The profits (loss)-revenues data for Tesla Motors, Inc. for the eleven consecutive quarters ending Dec 31, 2012 is analyzed here using the classical breakeven model for profitability of a company making and selling N units of a single product. This can be shown to lead to the remarkably simple linear law y = hx + c = h(x – x0),relating revenues x and profits y. The slope h is the rate of increase of profits with increasing revenues, i.e., h = ∆y/∆x where ∆x and ∆y are the changes in revenues and profits (or loss) between any two quarters of interest. The intercept c is nonzero and can be shown to be related to the fixed costs.

The slope h here is similar to the marginal tax rate encountered in tax law. Hence, we will refer to h as the MPR, the marginal increase of profits with increasing revenues.

Although Tesla Motors has not reported a quarterly, or yearly, profit to date, a careful analysis of the income statements reveal reducing losses with increasing revenues. This is equivalent, at least mathematically speaking, to increasing profits with increasing revenues. This is demonstrated here using a simple x-y diagram of profits (or loss) y versus revenues x. The slope h of this profits (loss)-revenues graph, rather than the profit margin (the ratio y/x), the conventional measure of profitability, is much more meaningful for a company like Tesla Motors. Extraordinarily high slopes h in the law relating profits (loss) and revenues observed. The MPR values of h = 2.53 and h = 6.43 are deduced which indicates a very high rate of profits generation (or loss reduction). Hence, the future profitability of Tesla Motors appears to be promising. (The author has currently no financial interests in Tesla.)
The profits (loss)-revenues data for Tesla Motors, Inc. for the eleven consecutive quarters ending Dec 31, 2012 is analyzed here using the classical breakeven model for profitability of a company making and selling N units of a single product. This can be shown to lead to the remarkably simple linear law y = hx + c = h(x – x0),relating revenues x and profits y. The slope h is the rate of increase of profits with increasing revenues, i.e., h = ∆y/∆x where ∆x and ∆y are the changes in revenues and profits (or loss) between any two quarters of interest. The intercept c is nonzero and can be shown to be related to the fixed costs.

The slope h here is similar to the marginal tax rate encountered in tax law. Hence, we will refer to h as the MPR, the marginal increase of profits with increasing revenues.

Although Tesla Motors has not reported a quarterly, or yearly, profit to date, a careful analysis of the income statements reveal reducing losses with increasing revenues. This is equivalent, at least mathematically speaking, to increasing profits with increasing revenues. This is demonstrated here using a simple x-y diagram of profits (or loss) y versus revenues x. The slope h of this profits (loss)-revenues graph, rather than the profit margin (the ratio y/x), the conventional measure of profitability, is much more meaningful for a company like Tesla Motors. Extraordinarily high slopes h in the law relating profits (loss) and revenues observed. The MPR values of h = 2.53 and h = 6.43 are deduced which indicates a very high rate of profits generation (or loss reduction). Hence, the future profitability of Tesla Motors appears to be promising. (The author has currently no financial interests in Tesla.)

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Published by: VJLaxmanan on Feb 26, 2013
Copyright:Attribution Non-commercial

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05/19/2013

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