Question 3 Working Capital Management (10 points) WSJ July 22, 2018. Elon Musk i

Question

Question 3 Working Capital Management (10 points) WSJ July 22, 2018. Elon Musk is asking for donations to save Tesla Inc. "The Wall Street Journal reported that Tesla asked some suppliers to refund a portion of what Tesla owes them". Here IS is the situation- Tesla's Accounts Payable balance was $2.6 billion at the end of the first quarter. Net working capital was at-$2.27 billion in March, 2018. A year ago, that figure was $780 million. Explain how Mr. Musk's request for "donations" would impact Tesla's financial position

Explanation / Answer

Based on the information provided in the question, It can be said that Tesla's net working capital is negative majorly on account of amount due to its suppliers (which is around 2.6 billion at the end of fisrt quarter). Accounts payable is a current liability which the company is required to pay off within a period of 12 months. The company has hardly any current assets to pay for for its current obligations. This is indicated by the fact that the company's net working capital stands at -$2.27 billion in March, 2018.

It can be assumed that the company will not be able to get refund of the complete amount that it owes to its suppliers. However, if the company is able to obtain donations in the form of refunds from suppliers, the company's total current liabilities would reduce by the amount so obtained. This in turn would improve the company's net working capital position as the value of liabilities due (to suppliers) would get decreased by the value of donations received by the company. A reduction in the amount to be paid to suppliers would result in lesser burden on the company's financial resources. This in turn might provide an opportunity to the company to focus on its business and improve its financial position in the near future.

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