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Nikola Corporation Leverage and Debt to Equity Ratio

The Nikola Motor’s Reckless Military. Flickr Image.

Other than Tesla (NASDAQ:TSLA), another company that has also been on the electric vehicle bandwagon and is worth taking a look at is Nikola Corporation (NASDAQ:NKLA).

Similar to its counterpart, NKLA’s stock has been getting lots of attention lately, as it has risen as much as 300% since its inception in June 2020 when it started trading at a based price of only $10 per share.

In this article, we will dive into Nikola Corporation’s leverage by looking at the company’s total debt. Moreover, we will also look at some ratios such as the debt to equity ratio, debt to asset ratio, and total liabilities to total assets ratio to help in our analysis of the company’s leverage.

Let’s get started!

Nikola’s Total Debt and Cash & Cash Equivalents

Nikola debt outstanding and cash equivalents

Nikola debt outstanding and cash equivalents

The chart above shows Nikola’s debt outstanding and also the amount of cash and cash equivalents in the balance sheet.

As of the latest quarter, 2Q 2020, Nikola’s total debt outstanding was only $4.1 million. This amount was entirely attributed to a term note of $4.1 million that the company borrowed in 2018 to fund equipment purchases.

Since 2018, Nikola has repeatedly extended the maturity date of the term note until Jan 2021, which means that this $4.1 million of debt is currently classified as short-term liabilities.

Nevertheless, Nikola’s total debt outstanding was minimal compared to its enormous cash asset which totaled nearly $700 million in 2Q 2020 as shown in the above chart.

In short, Nikola carries very little debt while having a pile of cash and cash equivalents that is multiple times higher than the debt outstanding.

Nikola’s Total Debt to Equity Ratio

Nikola debt to equity ratio

Nikola debt to equity ratio

Since Nikola’s debt outstanding was very low, I don’t expect the company’s leverage to be on the high side.

As expected, the debt to equity ratio which is shown in the chart above was only 0.5% in 2020 2Q.

At a ratio of only 0.5%, Nikola’s debt leverage with respect to stockholders’ equity was negligible. This ratio shows that Nikola has $1 dollar of equity to $0.01 dollar of debt.

The low debt to equity ratio was largely attributed to the enormous cash pile that the company is carrying in its balance sheet.

Nikola’s Total Debt to Asset Ratio

Nikola debt to asset ratio

Nikola debt to asset ratio

In terms of total debt to total asset ratio, the figure was even lower as shown in the chart above.

At only 0.4%, the ratio tells us that Nikola’s debt structure is entirely made up of stockholders’ equity, which means that the company uses only stockholders’ money to fund the expansion.

As mentioned in the prior discussion, Nikola’s equity or net worth is made up of nearly all cash assets such as cash and cash equivalents.

Nikola’s Total Liabilities to Equity Ratio

Nikola total liabilities to equity ratio

Nikola total liabilities to equity ratio

The total liabilities to equity ratio which is shown in the chart above illustrates the company’s total leverages with respect to stockholders’ equity or the book value.

The total liabilities include not only total debt but also all current and long-term liabilities such as accounts payable, accrued expenses as well as deferred tax liabilities.

According to the chart above, Nikola Corporation has a total liabilities to equity ratio of only 4.9% in Q2 2020, indicating that the company was minimally leveraged.

At this ratio, Nikola Corporation has only $0.049 dollar of liabilities for every $1 dollar of equity, leaving the company with plenty of net assets such as cash that it can use to fund its operation.

Nikola’s Total Liabilities to Asset Ratio

Nikola total liabilities to asset ratio

Nikola total liabilities to asset ratio

The total liabilities to asset ratio illustrate the company’s capital structure. The ratio tells us about the proportion of the company’s assets that are funded by liabilities.

For example, the graph above shows that Nikola’s capital structure was only 4.7% liabilities, with the rest coming from stockholders’ equity in 2Q 2020.

The best part about the company’s capital structure was that it was almost made up of cash assets which we saw earlier.

At this ratio, Nikola’s total assets or total funds were $0.047 dollar of liabilities for every $1 dollar of assets.

The rest of Nikola’s capital structure was made up of net assets such as cash, receivables, inventory, buildings, machinery, etc.

In short, Nikola carries very little to no debt as of 2020 2Q.

Conclusion

In summary, Nikola Corporation has total debt outstanding of only $4.1 million as of Q2 2020, making the company’s debt leverage at an all-time low.

More importantly, the company’s balance sheet was entirely made up of stockholders’ equity which is comprised of cash and cash equivalents.

As of 2020 Q2, Nikola Corporation has cash assets of as much as $700 million, which is more than enough to pay for the company’s debt outstanding.

References and Credits

1. Financial figures in all charts and tables were obtained and referenced from financial filings available at Nikola Motor’s SEC Filings.

2. Featured images in this article are used under creative commons license and sourced from the following websites: Nikola Two Semi Truck and Nikola Motors Reckless Military.

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