Liabilities and Owners' Equity - Accounting Majors Only with cited work
Employment taxes are those that are obligations from a corporation paid to the government for each of their employees, such as social security tax, Medicare tax, federal unemployment tax, and workers compensation insurance. Social security and Medicare taxes are those that are paid to the government by both employer and employee to fund those programs. Companies are required by law to pay those and collect those, and act as the tax collector on behalf of the government. For individuals who are self-employed, there is a self-employment tax, that bundles those taxes together.
As a lender, I would not necessarily use payroll as a determination for credit. Layoffs can trim the salary budget, but if a company were in trouble with too many debt obligations, that would be much more concerning than a bloated payroll. Those short-term debts would be the best indicator, using the current ratio can be a good start. For longer term debt, the debt ratio and interest coverage ratio can help creditors and investors.
I chose SolarCity for the company to look into. I have always been interested in green projects, and renewable energy. Also there has been a lot in the news lately about Elon Musk, SolarCity, and Tesla, and the merger that was just announced on Aug 1st. They have a current ratio of 1, which is not ideal, but not hurting. A company that is still new, and a tech company like this, is expected to have large amounts of debt as they grow their business. The notes are nothing of consequence, they mention that more in depth about their assets. It also breaks down the different ratios. When the merger with Tesla was announced, there were some that thought it would do better on its own, while others say it as saving the company. For me, I have complete trust in Elon Musk and his ‘Master Plan'! Both companies use large amounts of debt to finance their projects.
As a creditor you have to seriously consider the risks that these types of companies make. By strictly looking at the numbers it is hard to judge if these risky tech companies are worth the money they ask for and need. As an investor, companies like this can create great wealth. Something like Amazon didn't even start turning a profit until a year or two ago, after 20 plus years in business. Profit is a poor indicator for new and fast growing companies. A knowledgeable investor can see the potential. Creditors can still see the value in a risky company. Bonds and issuing more stock is a reliable way to raise capital. The last couple chapters have been interesting and helpful for me to be able to better judge my investments. As an investor how do you feel about this company?
Small Business/Self-Employed Topics. (n.d.). Retrieved August 02, 2016, from https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes
Williams, J. (2015). Financial & Managerial Accounting (17th ed.). New York City, NY: McGraw-Hill Education.
SolarCity balance-sheet 2015. (n.d.). Retrieved August 02, 2016, from https://amigobulls.com/stocks/SCTY/balance-sheet/annual
Tesla to acquire SolarCity in a $2.6 billion all-stock deal. (2016). Retrieved August 02, 2016, from https://www.cnbc.com/2016/08/01/tesla-solarcity-set-to-announce-merger-on-monday-sources.html