What The Cash Ratio Says About SolarCity's Ability To Survive Without Tesla

SolarCity Corp SCTY investors were likely rejoicing upon hearing that Tesla Motors Inc TSLA would offer a hefty premium to buy out their shares. Tesla investors, however, were left scratching their heads wondering what could have motivated the move.

SolarCity’s Savior?

While the market still debates what’s in it for Tesla, or whether the deal will even be completed given the push back from Tesla shareholders, Matt Krantz of USA Today wrote Thursday about what’s in it for SolarCity: survival.

Related Link; Tesla Downgraded By Morgan Stanley, Cuts Target By $88; Rated Overweight Since 2012

What The Balance Sheet Shows

A look at the cash ratio can give investors some idea of the company’s precarious position. The cash ratio describes a company’s liquidity, specifically its ability to cover short-term debt with cash or assets easily converted to cash. Based on SolarCity’s most recent quarter, the company has only 64 cents of cash for every dollar of current debt.

SolarCity has been burning through cash at an unsustainable rate. Matt Krantz reminds investors that $193.1 million was spent on operations in the first quarter, with another $459.6 million consumed on capital expenditures.

Krantz quoted a Credit Suisse analyst as suggesting SolarCity needs another $2 billion this year, and Tesla’s offer of $26.50 to $28.50 a share would come out to somewhere around $2.7 billion if it gets done.