Tesla stock has rallied more than 31% over the last three months as the official launch of much-awaited Model X approaches. While some Wall Street experts are trying to gauge the potential success of Model X and its impact on the stock, Jefferson Research takes a look at the electric vehicle maker purely from the financial perspective.

Tesla Motors Inc Earnings Quality Remains 'Strongest': Jefferson

Tesla’s quality of net income ‘extremely high’

In a new research note, Jefferson Research says Tesla’s earnings quality remains “strongest.” The research firm adjusts for items that increase reported earnings even though the amount of cash flow supporting earnings may be weak. Adjusting for such items produces an earnings figure that more accurately reflects a company’s (in this case, Tesla) fundamentals.

Jefferson found the Palo Alto-based company’s adjusted net income of -$140 million in Q1,2015 was better than the reported figure. Though operating income decreased during the March quarter from -$86 million to -$131 million, it had little impact on the overall earnings quality rating. That’s because the company’s quality of net income earnings was “extremely high,” said Jefferson Research.

Jefferson assigns Tesla a ‘Sell’ rating

However, the electric vehicle maker performed poorly on other parameters such as cash flow quality, operating efficiency, and balance sheet quality. As a result, Jefferson has assigned an overall Sell rating on the stock. The research firm said Tesla’s operating cash flow quality deteriorated in FY2014. While the reported operating cash flow figure was -$57 million, the adjusted figure was 558% high at -$318 million.

The company’s operating efficiency rating was weak as its net margin, return on invested capital, EBIT margin, and asset turnover weakened. Talking about Tesla’s balance sheet quality, Jefferson noted that the accounts receivable days sales outstanding (AR DSOs) strengthened in the March quarter. Even though AR DSOs showed an improvement from 25 to 20 days, it was offset by the decline in cash from $1.92 billion to $1.53 billion.

The lower cash in hand suggests that the EV maker will have a tougher time meeting its financial obligations.