Carsales.com Ltd – Largest Online Auto Motive Business In Australia

Background of Carsales.com Ltd

Discuss About The Vital In Driving Its Business Around World?

Car sales.com Ltd is the largest online auto motive business in Australia. The company has been listed in the ASX and was founded in 1997. The current C.E.O is Cameron McIntyre who took over reigns in March 2017. The  company offers online advertisement services for people and specifically Australians who want to buy or sell cars, trucks, motorcycles, boats e.t.c(Tan and Robinson, n.d.). The company has also been credited for developing world leading technology and advertising solutions that are vital in driving its business around the world. The company is based in Richmond, Australia which is also its main geographic area of activity. Like most listed companies, Carsales.com ltd closes its books on 30^th June of every year. Therefore, ending date of the last financial year was 20^th June 2016.  The company’s share was trading at $14.22 at the ASX on 14September 2017. On 20^th March 2017 the company issued an interim dividend of 18.7 cents per share.

As the largest marine, motorcycle and auto mobile classified company or business venture in Australia, it has become a local brand in the country and a leader in the industry. The company is attracting more and more Australians willing to sell and buy automobiles from their websites. In fact, carsales.com has become so popular that its websites has some of the highest traffic in internet search for selling and buying of automobiles.  The industry situation is also looking increasingly very well. The industry has witnessed an upsurge of people in Australia willing to buy and sell their motor-vehicles via the websites(Balasundaram, 2012). This is an industry that is growing exponentially and carsales.com and its peers are happy for the industry.

With a growing industry, the company has been a focal point of meeting between dealers, consumers, sellers, advertisers and manufacturers. It has employed at least 600 people in Australia.

as the leading automobile classified business, its ahead of its peers in the industry. Carsales.com aims at developing an advertising solution and a technological hub that is world leading. It aims at expanding its business across the world and has already build an extensive network in the pacific asia region. It also holds great business interests in Thailand, Brazil, Malaysia and South Korea(Balasundaram, 2012).

The gross profits for carslaSes.com are $ 372 million in 2017, $ 344 million in 2016 and $312 million in 2015 respectively. There is an increase in gross profit mainly due to increase in business for the classified business. Also by the end of financial year 2014 the companys gross profit stood at $ 289 million.

Business Activities of Carsales.com Ltd

The income from operations is $ 167million in the year 2017, $ 165 in the year 2016 and $153 million in the year 2015.  Net income from operations is also increasing partly due to good business strategies(Easton et al., n.d.).

Net income for the business is $ 109 million in the year 2017, $ 109 million in year 2016 and $ 103 million in the year 2015 respectively. As it is seen, there is stagnation in net profit for the year 2016 and 2017 and this can be attributed to increased cost of doing business in the year2017. This is after increase in net income from $ 103 million in the year 2015(Robinson et al., 2015). In 2014, the net income stood at $ 105 million .

ASSETS	2017	%	2016	%	2015	%	2014	%
Total Revenue	372	0%	344	0%	312	0%	289	0%
Operating Expenses
Cost of revenue total	34	9.1%	30	8.7%	26	8.3%	24	8.34%
Selling, Adm expenses	162	43.5%	114	33.1%	112	35.8%	96	33.21%
Depreciation	9.97	2.68%	7.53	2.1%	6.93	2.21%	5.97	2.06%
Unusual expenses	(0.27)	-0.17%	(1.89)	-0.05%	(0.97)	-0.31%	(0.79)	-0.02%
Total Operating Expenses	205	55.1%	179	52%	163	52.24%	156	53.9%
Net income b4 Taxes	161	43.3%	162	47.1%	163	52.24%	164	56.74%
Net income after taxes	113	30.4%	114	33.1%	114	36.5%	114	39.44%
Net income B4 extra items	109	29.3%	109	31.69%	107	34.29%	105	36.33%
NET INCOME	109		109		107		105

In the development of the activity of administration of the system of commercial exchanges of electric energy (ASIC) in the wholesale market and as agent with representatives of the agents participating in the Colombian electric market, the Company collects in favor of third parties the money related to the transactions carried out by the constituents in that market and distributes them to the beneficiary agents(Tan and Robinson, n.d.).

Based on the Public Accounting Regime, as mentioned in note, The Company’s investments for classification purposes are classified into three categories as follows: i) liquidity management, including resources placed in securities debt or equity instruments, national or foreign entities, as well as derivatives, in order to obtain profits from short-term price fluctuations; (ii) for policy purposes, including debt securities, the purpose of which is to hold them to maturity or at least one year from the date of purchase; and iii) equity, which includes equity securities in controlled, uncontrolled and jointly controlled entities. Equity investments correspond to resources placed in participatory securities of national or foreign entities, represented in shares or shares or shares of social interest, which may or may not allow the company to control, share control or exercise significant influence over decisions of the issuing entity(WAHLEN, 2017).
The changes arising from each valuation carried out on investments for liquidity management and those used for policy purposes are recognized in the results.

Firstly, the revenue recognition item is different in all industry norms. The other significant changes in accounting policies in this industry are the depreciation or amortization of assets where the vehicle value is amortized. Also historical cost will change in reporting.

Financial Performance of Carsales.com Ltd

The company’s financial statements have been prepared as per the international financial reporting standards and guidelines(IFRS) as well as the international accounting standards guidelines (IAS). For the Balance sheet Assets should be equal to liabilities and capital.

	2017	2016	2015	2014
Total Assets(figures in millions AUD)	539	546	492	474
Total Liabilities (figures in millions AUD)	268	290	265	250
Total equity(figures in millions AUD)	272	256	227	224
Total liabilities+Equity(millions)	539	546	492	474

Assets	2017	%	2016	%	2015	%	2014	%
Cashand short term inv	40	7.4%	29	5.3%	27.5	5.4%	24.5	4.9%
Total receivables	45	8.3%	42	7.6%	36	7.3%	33	6.6%
Total inventory	0.83	0.15%	1.11	0.2%	1.87	0.38%	1.67	0.33%
Prepaid expenses	3.17	0.59%	3.16	0.58%	3.21	0.65%	3.01	0.6%
Total Assets	89	16%	75	13.7%	68	13.8%	58	11.7%
PPE	7.29	1.35%	6.61	1.2%	5.92	1.21%	5.32	1.07%
Goodwill	170	31.5%	170	31.1%	147	29.8%	137	27.6%
Intangibles	30	5.5%	22	4.02%	9.11	1.8%	7.31	1.4%
Long-term inv	238	44%	267	48.9%	257	52.23%	227	45.7%
Total Assets	539		546		492		496
Liabilities
Accounts payable	18	6.7%	16	5.5%	14	5.3%	12	4.2%
Accrued expenses	27	10%	23	7.9%	21	7.9%	18	6.3%
Capital leases	1.76	0.66%	1.78	0.61%	1.88	0.7%	1.78	0.62%
Other current liabs	20	7.46%	17	5.86%	12	4.5%	6	2.1%
Total current liabilities	66	24.6%	58	20%	49	18.5%	41	14.4%
Total long term debt	191	71.3%	225	77.5%	212	0.8%	206	72.5%
Total debt	193	72%	227	78.3%	214	0.8%	208	73.2%
Defferedincome tax	2.92	1.1%	1.73	0.6%
Minority interest	5.54	2.1%	4.18	1.4%	2.31	0.8%	1.71	0.6%
Other liabilities	1.32	0.4%	1.04	0.3%	1.17	0.4%	1.15	0.4%
Total liabilities	268		290		265		284
Shareholders’ equity
Common stock	106	38.9%	99	38.6%	92	38.3%	90	44.3%
Retained earnings	174	63.9%	157	61.3%	134	55.8%	112	55.18%
Unrealized gain	0.03		0
Other equity	(8.66)		(0.3)		1.17		1.02
Total equity	272		256		240		203

The property plant and equipment is treated as according to IAS 16, where the PPE is measured at cost at the initial stage and subsequently measured using revaluation model where depreciation is done so as to get the book values(Mendelsohn, n.d.). The inventory is accounted for and measured at the lower of cost and net realizable value and uses FIFO to measure cost. Carsales.com ltd accounts goodwill by subtracting fair market value of tangible assets from the total net worth of the business(Tan and Robinson, n.d.).

The total cash and cash equivalent from operating activities in the year 2017 was $125 million. In 2016, the total cash and cash equivalent from operating activities was $ 123 million while in 2015, the total cash and cash equivalent from operating activities was $ 102 million(WAHLEN, 2017). In comparison, the net income for the three years stood at $ 109 million for 2017 and 2016 while in 2015 the net income was at 103 million Australian dollars.in 2014, the companys net income stood at $ 96 million dollars.

The company seems to be investing and expanding as shown in the cash flow statement investing activities. In the financial year 2017, the company’s total cash from investing activities was  $ 17 million(Mendelsohn, n.d.). In the year 2016 the company had a negative investment cash inflow of $ 37 million while in the third year 2015, the company total cash investment stood at a negative $ 63 million.lastly, in 2014, the companys cash investment was at negative $ 56 million. This shows that its expansion strategies in new investment are paying off(Bergevin, 2002).

From the cash flow , statement, the companies most important financing source is payment of dividends. The total cash dividend paid in 2017 is $ 86 million in 2017, in the year 2016, the company paid dividend worth $ 84 million while in 2015, the company’s paid an equivalent of $ 71 million in dividend.in 2014, the company paid a dividend of $ 65 million after the board meeting. This is the single largest item in financing activities of the company which is listed in the ASX(Elliott and Elliott, 2006).

Overall cash and cash equivalent from the cash flow is increasing. As shown from the financial reports, the year 2017 net cash flow was $ 11 million an increase from the previous year which was at $ 1.89 million. In 2015, the net change in cash was at $ 0.78 million which is the least in the 3 years. This clearly shows that money is starting to stream in as cash(Bergevin, 2002).

Ratio	Formula	2017	2016	2015	2014	Industry
Liquidity Ratio	Current ratio Current Ratio = Current Assets ÷ Current Liabilities	89/338= 0.26	75/314= 0.24	68/281= 0.24	63/276=	75/340= 0.220
	Receivable turnover Net Annual Credit Sales ÷ ((Beginning Accounts Receivable + Ending Accounts Receivable) / 2	45/113= 0.398	42/109= 0.385	36/116= 0.310	33/116= 0.284	47/117= 0.401
Profitability Ratio	Profit margin Net Income * Net Sales	89/338= 26.3%	75/314= 23.9%	68/281= 24.2%	63/276= 22.8%	83/337= 22.18%
	ROA Net income/ average total assets	89/539= 0.165	75/546= 0.137	68/492= 0.138	63/472= 0.133	77/546= 0.141

ratio	Formulae	2017	2016	2015	2014	Industry
Debt to equity	Total liabilities/total equity	268/272=0.98	290/256=1.13	265/227=1.18	232/203=1.14	1.75
Debt ratio	Total debt/total assets	193/539=0.3	227/456=0.49	214/492=0.43	214/496=0.43	0.53

	formulae	2017	2016	2015	2014
Cash flow yield	(operating activities-netcashflows)/netincome	(125-11)/109=1.04	(123-1.89)/109=1.11	(102-0.78)/103=0.98	(95-0.6)/103=0.92	0.75
Cash flows to sales	Cashflow from operating activities/sales revenue*100	125/372*100=33.6%	123/344*100=35.7%	102/312*100=32.6%	95/296=32.09%	28%

	Formulae	2017	2016	2015	2014
Price earnings	Market value per share/E.P.S	12.44/0.45=27.6	11.7/0.45=26	12.1/0.43=28.1	11.8/0.45=26.2	19.1
Dividends yield	Cash dividend per share/market value per share	0.4/12.44=0.032	0.37/11.7=0.032	0.34/12.1=0.028	0.32/11.9=0.026	0..16

The strengths of the firm lies in it being the market leader in terms of market share as well as more innovations that it introduces compared to its competitors(Thomsett, 2006). Also it has a very experienced board of directors and management.  The firms weaknesses include over expansion that takes up a lot of its operating cash leading to liquidity problems(Bergevin, 2002).

Conclusion

Carsales.com will continue to lead if the management of the company puts in measures that help in its growth strategies. This includes;

Investing in technology that will make the company expand in other territories like the Asia pacific, Brazil, Malaysia, Singapore and Thailand. Expansion strategy means that the company will have to increase its current workforce and therefore increasing its operations cost(Bergevin, 2002).

The company should also look at business strategies like mergers and acquisitions of smaller companies in the same industry so as to increase its dominance and therefore increase its profits.

Other strategies will include divesting or reinvesting its cash in other sectors to spread its risk in the company. This will include investing in money markets and properties with the approval of the shareholders(Bergevin, 2002).

The company is a strong performer and this is as shown in its financial reports(Guerard, 2013). The company is also the leader in automobile sales classified.

Rationale for the decision

The company’s strong position is brought in by its expansion strategy and its market leadership.

References

Balasundaram, N. (2012). Ratio analysis. [Place of publication not identified]: Lap Lambert Academic Publ.

Bergevin, P. (2002). Financial statement analysis. Upper Saddle River, N.J.: Prentice Hall.

Easton, P., McAnally, M., Sommers, G. and Zhang, X. (n.d.). Financial statement analysis & valuation.

Elliott, B. and Elliott, J. (2006). Financial accounting, reporting and analysis. New York: Finanical Times/Prentice Hall.

Guerard, J. (2013). Introduction to financial forecasting in investment analysis. New York, NY: Springer New York.

Lewis, M. (2009). Panic. New York, NY: W.W. Norton.

Mendelsohn, L. (n.d.). Trend forecasting with intermarket analysis.

Robinson, T., Henry, E., Pirie, W., Broihahn, M. and Cope, A. (2015). International Financial Statement Analysis. Somerset: Wiley.

Tan, C. and Robinson, T. (n.d.). Asian financial statement analysis.

Thomsett, M. (2006). Fundamental analysis. Hoboken, N.J.: J. Wiley and Sons.

WAHLEN, J. (2017). financial reporting, financial statement analysis and valuation. [s.l.]: cengage learnin