Carsales.com Financial Analysis

This assignment analyzes the financial performance of Carsales.com using market strength ratios such as Price Earnings (P/E) and Dividend Yield. It examines the company's strengths, including market leadership and innovation, alongside weaknesses like overexpansion leading to liquidity issues. The analysis culminates in recommendations for Carsales.com's future growth, emphasizing strategies like technological investment, mergers & acquisitions, and diversification.

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Name:
Course
Professor’s name
University name
City, State
Date of submission

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Introduction
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 30th June of every year. Therefore, ending date
of the last financial year was 20th June 2016. The company’s share was trading at $14.22 at the
ASX on 14September 2017. On 20th March 2017 the company issued an interim dividend of 18.7
cents per share.
Industry situation and company plans
a) Industry and its outlook
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

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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.
b) Company future plans
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).
Financial Statement Analysis
Statement of financial position
Gross profit
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.

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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 .
Common size statement analysis technique
Trend Analysis
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%

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Net income B4 extra
items
109 29.3% 109 31.69% 107 34.29% 105 36.33%
NET INCOME 109 109 107 105
Revenue recognition changes
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

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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.
Trends and items that might be different from the industry
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.
Statement of Financial position
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 201
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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

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Common size statement analysis
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%

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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

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Significant policies in regards to PPE
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.).
Statement of Cash flows
Compare operating cash flows with net income 3yrs
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.
Investing activities
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

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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).
Company’s most important source of financing
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 analysis
Ratio Formula 2017 2016 2015 2014 Industry
Liquidity
Ratio
Current
ratio
Current
Ratio =
89/338=
0.26
75/314=
0.24
68/281=
0.24
63/276= 75/340=
0.220

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Current
Assets ÷
Current
Liabilities
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%

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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 analysis
Long-term solvency ratios
ratio Formulae 2017 2016 2015 2014 Industr
y
Debt
to
equit
y
Total
liabilities/tota
l equity
268/272=0.9
8
290/256=1.1
3
265/227=1.1
8
232/203=1.1
4
1.75
Debt
ratio
Total
debt/total
assets
193/539=0.3 227/456=0.4
9
214/492=0.4
3
214/496=0.4
3
0.53
Cash flow adequacy

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formulae 2017 2016 2015 2014
Cas
h
flo
w
yiel
d
(operating
activities-
netcashflows)/neti
ncome
(125-11)/
109=1.04
(123-1.89)/
109=1.11
(102-0.78)/
103=0.98
(95-0.6)/
103=0.92
0.7
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Cas
h
flo
ws
to
sale
s
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
%
Market strength ratio
Formulae 2017 2016 2015 2014
Price
earnings
Market
value per
share/E.P.
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

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S
Dividen
ds yield
Cash
dividend
per
share/mark
et value
per share
0.4/12.44=0.0
32
0.37/11.7=0.0
32
0.34/12.1=0.0
28
0.32/11.9=0.0
26
0..1
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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
Recommendations
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

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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.

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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.