Carsales.com Financial and Economic Interpretation Report (MBA403)

This report provides a financial analysis of Carsales.com, a leading Australian company in online car sales. It examines the company's performance in FY2019 compared to FY2018, focusing on revenue, EBITDA, and net profit. The analysis highlights revenue growth driven by the Asian market, while Australian revenue showed marginal growth. The report discusses a decrease in operating and net profit margins due to foreign business contributions and increased debt. Key financial indicators like revenue, EBITDA, and debt are analyzed, along with non-financial indicators such as listings volume and website traffic. The report interprets these changes, explaining the impact of economic factors, pricing strategies, and market expansion. It also discusses the company's increasing leverage and the importance of non-financial performance indicators. The conclusion summarizes the financial performance, emphasizing the need to manage debt and profitability margins for future growth.

FINANCIAL AND ECONOMIC INTERPRETATION
STUDENT ID:
[Pick the date]

The company selected for this task is Carsales.com which is the leading company in
Australia. dealing in online selling and buying of cars, trucks and other vehicles (including
boats and caravans). The company is also rapidly expanding its footprint across Asia and
Latin America. The latest annual report of the company filed with the exchange corresponds
to the period starting from July 1, 2018 and ending on June 30, 2019.
Executive Summary
The given report presents an overview of the performance of Carsales.com performance in
FY2019 in comparison to FY2018. During the year, the revenue has seen reasonable growth
driven by Asia business as revenue from Australia showed marginal growth only. There has
some reduction in the operating and net profit on account of higher contribution from foreign
business. Also, there is increased debt on the balance sheet so as to fund the expansion of the
company. The non-financial indicators of the company have also been robust during the year.
Going forward, two potential concerns are falling margins and increasing debt.
Analysis
In order to proceed with the discussion of the financial performance comparison, it is
imperative to compare key income statement items such as revenue, EBITDA along with Net
profit. The revenue from the online advertising services has witnessed a 1% growth y-o-y.
The significant increase in revenue has been achieved from Asia where there is jump from $
29.7 million to $ 65.1 million. This has led to a 12% jump in the total revenue of the
company on a y-o-y basis. The increase in EBITDA is about 7% in FY2019 when compared
with FY2018. The EBITDA margin for the company has declined from 52.0% (FY2018) to
50.3% (FY2019). The net profit after tax from continuous business activities has shown a
change of only 2% in FY2019 over the previous year. There are certain pivotal changes in
the balance sheet which are noteworthy. These include changes in borrowing where there has
been a repayment of the short term borrowings which have declined from $246 million to
practically zero in FY2019. However, the long term borrowings have increased from $208.7
million in FY2018 to $474.3 million in FY2019. The equity capital for the company has
increased from $ 119.5 million in FY2018 to $ 135.3 in FY2019. A pivotal non –financial
indicator relevant for the company is listings volume growth on a y-o-y basis which is 25%.
Other key non-financial indicators include the number of session, users, page views on the
website along with the total minutes spent on the website. The number of sessions, users,

page views and editorial sessions has increased by 18%, 21%, 16% and 81% respectively
(Car Sales, 2019).
Interpretation
The objective is to highlight the potential explanations for the key changes that have been
highlighted above. A critical aspect which is witnessed on the revenue side is that the
majority of the growth has come from Asian market while the performance in Australia has
continued to remain stable. The growth in Australia has been tepid primarily on account of
the slowing economic growth witnessed especially in the second half of FY2019. The growth
in Asian market is reflective of the future growth engine for the company considering the
rising purchasing power of consumers in various Asian countries. The Latin American
business for the company is still in very nascent stage and growth is expected growing
forward (Car Sales, 2019).
There has been a decrease in the operating profit margins on account of the lower prices
which the company had to adhere to in order to push sales of cars and other vehicles. This is
especially true for Asian and Latin American markets where the company is expanding the
operations and thereby offering attractive prices to increase the customer base and awareness.
The profit after tax has eroded further which may be attributed to higher interest outflow (Car
Sales, 2019). This has been incurred as the overall borrowings of the company have gone up
especially as long term debt leading to near doubling of the interest expenses (Petty et. al.,
2015). The company in order to ensure that the balance sheet is not overly leveraged while
ensuring growth in new markets has also raised some equity in FY2019 (Car Sales, 2019).
The company is in the business of online buying and selling of cars, trucks and other vehicles
which includes caravans as well as boats. Considering the online nature of business, the non-
financial indicators of performance assume importance. The effectiveness of online
advertisement by the company and its popularity is driven by the number of page views along
with the time spent on the website which should increase (Heisinger, 2014). Also, the volume
growth is pivotal since typically the expenses of the company would reduce as the volume
increases. Further, this potentially also leads to improvement of market share. The company
has witnessed positive trends on all the indicators of non-financial performance which augers
well for the company going forward (Car Sales, 2019).

A particular concern for the business as evident from the FY2019 annual report is the
increasing leverage in the balance sheet which may be linked to continuous expansion which
the company is doing. While, the way forward for the company is through expansion only,
but it needs to be mindful of the leverage especially considering the lower margins that it
enjoys in new geographies where focus is on expanding the market share (McLaney & Atrill,
2014). The leadership position of the company is maintained in Australia with the company’s
position not being under threat from competition in its primary market. However, the
saturation in the primary market would imply that the future growth of the company would be
based on expansion in Asia and Latin America (Car Sales, 2019).
Conclusion
Based on the above analysis, it may be concluded that the financial indicators of performance
reflect robust performance of the company in FY2019 in comparison to FY2018. This is
especially true for revenue which has grown on account of the surge in Asia business.
However, increasing contribution from outside markets had led to a decrease in the
profitability margins of the company. Further, the interest expenses have also jumped causing
reduction in PAT margins. With regards to financial position, there has been repayment of the
short term debt in FY2019 using the incremental long term debt. The company has also raised
fresh equity to reduce the contribution of debt. The non-financial indicators such as the
volume growth, number of sessions, time spent on website, page views, sessions have shown
positive trend during FY2019. All these show that the growth momentum still rests with the
company. Going forward, the company needs to be wary of increasing the debt and continued
deterioration in profitability margins which can lower the growth in profits attributable to
shareholders.

References
Car sales (2019), Annual Report FY2019, [online] Available at
http://shareholder.carsales.com.au/FormBuilder/_Resource/_module/NwbnH0pKFk-
uPGxM7cmTrw/docs/reports/annual/Annual_Report_2019.pdf [Assessed October 5 2019]
Heisinger, K.(2014) Essentials of Managerial Accounting 4th ed. London: Cengage Learning.
McLaney, E. & Atrill, P. (2014) Accounting and Finance: An Introduction, 7th ed. Harlow:
Pearson Education Limited
Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin J.D. and Burrow, M.(2015),
Financial Management: Principles and Applications 6th ed. Sydney: Pearson Australia