Financial Analysis of Carsales.com: Finance Module Report, AUS

This report conducts a comprehensive financial analysis of Carsales.com Ltd, evaluating its performance based on various financial metrics. The analysis includes an examination of the company's short-term and long-term debts, assessing their consistency and influence on the debt structure. The...Read More

RUNNING Head: Financial analysis of Carsales.com company
1
Name of the student
Topic- Financial analysis of Carsales.com Ltd AUS
University name

Financial analysis of Carsales.com company 2
Table of Contents
Introduction.......................................................................................................................2
Answer to question-1.........................................................................................................2
Short term and long term debts of company...................................................................2
Consistency of debt structure of company.....................................................................3
Company and industry operates its debt to influence the proportion of short-term to
long-term debts.......................................................................................................................... 4
Computation of cost of debt...........................................................................................4
Answer to question no-2....................................................................................................6
Company’s cost of equity...............................................................................................6
Evaluate and discuss your company’s revenue, earnings, EPS, dividends and growth
Expectations...............................................................................................................................7
Growth expectation of company....................................................................................7
Computation of PE ratio................................................................................................ 9
Comparable value.......................................................................................................... 9
Additional data and information would be preferred to value of the assets..................11
Answer to question no-3..................................................................................................12
Computation of weighted average cost of capital.........................................................12
Explanation of tax rate in relation to WACC...............................................................12

Financial analysis of Carsales.com company 3
Why there is difference in cost of debt and cost of equity............................................12
Should current liabilities be included in cost of capital?..............................................13
Major value of the WACC calculation.........................................................................13
Carsales.com Company has used WACC in investment decision................................14
Capital structure of company with the relevancy of the industry.................................14
Capital structure and what economic circumstances....................................................15
Answer to question-4.......................................................................................................16
Market analysis............................................................................................................16
Current literature search...............................................................................................16
Uniqueness of carsales.com.........................................................................................16
Conclusion........................................................................................................................17
References....................................................................................................................... 18
Car Sales.com...................................................................................................................18

Financial analysis of Carsales.com company 4
Introduction
In this report, Carsales.com Company has been taken into consideration to evaluate
various internal and financial factors of business. This report has shown implementation of
financial analysis such as capital budgeting tools, WACC and other costing methods to analysis
the long term and short terms debt of company.
Present details of Carsales.com Company
it is an Australian company which is indulged in selling used cards to buyers at affordable price.
The CEO of company is Cameron McIntyre that is indulged in maintaining effective business.
Answer to question-1
Short term and long term debts of company
Carsales.com has maintained equal short term debts in both years 2016 and 2017.
However, as compared to its industrial average debt, it has reduced its short term debt by AUD
$ .7 million. In addition to this, long term debts of company is also decreased by AUD $ 34
million in just one year. Company was having higher long term debt in 2016 as compared to
industrial average debt which got reduced in 2017 AUD $ 29 million. Company wants to keep its
financial leverage low to increase its sustainibility.
Particular 2016 2017 Industrial average debt
AUD in AUD in Million AUD in Million

Financial analysis of Carsales.com company 5
Million
Short term debts 2 2 2.7
Long term debts 225 191 220
Consistency of debt structure of company
The consistency of debt structure is determined on the basis of changes in debts and equity part
of the company. Company has reduced its short term and long term debt by 20% in 2017 as
compared to last year. At the same, equity capital of company has increased to AUD $ 272 in
2017 from AUD $ 256. In addition to this, as compared to its industrial equity capital is 255
which are lower than Carsales.com. It has shown that company has increased its equity capital
with a view to increase its capital investment.
Particular 2016 2017
Industrial average
debt
$"000 $"000
Total debts 227 193 223
Equity share capital 256 272 255

Financial analysis of Carsales.com company 6
Total capital 483 465 478
Company and industry operates its debt to influence the proportion of short-term to
long-term debts
It is evaluated that carsales.com has maintained stable short term debts in both years.
However, long term debt of company has been influenced by the low level of long term debt of
company. Carsales.com has reduced its overall long term debt to AUD $ 191 with a view to
reduce its overall financial leverage.
Particular 2016 2017
Industrial average
debt
$"000 $"000 $"000
Short term debts 2 2 2.7
Long term debts 225 191 220

Financial analysis of Carsales.com company 7
Computation of cost of debt
Computation of cost of debt is 6%
Computation of cost of debt Amount
Interest payment 8
Long term debt and short term
debt 227
Tax payment 30%
Cost of debt 3%

Financial analysis of Carsales.com company 8
Answer to question no-2
Company’s cost of equity
Cost of equity – The cost of equity is determined by implementing the CAPM method. It is
evaluated that company could reduce its overall cost of equity by injecting its dividend amount
in its business ventures around the globe (Bloomberg, 2017).
Cost of equity= RF+ (RM-RF) Beta
Computation of cost of equity of company
CAPM
Risk free rate 1.58%
Market rate 15%
Beta -0.01269825
CAPM 1.41%

Financial analysis of Carsales.com company 9
Evaluate and discuss your company’s revenue, earnings, EPS, dividends and growth
Expectations.
The revenue of company was AUD $ 344 million in 2016 which has increased to AUD $
372 million in 2017. This has shown that company is increasing its overall productivity. In
addition to this, earning of company is same in both year and so is EPS. This has shown that
company has managed its business efficiently and increased its overall earning throughout the
time (Car Sales.com 2016).
Particular (AUD in million) 2016 2017
Revenue 344 372
Earning 109 109
EPS 0.45 0.45
Dividend 88 89
Growth expectation of company
Carsales.com has shown increment in its overall revenue. However, it could be inferred that
company will increased its overall revenue by 200% in 2024 as compared to its data shown in
2014.

Financial analysis of Carsales.com company 10
Growth Expectation
Amount of revenue based on
trend
2014 236
2015 312
2016 344
2017 372
2018 426
2019 470
2020 514
2021 558
2022 602
2023 646
2024 690

Financial analysis of Carsales.com company 11
Computation of PE ratio
Computation of PE ratio
EPS of the company 0.45
MPS of Company
3513.36353
3
PE ratio
7807.47451
7
Note= PE ratio of company has been computed on the basis of market price and earning per
share of company (Car Sales.com 2016).
Comparable value
PE ratio of industry has been computed on the basis of average market rivals operations
in Australia. On the basis of these PE ratio of industry, MPS of company has been computed to
AUD $3513.363533 (Mota, 2017).

Financial analysis of Carsales.com company 12
Computation of PE ratio
EPS of the company 0.45
MPS of Company
3513.36353
3
PE ratio
7807.47451
7
Computation of market price of company by using Dividend growth mode l
Computation of market price of share by following DGM model method
-D1/KE-G
Computation of Market price of the share Amount
D1 89
Ke 1.41%

Financial analysis of Carsales.com company 13
G -0.01123596
Market price of the share
3513.36353
3
Additional data and information would be preferred to value of the assets
There are several other information which could be used such as Revenue of company, dividend
offered, investment plans and strategic alliance of company and other investment strategies made
by company to value of the assets of company (Bloomberg, 2017).

Financial analysis of Carsales.com company 14
Answer to question no-3
Computation of weighted average cost of capital
Particular Weights Cost
Weighted
cost of
capital
Debt 46.778% 2.8% 1.3%
Equity 53.222% 1.4% 0.8%
WACC 2.1%
Explanation of tax rate in relation to WACC
Tax rate is used by company to reduce its cost of debt while computing the overall
WACC in its business. In addition to this, cost of debt of company or interest payment is tax
deductible expenses which are used by company to reduce its overall tax payment (Bloomberg,
2017).

Financial analysis of Carsales.com company 15
Why there is difference in cost of debt and cost of equity
Cost of debt is ideally set as low as compared to cost of equity. The main reason behind
is related to the debt expenses is eligible for tax deduction. In addition to this, company is at
liberty to pay dividend amount to its shareholders. In addition to this, company may or may not
pay dividend to its shareholders. Cost of debt of company is charged on the profit and should be
paid by company (Car Sales.com 2016).
Should current liabilities be included in cost of capital?
Current liabilities are not included in the cost of capital of company. In addition to this, in
WACC computation, short term liabilities are not included in computation of cost capital of
company (Bloomberg, 2017).
Pros Cons
It shows less level of cost of capital in its
financial statement.
It increases the overall return on capital
employed of company.
Company or investors could never find the
actual cost of capital of company.

Financial analysis of Carsales.com company 16
Major value of the WACC calculation
In the WACC, the major values are long term debts and cost of capital of company. In
addition to this, tax rate is also major factors while computing WACC of Carsales.com
Company.
Carsales.com Company has used WACC in investment decision
The main investment decisions made by Carsales.com have made investment in Rate Setter
Australian Company to increase its overall capital value (Mota, 2017).
Another investment was related to reducing its overall cost of debt by paying off debt funding.
Company has redeemed its debt by paying off its debt value (Krüger, Landier and Thesmar,
2015).
Company has used WACC method to make investment in two projects.
Capital structure of company with the relevancy of the industry
Particular 2016 2017 Industrial average debt

Financial analysis of Carsales.com company 17
$"00
0 $"000
Total debts 227 193 223
Equity share capital 256 272 255
Total capital 483 465 478
It is evaluated that carsales.com has reduced its overall total debts to reduce its overall
financial leverage. In addition to this, company has maintained AUD $ 223 million industrial
average debt which was low as compared to 2016 total debt of company. Company reduced its
total debt to increase the sustainability of business. The total equity capital of company has also
gone down and shown 5% less equity capital as compared to market industry equity capital.
Capital structure and what economic circumstances
Optimum capital structure of company is based on the internal and external factors of
business. Carsales.com needs to reduce its debt portion of the amount to increase the
sustainability of business. It has been evaluated that economic condition of the market is very

Financial analysis of Carsales.com company 18
sluggish therefore; company needs to decrease its overall debt funding and increase its equity
funding to increase the overall business functioning (Yahoo finance, 2017).

Financial analysis of Carsales.com company 19
Answer to question-4
Market analysis
Carsales.com has to evaluate all the internal and external factors of business. It has been
evaluated that company should enter into strategic alliance in its used car business to strengthen
its online business. Using of cyber computing online business is the major part to increase the
overall market share of business.
Current literature search
The main current news of carsales.com was related to high decrease in its share price due
to sluggish market condition and reduced marketing strategic alliance. It has been evaluated that
company needs to install its cyber computing system to increase its overall sales of company.
Uniqueness of carsales.com
The main uniqueness of company is to sell affordable used car to its clients. However, company
has maintained effective brand in Australian market. It has observed that company has effective
strategic investment decision to increase its overall return on capital employed and reducing
overall cost of capital.