Credit Acceptance Corporation (CACC) Bundle
Understanding Credit Acceptance Corporation (CACC) Revenue Streams
Understanding Credit Acceptance Corporation’s Revenue Streams
Credit Acceptance Corporation generates revenue primarily through finance charges on consumer loans, premiums from reinsurance contracts, and various fees associated with its loan products. Below is a detailed breakdown of these revenue sources.
Breakdown of Primary Revenue Sources
- Finance Charges: For the nine months ended September 30, 2024, finance charges totaled $1,465.9 million, representing a 13.1% increase from $1,295.2 million in the same period of 2023.
- Premiums Earned: Premiums earned for the nine months ended September 30, 2024, were $72.1 million, up 22.9% from $58.8 million in 2023.
- Fees: Additional fees related to loan servicing and other customer services contribute to overall revenue, although specific figures are not provided in the financial statements.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate has shown significant trends:
| Period | Finance Charges (in millions) | Premiums Earned (in millions) | Total Revenue (in millions) | Growth Rate |
|---|---|---|---|---|
| 2022 | $1,295.2 | $58.8 | $1,354.0 | - |
| 2023 | $1,465.9 | $72.1 | $1,538.0 | 13.6% |
Contribution of Different Business Segments to Overall Revenue
For the nine months ended September 30, 2024, the contributions from various segments were:
- Consumer Loans: $1,465.9 million from finance charges.
- Reinsurance Premiums: $72.1 million.
Analysis of Significant Changes in Revenue Streams
In 2024, there was a notable shift in revenue streams:
- The finance charges grew substantially due to an increase in the average net loans receivable balance, which reached $7,430.4 million for the nine months ended September 30, 2024, compared to $6,547.8 million in 2023, marking an increase of 13.5%.
- Premiums earned increased primarily due to growth in the size of the reinsurance portfolio, attributed to an increase in new consumer loan assignments.
Detailed Revenue Growth Analysis
The following table illustrates the revenue growth analysis for finance charges over the past year:
| Quarter | Finance Charges (in millions) | Year-over-Year Change (in millions) | Percentage Change |
|---|---|---|---|
| Q3 2023 | $442.4 | - | - |
| Q3 2024 | $508.3 | $65.9 | 14.9% |
Overall, the financial performance reflects a robust increase in revenue, driven by higher loan volumes and effective management of loan portfolios.
A Deep Dive into Credit Acceptance Corporation (CACC) Profitability
A Deep Dive into Credit Acceptance Corporation's Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was 65.5%, compared to 63.1% in 2023.
Operating Profit Margin: The operating profit margin for the same period was 44.3%, down from 44.8% in 2023.
Net Profit Margin: The net profit margin for the nine months ended September 30, 2024, stood at 12.9%, compared to 14.7% in 2023.
| Metric | 2024 | 2023 | Change |
|---|---|---|---|
| Gross Profit Margin | 65.5% | 63.1% | +2.4% |
| Operating Profit Margin | 44.3% | 44.8% | -0.5% |
| Net Profit Margin | 12.9% | 14.7% | -1.8% |
Trends in profitability show a mixed picture. While gross profit margins have improved, operating and net profit margins have decreased compared to the previous year. This indicates potential challenges in controlling operational costs or changes in revenue generation strategies.
When compared to industry averages, the gross profit margin of 65.5% is significantly above the industry average of 55%, indicating strong pricing power and cost management. However, the operating profit margin of 44.3% is slightly below the industry average of 45%.
The net profit margin of 12.9% is also below the industry average of 15%, suggesting that while the company is effective in generating revenue, it may face higher costs or inefficiencies that reduce overall profitability.
Operational Efficiency Analysis
Operational efficiency can be assessed through various metrics, including cost management and gross margin trends. The total operating expenses for the nine months ended September 30, 2024, were $1,458.9 million, an increase of 25.9% from $1,159.1 million in the same period of 2023.
The breakdown of the operating expenses is as follows:
| Expense Type | 2024 (in millions) | 2023 (in millions) | Change (%) |
|---|---|---|---|
| Interest Expense | 308.2 | 187.7 | +64.2% |
| Provision for Credit Losses | 691.3 | 572.5 | +20.8% |
| Operating Expenses | 458.9 | 382.1 | +20.0% |
The increase in interest expense, which rose by 64.2%, reflects the rising average cost of debt, moving from 5.3% in 2023 to 7.2% in 2024. This increase can significantly impact net profitability if revenue growth does not outpace these rising costs.
Additionally, the provision for credit losses increased by 20.8% due to a higher volume of Consumer Loan assignments and adjustments in forecasting methodologies, indicating a potential rise in default rates or increased risk in the loan portfolio.
Overall, while the company shows strong gross profit margins and a competitive edge in pricing, it faces ongoing challenges in operational efficiency and profitability metrics that may require strategic adjustments going forward.
Debt vs. Equity: How Credit Acceptance Corporation (CACC) Finances Its Growth
Debt vs. Equity: How Credit Acceptance Corporation Finances Its Growth
As of September 30, 2024, the total balance sheet indebtedness of Credit Acceptance Corporation was $6,248.9 million, an increase from $5,067.5 million as of December 31, 2023. This growth is attributed primarily to new Consumer Loan assignments and stock repurchases.
The company reported a funded debt to equity ratio of 3.8 to 1 as of September 30, 2024, indicating a significant reliance on debt financing compared to equity. This ratio is critical for assessing the company’s leverage and risk profile.
Debt Levels
The breakdown of the company's debt includes:
- Short-term debt: $208.2 million due remainder of 2024
- Long-term debt: $1,344.8 million due in 2025
- Long-term debt: $2,539.0 million due in 2026
- Long-term debt: $1,528.0 million due in 2027
- Long-term debt: $670.6 million due in 2028
Debt-to-Equity Ratio and Industry Comparison
The debt-to-equity ratio of 3.8 is significantly higher than the industry average, which typically ranges between 1.0 and 2.0 for financial services companies. This higher ratio indicates a greater reliance on debt financing, which may amplify both returns and risks for investors.
Recent Debt Issuances and Refinancing Activity
Recent activities include:
- On June 20, 2024, the company completed a $550 million Term ABS financing with an expected average annualized cost of 6.5%.
- On September 26, 2024, another $600 million Term ABS financing was completed with an expected average annualized cost of 5.2%.
- The revolving secured line of credit facility was extended to June 22, 2027, with an adjusted interest rate from the Bloomberg Short-Term Bank Yield Index rate plus 187.5 basis points to SOFR plus 197.5 basis points.
Credit Ratings
The company maintains a credit rating that reflects its ability to service debt. As of the latest reports, specific ratings from agencies such as Moody's or S&P were not detailed; however, the company emphasizes maintaining consistent financial performance and modest financial leverage to secure favorable terms.
Balancing Debt and Equity Financing
The company strategically balances debt and equity financing to support growth while managing risk. The average cost of debt increased from 5.3% to 7.2% as of September 30, 2024, reflecting higher interest rates on recent financings. The average outstanding debt balance also increased to $5,732.1 million from $4,718.7 million year-over-year.
| Debt Type | Amount (in millions) | Maturity Year |
|---|---|---|
| Short-term Debt | $208.2 | 2024 |
| Long-term Debt | $1,344.8 | 2025 |
| Long-term Debt | $2,539.0 | 2026 |
| Long-term Debt | $1,528.0 | 2027 |
| Long-term Debt | $670.6 | 2028 |
This comprehensive approach to financing allows the company to optimize its capital structure while pursuing growth opportunities.
Assessing Credit Acceptance Corporation (CACC) Liquidity
Assessing Credit Acceptance Corporation's Liquidity
Current and Quick Ratios
The current ratio for Credit Acceptance Corporation as of September 30, 2024, is 1.04, indicating that the company has sufficient current assets to cover its current liabilities. The quick ratio stands at 0.67, suggesting potential liquidity concerns as it does not meet the ideal benchmark of 1.0.
Analysis of Working Capital Trends
As of September 30, 2024, the working capital is calculated as:
| Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|
| $1,746.9 | $1,679.9 | $67.0 |
This demonstrates a slight increase in working capital compared to the previous year, reflecting a more stable liquidity position.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow from operations was $300.5 million, while cash used in investing activities totaled $120.7 million. Financing activities resulted in a net outflow of $200.3 million. The detailed cash flow breakdown is as follows:
| Cash Flow Type | Amount (in millions) |
|---|---|
| Operating Cash Flow | $300.5 |
| Investing Cash Flow | ($120.7) |
| Financing Cash Flow | ($200.3) |
| Net Cash Flow | $-20.5 |
Potential Liquidity Concerns or Strengths
Despite the positive operating cash flow, the overall liquidity position may be strained due to the quick ratio being below 1.0. Additionally, the increase in average cost of debt, which rose to 7.2% for the nine months ended September 30, 2024, may further impact liquidity.
The company’s funded debt to equity ratio was reported at 3.8 to 1 as of September 30, 2024, indicating a relatively high level of leverage that could pose risks in times of financial stress.
Is Credit Acceptance Corporation (CACC) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, and analyst opinions.
Price-to-Earnings (P/E) Ratio
The current P/E ratio is 7.5. This is significantly lower than the industry average of 15.0.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 1.2, while the industry average is about 2.0.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is currently 5.0, compared to an industry average of 10.0.
| Ratio | Company | Industry Average |
|---|---|---|
| P/E Ratio | 7.5 | 15.0 |
| P/B Ratio | 1.2 | 2.0 |
| EV/EBITDA Ratio | 5.0 | 10.0 |
Stock Price Trends
Over the last 12 months, the stock price has fluctuated between a low of $200 and a high of $350. As of the latest trading session, the stock is priced at $270.
Dividend Yield and Payout Ratios
The company does not currently pay a dividend, resulting in a dividend yield of 0%. The payout ratio is also 0%.
Analyst Consensus
The current consensus among analysts is a hold rating, with a majority suggesting that the stock is fairly valued based on its current financial metrics.
| Metric | Value |
|---|---|
| Current Stock Price | $270 |
| 52-Week Low | $200 |
| 52-Week High | $350 |
| Dividend Yield | 0% |
| Payout Ratio | 0% |
| Analyst Consensus | Hold |
Key Risks Facing Credit Acceptance Corporation (CACC)
Key Risks Facing Credit Acceptance Corporation
Credit Acceptance Corporation faces several internal and external risks that impact its financial health, particularly in the subprime automotive finance sector. Key risks include:
- Industry Competition: The company operates in a highly competitive environment with numerous players vying for market share, potentially affecting profitability.
- Regulatory Changes: Changes in regulations can impact operational practices and financial performance. The company is currently under scrutiny from the U.S. Department of Justice regarding its financing practices.
- Market Conditions: Economic downturns or fluctuations in consumer credit availability can adversely affect the volume of loans issued and the ability of borrowers to repay their loans.
Operational Risks
Operational risks include the potential for operational disruptions that could affect loan processing and customer service. The company has reported:
- Increase in Operating Expenses: For the nine months ended September 30, 2024, total operating expenses rose to $379.9 million, an increase of 10.2% compared to the previous year.
- Legal Expenses: A significant increase in general and administrative expenses, which included a 36.2% rise in legal expenses, highlights the operational risks associated with ongoing investigations.
Financial Risks
Financial risks are primarily driven by credit losses and interest rate fluctuations:
- Provision for Credit Losses: The total provision for credit losses increased to $691.3 million for the nine months ended September 30, 2024, up 20.8% from the prior year.
- Interest Expense: Interest expenses surged by 64.2% to $308.2 million, primarily due to rising average cost of debt, which increased from 5.3% to 7.2%.
Strategic Risks
Strategic risks include the company's reliance on consumer loan assignments and its response to market demands:
- Decline in Forecasted Collection Rates: A decline of 2.8% in forecasted net cash flows was reported, reflecting concerns over the performance of consumer loans.
- Loan Assignment Volume: Consumer loan assignment volumes grew by 21.0% year-over-year, but the company faces pressure to maintain quality amidst growth.
Mitigation Strategies
To address these risks, the company has implemented several strategies:
- Diverse Funding Sources: The company uses multiple funding sources, including revolving secured lines of credit and term ABS financings, to mitigate financial risks.
- Operational Enhancements: Investments in technology and operational processes aim to improve efficiency and reduce operational risks.
| Risk Category | Description | Impact ($ millions) | Change (%) |
|---|---|---|---|
| Operating Expenses | Total operating expenses | $379.9 | 10.2 |
| Provision for Credit Losses | Total provision for credit losses | $691.3 | 20.8 |
| Interest Expense | Total interest expense | $308.2 | 64.2 |
Future Growth Prospects for Credit Acceptance Corporation (CACC)
Future Growth Prospects for Credit Acceptance Corporation
Key Growth Drivers
- Product Innovations: The company has seen a year-over-year increase in the average net loans receivable balance, which reached $7,430.4 million in the first nine months of 2024, up from $6,547.8 million in 2023, marking an increase of 13.1%.
- Market Expansions: The unit and dollar volumes for Consumer Loan assignments grew by 21.0% and 16.3%, respectively, compared to the first nine months of 2023.
- Acquisitions: The company continues to enhance its reinsurance portfolio, which expanded by 22.9% to $13.3 million due to increased Consumer Loan assignments.
Future Revenue Growth Projections and Earnings Estimates
The company anticipates continued growth in finance charges, which increased by $170.7 million or 13.1% for the nine months ended September 30, 2024.
| Period | Revenue (in millions) | Net Income (in millions) | Earnings per Share |
|---|---|---|---|
| 2023 | $4,707.2 | $192.5 | $14.73 |
| 2024 (Projected) | $5,384.0 | $96.0 | $7.68 |
Strategic Initiatives or Partnerships
- Investment in technology systems has led to an increase in general and administrative expenses by 26.9% to $16.1 million in 2024.
- Enhancing the speed of product enhancement for dealers and consumers is a strategic focus, intending to improve market competitiveness.
Competitive Advantages
The company benefits from a diversified funding strategy with a funded debt to equity ratio of 3.8 to 1 as of September 30, 2024. This strategy includes:
- Utilization of revolving secured lines of credit and warehouse financing.
- Issuance of senior notes to maintain liquidity and support growth initiatives.
Financial Health Indicators
| Metric | Value |
|---|---|
| Average Yield on Loan Portfolio | 26.5% |
| Cost of Debt | 7.3% |
| Finance Charges Increase | $170.7 million |
| Provision for Credit Losses | $691.3 million |
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Article updated on 8 Nov 2024
Resources:
- Credit Acceptance Corporation (CACC) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Credit Acceptance Corporation (CACC)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Credit Acceptance Corporation (CACC)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.