Credit Accept has a market cap of $2.45 billion; its shares were traded at around $98.69 with a P/E ratio of 13 and P/S ratio of 4.7. Credit Accept had an annual average earning growth of 26.6% over the past 10 years. GuruFocus rated Credit Accept the business predictability rank of 4.5-star.
Highlight of Business Operations:Consumer Loan assignment volumes depend on a number of factors including (1) the overall demand for our product, (2) the amount of capital available to fund new Loans, and (3) our assessment of the volume that our infrastructure can support. Our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of capital and infrastructure constraints. Unit and dollar volumes were positively impacted by an increase in active Dealer-Partners and advance rate increases made during the first and fourth quarters of 2010 and the second and third quarters of 2011. Dollar volumes were also positively impacted by an increase in the size of the average Consumer Loan assignment. While the advance rate increases reduced the return on capital we expect to earn on new assignments, we believe it is very likely the advance increases had a positive impact on economic profit. Unit volume for the one month ended January 31, 2012 increased by 19.5% as compared to the same period in 2011.
Other Income. For the year ended December 31, 2011, other income increased $3.1 million, or 14.6%, as compared to 2010. The increase in other income is primarily due to an increase in GAP profit sharing income and dealer enrollment fees. The increase in GAP profit sharing income of $7.1 million was the result of an increase in the annual profit sharing payment received and recognized during the first quarter of 2011 and an acceleration in our revenue recognition for this income beginning in the second quarter of 2011. Under our arrangement with our third party GAP provider, we receive annual profit sharing payments based on the performance of our GAP program. Prior to the second quarter of 2011, we received and recognized GAP profit sharing payments annually in the first quarter of each year. During the second quarter of 2011, we began recognizing this income over the life of the GAP contracts.
We recognize finance charges under the interest method such that revenue is recognized on a level-yield basis based upon forecasted cash flows. For Dealer Loans, finance charge revenue and the allowance for credit losses are calculated after first aggregating Dealer Loans outstanding for each Dealer-Partner. For the same purpose, Purchased Loans are aggregated according to the month the Loan was purchased. An allowance for credit losses is maintained at an amount that reduces the net asset value (Loan balance less the allowance) to the value of forecasted future cash flows discounted at the yield established at the time of assignment. The discounted value of future cash flows is comprised of estimated future collections on the Loans, less any estimated Dealer Holdback payments related to Dealer Loans. We write off Loans once there are no forecasted future collections on any of the associated Consumer Loans.
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