Credit Acceptance Corp. has a market cap of $2.47 billion; its shares were traded at around $97.76 with a P/E ratio of 12.9 and P/S ratio of 4.7. Credit Acceptance Corp. had an annual average earning growth of 25.2% over the past 10 years. GuruFocus rated Credit Acceptance Corp. the business predictability rank of 4.5-star.
Highlight of Business Operations:Unit and dollar volumes grew 7.3% and 7.9%, respectively, during the second quarter of 2012 as the number of active Dealers grew 27.0% and average volume per active Dealer declined 15.3%. We believe the decline in volume per Dealer is the result of increased competition. We increased advance rates on April 1, 2012, which positively impacted unit and dollar volumes while reducing the return on capital we expect to earn on new assignments. We believe this advance rate increase had a positive impact on economic profit as we believe the positive impact of the increased dollar volume exceeded the negative impact of the reduced return on capital. Unit volume for the one month ended July 31, 2012 increased by 15.9% as compared to the same period in 2011.
Other Income. For the three months ended June 30, 2012, other income remained generally consistent with the amount reported during the same period in 2011. While the Guaranteed Asset Protection (“GAP”) profit sharing income recognized in the second quarter of 2012 decreased by $1.0 million compared to the amount recognized in the second quarter of 2011, the decrease was fully offset by an increase in fee income from the sale of Global Positioning Systems with Starter Interrupt Devices (“GPS-SID”). As a result of a change in our revenue recognition during the second quarter of 2011, GAP profit sharing income was elevated in the prior year period. The increase in GPS-SID fee income was due to increases in both the fee earned per unit and the number of units purchased by Dealers from third party providers.
Other Income. For the six months ended June 30, 2012, other income decreased $3.1 million, or 21.3%, as compared to the same period in 2011. The decrease in other income was primarily due to a $4.5 million decrease in GAP profit sharing income which was primarily the result of the change we made to our revenue recognition during the second quarter of 2011 to begin recognizing this income as earned over the life of the GAP contracts. As a result of this change, 2011 included both the recognition of the $3.7 million annual profit sharing payment received during the first quarter of 2011 and the recognition of $1.9 million in future profit sharing payments earned during the first two quarters of 2011. In addition, profit sharing income for the first quarter of 2012 was reduced by a $0.5 million reversal of previously recognized income as a result of a change in our profit sharing arrangement. Additionally, enrollment fees also declined by $0.6 million for the current period. The decrease in GAP profit sharing and enrollment fees was partially offset by a $1.9 million increase in GPS-SID fee income due to increases in both the fee earned per unit and the number of units purchased by Dealers from third party providers.
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