Credit Acceptance Corporation has a market cap of $2.03 billion; its shares were traded at around $83.28 with a P/E ratio of 10.6 and P/S ratio of 3.9. Credit Acceptance Corporation had an annual average earning growth of 25.2% over the past 10 years. GuruFocus rated Credit Acceptance Corporation the business predictability rank of 4.5-star.
Highlight of Business Operations:Unit and dollar volumes grew 5.4% and 3.1%, respectively, during the third quarter of 2012 as the number of active Dealers grew 26.6% and average volume per active Dealer declined 16.5%. We believe the decline in volume per Dealer is the result of increased competition. We increased advance rates in April 2012 and September 2012, which positively impacted unit and dollar volumes while reducing the return on capital we expect to earn on new assignments. We believe these advance rate increases 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 October 31, 2012 increased by 13.3% as compared to the same period in 2011 and was positively impacted by two additional business days (23 business days in October 2012 compared to 21 business days in October 2011).
Other Income. For the nine months ended September 30, 2012, other income decreased $2.5 million, or 12.5%, as compared to the same period in 2011. The decrease in other income was primarily due to a decrease in Guaranteed Asset Protection (“GAP”) profit sharing income from $6.9 million in the first three quarters of 2011 to $1.7 million in the first three quarters of 2012. The decrease is 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 annual profit sharing payment for 2010 received during the first quarter of 2011 ($3.7 million) and the recognition of future profit sharing payments earned during the first three quarters of 2011 ($3.2 million). In addition, profit sharing payments earned during the first three quarters of 2012 ($1.7 million) included a $0.5 million reversal in the first quarter of previously recognized income resulting from a change in our profit sharing arrangement. The $5.2 million decrease in GAP profit sharing was partially offset by a $2.8 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.
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