Last update on 2024-06-07

Credit Acceptance (CACC) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Credit Acceptance (CACC): 2023 Piotroski F-Score Analysis. Discover companies' strengths in profitability, liquidity, and operating efficiency. Full review.

Short Analysis - Piotroski Score: 4

We're running Credit Acceptance (CACC) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Credit Acceptance Corporation (CACC) was assessed using the Piotroski F-Score, which evaluates a company's financial health based on nine criteria of profitability, liquidity, and operating efficiency. CACC earned a score of 4 out of 9, indicating mixed performance. Despite positive net income and cash flow from operations, reflecting profitability, the company faced challenges such as decreasing return on assets, increasing leverage, declining current ratio, and deteriorating gross margin, pointing toward potential operational inefficiency and rising debt dependence.

Insights for Value Investors Seeking Stable Income

Given a Piotroski F-Score of 4, Credit Acceptance Corporation (CACC) shows signs of financial health in terms of profitability but faces concerning issues with liquidity and leverage. As an investor, it would be wise to approach CACC cautiously. Investigate further into the reasons behind the declining efficiency and increasing debt. If these issues can be mitigated or are part of a turnaround plan, CACC might still hold potential. Otherwise, the risks could outweigh the benefits at this point.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Credit Acceptance (CACC)

Company has a positive net income?

Net income is a measure of profitability and indicates how well a company is managing its expenses relative to its revenues.

The net income for Credit Acceptance (CACC) in 2023 stands at $286.1 million, which is positive. Over the past 20 years, CACC has exhibited a consistent trend of positive net income, showing resilience even during economic downturns. For instance, net income peaked in 2021 at $958.3 million before experiencing a decline to $535.8 million in 2022. Despite the reduction, maintaining a positive net income is crucial as it suggests the company remains profitable and can continue operations and investments, thus adding 1 point to the Piotroski score.

Company has a positive cash flow?

Cash flow from operations (CFO) evaluates the amount of cash a business generates from its core operations. It's crucial because it showcases a firm's ability to sustain profitability and business growth.

Credit Acceptance (CACC) has a CFO of $1,203,800,000 in 2023. This is a positive figure, which is commendable as it indicates robust cash generation from its primary business activities. When examining the last 20 years of CFO, there's a consistent upward trend from $64,055,000 in 2003 to the current value, demonstrating sustained growth and operational efficiency. The positive CFO earns a score of 1 point under the Piotroski analysis.

Return on Assets (ROA) are growing?

The criterion measures the company's efficiency in generating profit from assets year over year. An increase indicates better management or enhanced profitability.

Comparing the Return on Assets (ROA) for Credit Acceptance (CACC) shows a decline from 0.0768 in 2022 to 0.0394 in 2023. This indicates a decrease in efficiency in generating profit from the company's assets. Therefore, for the Piotroski F-Score criterion, the score would be 0, reflecting a negative trend. This decline is significant when considered in the context of the last 20 years of industry median ROA, which has consistently been higher, and CACC's operating cash flow, which has generally been on an uptrend. The discrepancy between the company’s ROA and its operating cash flow may indicate potential operational inefficiency or over-leveraging of assets.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income criterion assesses whether a company is generating adequate cash from its operations compared to its reported net income, indicating efficient cash management and earnings quality.

For Credit Acceptance (CACC), Operating Cash Flow (OCF) for 2023 is $1,203,800,000 while Net Income is $286,100,000. Clearly, the OCF is significantly higher than Net Income. This difference suggests that the company is efficient in generating cash, with an OCF approximately 4.21 times higher than the net income. Over the last 20 years, the operating cash flow of CACC has consistently shown an upward trend, peaking at $1,238,700,000 in 2022 before slightly declining to $1,203,800,000 in 2023. In comparison, Net Income has been more volatile. The substantial OCF superiority over Net Income is an indicator of strong cash management and reliable earnings, hence, for this criterion, CACC scores 1 point.

Liquidity of Credit Acceptance (CACC)

Leverage is declining?

Change in Leverage: Assess the alterations in leverage ratios between years to deduce financial stability and management of debt levels.

In 2022, Credit Acceptance (CACC) had a leverage ratio of 0.6649, which slightly increased to 0.6659 in 2023. This shows a minor rise in the company's leverage, indicating a higher degree of financing through debt. Historically looking, CACC's leverage significantly escalated from the earlier years where it hovered around lower levels such as 0.0004 in 2003 and reached higher yet steady states in modern years, notably rising from 0.6154 in 2020. This might imply that although the increase is minimal in the recent period, there is a progressive reliance on debt over the past two decades. Consequently, according to Piotroski's criteria, the leverage increase results in a score of 0 for this parameter, reflecting a cautionary signal on the increased risk taken by the company.

Current Ratio is growing?

The current ratio reflects a company's ability to cover its short-term liabilities with its short-term assets. It is crucial as it indicates liquidity and financial health.

Comparing the values of Credit Acceptance (CACC), the current ratio decreased from 25.5526 in 2022 to 18.6026 in 2023. This represents a decline and hence does not meet the criteria to add 1 point. Over a 20-year historical perspective, CACC's current ratio has exhibited fluctuations, with a significant peak in 2019 at 35.4714. In 2023, although showing a decline compared to 2022, CACC's current ratio remains substantially higher than the industry median of 1.4517 for 2023. However, stability remains a concern given the volatility over the past two decades.

Number of shares not diluted?

Shares outstanding indicate how many shares are owned by all shareholders, including restricted shares owned by company insiders or retained by the entities. It is the share capital the market uses in its valuation matrix.

It appears there is an inconsistency or data reporting issue here, showing 0 outstanding shares in 2023. We would usually check the typical expectation of either an increase or decrease in outstanding shares between 2022 and 2023. In our anomaly case – if indeed shares 'seems zero', leads invalidation. The normal assumption would give insight into dilution effects, although less so here.

Operating of Credit Acceptance (CACC)

Cross Margin is growing?

Gross Margin measures how much profit a company makes for every dollar of sales after accounting for costs. It's a critical indicator of financial health.

Credit Acceptance's (CACC) Gross Margin decreased from 0.7394 in 2022 to 0.6716 in 2023. This negative trend is worrisome as it suggests CACC is generating less profit per sales dollar compared to the previous year. Over a 20-year span, CACC's Gross Margin peaked at 0.7827 in 2014, but the current decline stands below the industry median of 0.7633 in 2022. This deterioration implies potential efficiency issues or rising costs, resulting in a score of 0 for this criterion.

Asset Turnover Ratio is growing?

Asset turnover measures the efficiency of a company in using its assets to generate sales revenue. It's important as it reflects operational efficiency.

In 2023, Credit Acceptance (CACC) reported an asset turnover ratio of 0.259, slightly down from 0.2613 in 2022. This indicates a mild decrease in efficiency in using its assets to generate revenue, warranted a score of 0 for this criterion. Over the last 20 years, this ratio has been relatively stable, with historical values ranging from a low of 0.1632 in 2003 to a high of 0.3497 in 2010, showing that the company has generally maintained operational efficiency despite the slight decline in recent years. Continued careful monitoring is essential.