Financial Performance Analysis of Carsales.com

Solution – 2(a)

The report is presented to analyze the financial performance of carsales.com with the help of Annual Report. The report is addressed the working of the company in future to grow and expansion. It is available from the data of the company that the company is investing in new areas. With this view we can say that the company is working well in future and also revenue will increase accordingly.

To analyze the performance of the company we can see that the return on investment of the company is good or not. For this purpose we hereby present the calculation and analysis of profit and return of the company.  Following ratios are presenting the financial performance of the company:

Return on Equity:

The above table represents return on equity of the company for 2014 & 2015. Return on equity helps to measure the performance of the company to ear over the investment of the shareholders. This is the ratio which helps to investor to take decision for investment. This ratio is calculated with the help of Net Profit and net worth of the shareholders. The Return on equity decreased in the year 2015 as presented in above table but the company is able to increase the same as the investments are being made by the company. (Investopedia, n.d.)

It is also important to note that the return is decreased due to increase in no. of equity shares as the company has issued new equity shares. In absolute terms the earnings of the company is increased. With the help of probable forecast of the company we can say that in future the return will increase as the income generated by new investment will add and accordingly ROE will increase. We can understand in this way, if No. of shares are remain same and profit will increase then overall return will increase. 

Earning per Share:

Earning per share is also an important ratio to measure the performance of the company to earn only for equity shareholders. This is net return which earn on the investment of equity share holders. The earning per share of the company is calculated by Profit available for equity share holders dividing by No. of equity shares. The profit of the company is increased in the year 2015 as compared to 2014 but simultaneously no. of shares has also been increased. In overall the performance of the company is good. Still the earning per share is increased as compared to last year. This represent that the company is growing. The cascading effect will remove with the help of diluted EPS but now we are discussing for Basic EPS thus the EPS will remain same.  (Textbook, n.d.)

Hence we can conclude that the earnings of the company is increased but still earning per share is same as the company has issued the shares in lieu of dividend. Also the ROE is also increased in absolute terms. The investment in the company is subject to profitability of the company in near future.   

References:

D K Singhal, 2015, Financial Management, Available at Online, [Accessed on 14/08/2016]