AutoNation is an automotive retailer with stores located predominantly in major metropolitan markets in the Sunbelt region of the U.S. The company sells new and used vehicles, repair and maintenance services, as well as wholesale parts.
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
|Book value of equity per share||$29.11||20.7%||12.2%||9.2%|
|BV including aggregate dividends||20.7%||12.2%||9.2%|
|1 year||5 years||10 years|
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
|1 year||5 years||10 years|
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
The Company issued an aggregate of 18,127,984 shares of Common Stock for the acquisitions of Scott, Fennell, GDS, Duncan, Southland, United and Kertz (collectively, the "Pooled Entities") which were accounted for as pooling of interests business combinations.
In May 1996, the Company sold 9,878,400 shares of Common Stock in a private placement transaction resulting in net proceeds of $197,583,000.
On November 25, 1996, in connection with the acquisition of Alamo, the Company issued 22,572,180 shares of Common Stock to the shareholders of Alamo in exchange for all of the issued and outstanding stock of Alamo.
On November 8, 1996, the Company issued and sold 12,079,915 shares of Common Stock in a private placement to institutional and other accredited investors, for a purchase price of $29.50 per share resulting in net proceeds of approximately $353.0 million.
In January 1997, following approval by the Company's stockholders at a special meeting, the Company acquired AutoNation Incorporated, which is developing a chain of used vehicle megastores. The Company issued approximately 17.5 million shares of Common Stock in this transaction, which will be accounted for under the purchase method of accounting.
In February 1997, the Company acquired National Car Rental System, Inc. ("National"), which operates a vehicle rental business. The Company issued approximately 21.7 million shares of Common Stock in this transaction, which will be accounted for under the pooling of interests method of accounting.
In August 1997, the Company acquired the net assets of Silver State which provides waste collection services. The Company issued approximately 16.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting.
In addition, during the nine months ended September 30, 1997, the Company acquired various other businesses in the automotive retail, solid waste services and electronic security services industries which were not material to the Company. The Company issued an aggregate of approximately 8.8 million shares of Common Stock and paid approximately $76.4 million of cash in such transactions which have been accounted for under the purchase method of accounting, and issued an aggregate of approximately 15.2 million shares of Common Stock in such transactions which have been accounted for under the pooling of interests method of accounting. These acquisitions accounted for under the pooling of interests method of accounting were not material in the aggregate and, consequently, prior period financial statements were not restated for such acquisitions.
During the nine months ended September 30, 1999, the Company repurchased 60.5 million shares of the Company's common stock, par value $.01 per share ("Common Stock") for an aggregate purchase price of $864.0 million under its $1.0 billion Board authorized share repurchase program. Through September 30, 1999, an aggregate of 69.6 million shares of Common Stock have been acquired under this program for an aggregate purchase price of $1.0 billion. In October 1999, the Board of Directors authorized the repurchase of an additional $250.0 million of Common Stock.
In 1998, our board of directors authorized the repurchase of up to $500 million of common stock. In 1999, our board authorized additional share repurchase programs totaling $1.25 billion, including $500 million authorized by our board in December 1999. Since the 1998 inception of our share repurchase programs, we have repurchased 110.9 million shares of common stock for a cumulative purchase price of approximately $1.38 billion through February 29, 2000, leaving approximately $374.1 million remaining for share repurchases under the program. We expect to continue repurchasing shares under this program.
On June 30, 2000, we completed the tax-free spin-off of ANC Rental Corporation, which operates primarily under the Alamo Rent-A-Car and National Car Rental brand names in the leisure travel, business travel and vehicle replacement markets of the automotive rental industry. As a result of the spin-off, our stockholders of record as of June 16, 2000 received one share of ANC Rental common stock for every eight shares of AutoNation common stock they held as of such date. ANC Rental common stock is traded on The Nasdaq Stock Market under the symbol "ANCX." We have reclassified and reported ANC Rental's business as a discontinued operation.
In April 2006, the Company sold $300.0 million of 7% senior unsecured notes due April 15, 2014 and $300.0 million of floating rate senior unsecured notes due April 15, 2013, in each case at par. The floating rate senior unsecured notes bear interest at a rate equal to three-month LIBOR plus 2.0% per annum, adjusted quarterly, and may be redeemed by the Company on or after April 15, 2008 at 103% of principal, on or after April 15, 2009 at 102% of principal, on or after April 15, 2010 at 101% of principal and on or after April 15, 2011 at 100% of principal. The 7% senior unsecured notes may be redeemed by the Company on or after April 15, 2009 at 105.25% of principal, on or after April 15, 2010 at 103.5% of principal, on or after April 15, 2011 at 101.75% of principal and on or after April 15, 2012 at 100% of principal. In connection with the issuance of the new senior notes, the Company amended its existing credit agreement to provide: (1) a $650 million revolving credit facility that provides for various interest rates on borrowings, generally LIBOR plus 1.0%, and (2) a $600.0 million term loan that bears interest at a rate equal to LIBOR plus 1.25%. The amended credit agreement, which includes the new term loan, terminates on July 14, 2010. The proceeds of the new senior notes and term loan borrowings, together with cash on hand and borrowings of $80.0 million under the amended revolving credit facility, were used to: (1) purchase 50 million shares of the Company's common stock at $23 per share for an aggregate purchase price of $1.15 billion pursuant to the Company's equity tender offer that commenced on March 10, 2006, (2) purchase $309.4 million aggregate principal of the Company's 9% senior unsecured notes for an aggregate total consideration and accrued and unpaid interest of $339.8 million pursuant to the Company's debt tender offer and consent solicitation that commenced on March 10, 2006, and (3) pay related financing costs.
During the third quarter of 2008, as a result of the continuing challenging automotive retail environment and the decline in our stock price, we determined that the carrying value of our single reporting unit more likely than not exceeded its fair value. We recorded an estimated non-cash goodwill impairment charge of $1.47 billion ($1.25 billion after-tax).
Shares repurchased... 20.9 [M] As of June 30, 2010, $55.3 million remained available for share repurchases under the share repurchase program approved by our Board of Directors. From July 1, 2010 through July 22, 2010, we repurchased an additional 2.9 million shares of our common stock for an aggregate purchase price of $55.0 million (average purchase price per share of $19.08) pursuant to a Rule 10b5-1 plan. On July 20, 2010, our Board of Directors authorized an additional $250 million under our existing share repurchase program.