Analysis of Bad Debts
Allowance for doubtful accounts receivable (bad debts) is a contra account which reduce the balance of the company gross accounts receivable. The relationship between the allowance and the balance in receivables should be relatively constant unless there is a change in the economy overall or a change in customer base.
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- Income Statement
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Return on Equity (ROE) since 2005
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Analysis of Debt
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for uncollectible accounts ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for uncollectible accounts
- The allowance for uncollectible accounts demonstrates an upward trend over the analyzed period, increasing from $7 million in 2012 to $14 million in 2016. This indicates a doubling in the estimated amount considered uncollectible, suggesting a growing concern regarding credit risk or possible deterioration in the quality of receivables.
- Accounts receivable, gross
- There is a consistent decline in gross accounts receivable from $2,754 million in 2012 to $1,742 million in 2016. This downward movement reflects a reduction of approximately 36.7% over the five years, which may indicate improved collection processes, reduced sales on credit, or other operational changes affecting the volume of receivables.
- Allowance as a percentage of accounts receivable, gross
- The allowance as a percentage of gross accounts receivable increases significantly, starting from 0.25% in 2012 and reaching 0.8% in 2016. This rise reveals a proportional increase in expected uncollectible amounts relative to the total accounts receivable, which aligns with the increase in the absolute allowance amount despite the declining accounts receivable balance. It suggests heightened credit risk or more conservative accounting estimates over time.