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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- Balance Sheet: Assets
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Capital Asset Pricing Model (CAPM)
- Return on Assets (ROA) since 2005
- Analysis of Debt
- Aggregate Accruals
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Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2011-12-31).
1 2015 Calculation
Allowance as a percentage of accounts and other receivables, gross = 100 × Allowance for doubtful accounts ÷ Accounts and other receivables, gross
= 100 × ÷ =
- Allowance for doubtful accounts
- The allowance for doubtful accounts exhibited a fluctuating trend over the five-year period. It initially remained nearly constant, decreasing slightly from 128 million US dollars in 2011 to 127 million in 2012. Thereafter, it rose significantly to 169 million in 2013, followed by a decline to 139 million in 2014 and a further reduction to 110 million in 2015. Overall, the allowance peaked in 2013 and then notably decreased by 2015.
- Accounts and other receivables, gross
- The gross accounts and other receivables showed variability, starting at 2,743 million US dollars in 2011 and slightly dipping to 2,706 million in 2012. There was a substantial increase to 3,296 million in 2013, indicating a significant rise in receivables. This was followed by a decrease to 3,069 million in 2014, and a sharp drop to 2,017 million in 2015, reaching its lowest point in the period under review.
- Allowance as a percentage of accounts and other receivables, gross
- The allowance as a percentage of the gross accounts and other receivables showed a generally stable yet slightly increasing trend over the period. Starting at 4.67% in 2011, it remained nearly unchanged at 4.69% in 2012, then rose to 5.13% in 2013. It decreased to 4.53% in 2014 before rising again to the highest rate of 5.45% in 2015. This indicates a relative increase in the proportion of doubtful accounts compared to gross receivables by the end of the period, despite fluctuations.
- Summary Insights
- The data reflect a period of volatility in both the allowance for doubtful accounts and the gross accounts receivable balances. After peaking in 2013, both measures declined notably by 2015. The allowance's proportion to receivables also showed some upward movement, particularly in 2015, suggesting a potentially increased risk perception or tighter credit policies during that year. The sharp drop in gross receivables in 2015 alongside a higher allowance percentage might indicate more conservative credit management or a decrease in overall credit sales.