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
- Statement of Comprehensive Income
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Selected Financial Data since 2005
- Current Ratio since 2005
- Debt to Equity since 2005
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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 notes receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts and notes receivable, gross
= 100 × ÷ =
- Allowance for doubtful accounts
- The allowance for doubtful accounts exhibited a generally upward trend over the five-year period, increasing from $62 million at the end of 2011 to $90 million by the end of 2015. The figures saw minor fluctuations, with a slight decrease from 2012 to 2013, but overall reflected growing provisions for potential credit losses.
- Accounts and notes receivable, gross
- The gross accounts and notes receivable rose steadily from $2,999 million in 2011 to a peak of $4,485 million in 2014, before declining to $4,067 million in 2015. This pattern suggests solid growth in credit sales or receivables management capacity until 2014, followed by a reduction in the final year under review.
- Allowance as a percentage of accounts and notes receivable, gross
- The allowance as a percentage of gross accounts and notes receivable decreased from 2.06% in 2011 to a low of 1.58% in 2013, indicating a relatively lower proportion of receivables considered doubtful despite rising gross receivables. However, this ratio rose again to 2.21% by 2015, surpassing the initial level, signaling increased caution or deteriorating credit conditions in the latest year.
Allowance for Credit Losses
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 gross lease receivables = 100 × Allowance for credit losses ÷ Gross lease receivables
= 100 × ÷ =
- Allowance for credit losses
- The allowance for credit losses showed a consistent decline from 24 million US dollars in 2011 to a low of 6 million US dollars in 2014, before slightly increasing to 7 million US dollars in 2015. This indicates an overall improvement in expected credit losses over the majority of the observed period, with a minor reversal at the end.
- Gross lease receivables
- Gross lease receivables demonstrated a steady downward trend throughout the period, decreasing significantly from 336 million US dollars in 2011 to 154 million US dollars in 2015. This substantial reduction suggests either a contraction in leasing activities or a strategic decision to reduce lease receivables.
- Allowance as a percentage of gross lease receivables
- The allowance as a percentage of gross lease receivables decreased steadily from 7.23% in 2011 to a low of 2.58% in 2014, before rising again to 4.55% in 2015. This trend indicates that credit loss provisions were becoming smaller relative to lease receivables up to 2014, reflecting improved credit quality or risk management, but this improvement partially reversed in 2015.
- Overall Analysis
- The company experienced a notable reduction in lease receivables over the five-year period, accompanied by decreasing allowance for credit losses both in absolute terms and as a percentage of receivables until 2014. The increase in allowance levels and allowance ratio in 2015 suggests a potential increase in credit risk or more conservative loss provisioning in response to market or internal changes. The data implies generally improving credit conditions until 2014, followed by a cautious shift in 2015.