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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- Statement of Comprehensive Income
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Geographic Areas
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Selected Financial Data since 2005
- Operating Profit Margin since 2005
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).
1 2017 Calculation
Allowance as a percentage of trade receivables, gross = 100 × Allowance for doubtful trade receivables ÷ Trade receivables, gross
= 100 × ÷ =
- Allowance for doubtful trade receivables
- The allowance amount fluctuated over the observed six-year period, starting at 64 million USD in 2012 and experiencing a general increase reaching 94 million USD in 2016 before decreasing to 78 million USD in 2017. This indicates variability in expected credit losses, with a peak in 2016 followed by some improvement in 2017.
- Trade receivables, gross
- Gross trade receivables showed variability as well but with an overall upward trend from 1961 million USD in 2012 to 2239 million USD in 2017. Notable decreases occurred in 2013 and 2015, yet the values rebounded strongly in subsequent years, suggesting fluctuations in sales or collection cycles but generally increasing credit extended to customers.
- Allowance as a percentage of trade receivables, gross
- The ratio of allowance to gross trade receivables varied, starting at 3.26% in 2012, peaking at 4.65% in 2016, and then declining to 3.48% in 2017. This indicates heightened perceived credit risk or deterioration in receivable quality around 2016, followed by some normalization in 2017. Despite fluctuations, the allowance generally remained between approximately 3.3% and 4.7% of gross receivables during the period.
- Summary
- Over the six years, there is evidence of both growth in the volume of trade receivables and variability in credit risk assessment as reflected by the allowance for doubtful accounts. The peak in the allowance percentage in 2016 suggests a temporary increase in potential credit losses or tighter credit policies, while the subsequent decrease in 2017 may reflect improved collections or credit management. The fluctuations in gross receivables imply varying sales or credit terms, but the longer-term trend indicates an expansion of receivables exposure.
Allowance for Credit Losses
Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).
1 2017 Calculation
Allowance as a percentage of long-term customer receivables, gross = 100 × Allowance for credit losses ÷ Long-term customer receivables, gross
= 100 × ÷ =
- Allowance for credit losses
- The allowance for credit losses experienced fluctuations over the six-year period. Starting at 141 million USD in 2012, it decreased to 104 million USD in 2013, then rose to 125 million USD in 2014. After a slight decrease to 120 million USD in 2015, there was a significant increase in 2016 and 2017, reaching 228 million USD and 277 million USD respectively. This indicates an overall upward trend in the provision for potential credit losses, particularly notable in the last two years.
- Long-term customer receivables, gross
- Long-term customer receivables, gross, showed a general increasing trend throughout the period. There was a decrease from 297 million USD in 2012 to 216 million USD in 2013, followed by an incremental rise to 261 million USD in 2014 and 276 million USD in 2015. A substantial increase occurred in 2016 and 2017, where the receivables rose sharply to 488 million USD and 675 million USD respectively. This suggests an increased level of long-term receivables over time, especially in the later years.
- Allowance as a percentage of long-term customer receivables, gross
- The allowance as a percentage of gross long-term customer receivables remained relatively stable but showed a slight decreasing trend overall. It started at 47.47% in 2012, peaked slightly at 48.15% in 2013, and then hovered around the mid-40s percentage point before dropping to its lowest point of 41.04% in 2017. Despite the rising absolute value of the allowance for credit losses and the gross receivables, the ratio indicates a marginally lower proportion of allowance relative to receivables in the most recent year.