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
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to FCFF (EV/FCFF)
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2005
- Current Ratio since 2005
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Allowance as a percentage of receivables, gross = 100 × Allowance for doubtful accounts ÷ Receivables, gross
= 100 × ÷ =
- Allowance for doubtful accounts
- The allowance for doubtful accounts exhibited fluctuations over the five-year period. Starting at 5 million US dollars in 2015, it increased to 8 million in 2016 and remained steady in 2017. A notable rise occurred in 2018 reaching 12 million, followed by a decline to 7 million in 2019. This pattern suggests variability in the expected credit losses or adjustments in the provision policy during these years.
- Receivables, gross
- Gross receivables showed a general upward trend from 2015 to 2018, with values increasing from 1174 million US dollars in 2015 to 1660 million US dollars in 2018. In 2019, there was a decrease to 1371 million. The growth until 2018 could indicate increased sales or credit extended to customers, while the decline in 2019 might reflect tighter credit policies, improved collections, or reduced sales.
- Allowance as a percentage of receivables, gross
- The allowance as a percentage of gross receivables rose from 0.43% in 2015 to a peak of 0.72% in 2018, before declining to 0.51% in 2019. This upward trend up to 2018 suggests a growing conservatism or acknowledgment of higher credit risk relative to receivables. The subsequent decrease in 2019 may indicate improved credit quality of receivables or adjustment in estimation methodology for doubtful accounts.