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.
Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2014-12-31).
1 2018 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 16 ÷ 2,082 = 0.77%
The financial data indicates a divergence between the growth of gross accounts receivable and the allocation for doubtful accounts from 2014 to 2018.
- Gross Accounts Receivable Trends
- A consistent upward trajectory is observed in gross accounts receivable, which increased from 1,187 million US dollars in 2014 to 2,082 million US dollars in 2018. This represents a significant expansion of the credit exposure over the five-year period.
- Allowance for Doubtful Accounts Stability
- Despite the growth in total receivables, the allowance for doubtful accounts remained relatively stable and showed a slight overall decrease. The balance declined from 21 million US dollars in 2014 to a low of 15 million US dollars in 2016, before leveling off at 16 million US dollars in 2017 and 2018.
- Credit Risk Ratio Analysis
- The allowance as a percentage of gross accounts receivable demonstrates a continuous downward trend, falling from 1.74% in 2014 to 0.77% in 2018. This decline suggests an improvement in the perceived quality of the receivables portfolio or a shift toward more optimistic estimations of recoverability as the volume of outstanding receivables increased.
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