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: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 2014 Calculation
Allowance as a percentage of receivables, gross = 100 × Allowances related to accounts receivable ÷ Receivables, gross
= 100 × 21 ÷ 1,101 = 1.91%
An analysis of the allowances for doubtful accounts over the three-year period ending December 27, 2014, reveals a consistent reduction in the estimated amount of uncollectible receivables. While the total volume of gross receivables remained relatively stable, the specific provision for bad debts decreased annually, indicating a trend toward lower credit risk or more efficient collection processes.
- Allowances Related to Accounts Receivable
- A continuous downward trend is observed in the absolute value of allowances, which declined from 28 million USD in 2012 to 21 million USD in 2014. This represents a total reduction of approximately 25% over the analyzed period.
- Gross Receivables Volume
- Gross receivables exhibited minimal volatility, fluctuating between a high of 1,117 million USD in 2012 and a low of 1,074 million USD in 2013, before recovering to 1,101 million USD in 2014. The stability of the gross balance confirms that the reduction in the allowance is not driven by a significant contraction in total credit extended to customers.
- Allowance as a Percentage of Gross Receivables
- The ratio of allowances to gross receivables shows a steady decline, moving from 2.51% in 2012 to 2.42% in 2013, and further decreasing to 1.91% in 2014. This contraction in the percentage suggests an improvement in the perceived credit quality of the accounts receivable portfolio or a revision in the estimation methodology for bad debt provisions.
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