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
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- Analysis of Reportable Segments
- Enterprise Value to FCFF (EV/FCFF)
- Dividend Discount Model (DDM)
- Net Profit Margin since 2015
- Total Asset Turnover since 2015
- Price to Operating Profit (P/OP) since 2015
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Allowance as a percentage of trade receivables, gross = 100 × Allowances related to trade accounts receivable ÷ Trade receivables, gross
= 100 × ÷ =
- Trade Receivables, Gross
- The gross trade receivables exhibited significant fluctuation over the five-year period. Notably, there was a decrease from 903 million US$ in 2015 to 789 million US$ in 2016, followed by a moderate increase to 944 million US$ in 2017. A sharp rise occurred in 2018, where the value reached 2,153 million US$, before slightly declining to 2,006 million US$ in 2019. This indicates substantial variability with a pronounced increase in the final two years.
- Allowances Related to Trade Accounts Receivable
- Allowances showed a decreasing trend from 32 million US$ in 2015 to 20 million US$ in 2016. Subsequently, a gradual increase was observed, with allowances rising to 23 million US$ in 2017, 24 million US$ in 2018, and peaking at 33 million US$ in 2019. This pattern indicates an initial reduction in allowances followed by a consistent upward adjustment in the latter years.
- Allowance as a Percentage of Gross Trade Receivables
- The allowance ratio declined steadily from 3.54% in 2015 to a low of 1.11% in 2018, reflecting improved credit quality or more conservative allowance provisioning relative to the size of gross receivables. However, in 2019, the ratio increased to 1.65%, suggesting a modest rise in anticipated credit losses or more cautious estimation despite the large volume of receivables.