Starbucks Corp. (SBUX)
Analysis of Bad Debts
Advanced level
Allowance for doubtful accounts receivable (bad debts) is a contra account which reduce the balance of the company’s 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.
Accounting Policy on Receivables
Receivables, net of Allowance for Doubtful Accounts
Starbucks’ receivables are mainly comprised of receivables for product and equipment sales to and royalties from the licensees, as well as receivables from the Global Coffee Alliance and other Channel Development customers. Starbucks’ allowance for doubtful accounts is calculated based on historical experience, customer credit risk and application of the specific identification method. As of September 29, 2019 and September 30, 2018, Starbucks’ allowance for doubtful accounts was $6.7 million and $8.0 million, respectively.
Source: 10-K (filing date: 2019-11-15).
Allowance for Doubtful Accounts Receivable
Based on: 10-K (filing date: 2019-11-15), 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14).
1 2019 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 6,700 ÷ 885,900 = 0.76%
| Financial ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of accounts receivable, gross | Allowance for doubtful accounts divided by the gross accounts receivable. | Starbucks Corp.’s allowance as a percentage of accounts receivable, gross increased from 2017 to 2018 but then decreased significantly from 2018 to 2019. |