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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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30), 10-K (reporting date: 2015-06-30), 10-K (reporting date: 2014-06-30), 10-K (reporting date: 2013-06-30).
1 2018 Calculation
Allowance as a percentage of receivables, gross = 100 × Allowances for returns and doubtful accounts ÷ Receivables, gross
= 100 × ÷ =
- Allowances for Returns and Doubtful Accounts
- Over the six-year period, there is a noticeable decline in the allowances for returns and doubtful accounts, falling from 899 million US dollars in 2013 to 388 million US dollars in 2018. This represents a reduction of more than 50%, suggesting improved credit quality or a change in the company's policy toward provisioning for doubtful accounts.
- Receivables, Gross
- Gross receivables exhibit fluctuating but generally upward trends. Starting at 6,795 million US dollars in 2013, the value increased to 7,737 million in 2014, followed by a decrease in 2015 to 6,812 million. From 2015 onward, gross receivables steadily rose, reaching 8,232 million US dollars in 2018. The overall trend indicates growth in receivables despite short-term volatility.
- Allowance as a Percentage of Receivables, Gross
- The allowance as a percentage of gross receivables demonstrates a consistent downward trend throughout the period. It dropped from 13.23% in 2013 to 4.71% in 2018. This reduction in proportion reflects either enhanced collection efforts, improved customer creditworthiness, or revised allowance estimation practices, contributing to a lower risk profile in receivables.
- Overall Analysis
- The financial data illustrates a positive trend in the management of receivables and related allowances. While gross receivables have generally increased, the corresponding allowances for returns and doubtful accounts have decreased significantly both in absolute terms and as a percentage of receivables. This suggests enhanced effectiveness in credit risk management and potentially better quality of receivables over the analyzed period.