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
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Reportable Segments
- Analysis of Geographic Areas
- Enterprise Value to EBITDA (EV/EBITDA)
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).
1 2019 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for doubtful accounts
- The allowance for doubtful accounts shows a declining trend from 2014 to 2018, decreasing from $173 million to $75 million. In 2019, there is a slight increase to $95 million. This overall decline suggests improving credit risk management or reduced anticipated credit losses over the period, although the uptick in 2019 may indicate a cautious adjustment or changes in credit policy.
- Accounts receivable, gross
- The gross accounts receivable values fluctuate during the period. There is a significant increase from $3,391 million in 2014 to a peak of $7,021 million in 2015. This is followed by a decrease and relative stabilization around $6,600 to $6,700 million in 2016 through 2018. A rise is observed again in 2019, reaching $7,321 million. These changes could reflect variations in sales volume, credit terms, or collection cycle dynamics.
- Allowance as a percentage of accounts receivable, gross
- This ratio demonstrates a consistent downward trend, starting at 5.1% in 2014 and declining sharply to 1.13% in 2018. In 2019, there is a slight increase to 1.3%. The declining percentage indicates improved quality of receivables or more conservative provisioning relative to the size of receivables over time. The minor increase in the last year may reflect adjustments in credit risk assessment or economic conditions.