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: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 32,537 ÷ 1,116,804 = 2.91%
The analysis of bad debt provisions from 2012 to 2016 reveals a period of increasing credit risk anticipation that peaked in 2015, followed by a sharp correction in 2016. While the gross accounts receivable remained relatively stable with a gradual upward trajectory, the allowance for doubtful accounts exhibited significant volatility.
- Gross Accounts Receivable Trends
- Gross receivables showed a consistent growth pattern from 2013 onward, rising from 1,015,108 thousand US dollars to 1,116,804 thousand US dollars by the end of 2016. This indicates a steady increase in the total volume of outstanding credit extended to customers over the five-year period.
- Allowance for Doubtful Accounts Fluctuations
- The allowance for doubtful accounts increased steadily from 32,635 thousand US dollars in 2012 to 39,799 thousand US dollars in 2014. A significant spike occurred in 2015, where the allowance reached 57,503 thousand US dollars, representing a substantial increase in the reserve for potential losses. However, this trend reversed sharply in 2016, with the allowance dropping to 32,537 thousand US dollars, effectively returning to 2012 levels.
- Allowance as a Percentage of Gross Receivables
- The ratio of the allowance to gross accounts receivable mirrored the trend of the absolute allowance values. The percentage rose incrementally from 3.13% in 2012 to 3.71% in 2014, before peaking at 5.20% in 2015. This peak suggests a period of heightened concern regarding the collectability of receivables or a shift toward a more conservative accounting estimate. The subsequent decline to 2.91% in 2016 marks the lowest point in the observed period, indicating either a significant write-off of bad debts, improved collection efficiency, or a revised assessment of credit risk.
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