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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- Cash Flow Statement
- Analysis of Short-term (Operating) Activity Ratios
- Dividend Discount Model (DDM)
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Return on Assets (ROA) since 2005
- Total Asset Turnover since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 2018 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts and authorized credits ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for doubtful accounts and authorized credits
- The allowance amount shows a fluctuating trend over the examined period. It started at $102 million in 2014, decreased steadily to $81 million in 2016, then increased again to $106 million by 2018. This suggests variability in the company's estimation of potential credit losses.
- Accounts receivable, gross
- The gross accounts receivable exhibited a declining trend in the first three years, decreasing from $899 million in 2014 to $673 million in 2016. However, from 2016 onwards, the amounts increased, reaching $818 million in 2018. This pattern indicates a period of reduction followed by growth in receivables.
- Allowance as a percentage of accounts receivable, gross
- This ratio consistently increased over the five years, starting at 11.35% in 2014 and rising steadily to 12.96% in 2018. The upward trend implies that the proportion of doubtful accounts relative to total receivables has been expanding, indicating a potentially higher risk in the collectability of receivables despite fluctuations in their absolute amounts.