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
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- Analysis of Liquidity Ratios
- Analysis of Geographic Areas
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31), 10-K (reporting date: 2010-12-31).
1 2014 Calculation
Allowance as a percentage of trade receivables, gross = 100 × Allowance for doubtful accounts ÷ Trade receivables, gross
= 100 × ÷ =
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts exhibits fluctuations over the five-year period. It increased from $29,000 thousand in 2010 to a peak of $31,900 thousand in 2011, then declined steadily to $24,200 thousand by 2013, before sharply rising to $66,700 thousand in 2014. This indicates a significant increase in anticipated uncollectible amounts in the last year.
- Trade Receivables, Gross
- Gross trade receivables demonstrated consistent growth each year, rising from $676,300 thousand in 2010 to $981,200 thousand in 2014. This steady increase suggests expanding credit sales or extended terms to customers over the period.
- Allowance as a Percentage of Trade Receivables, Gross
- The allowance as a percentage of gross trade receivables followed a generally downward trend from 4.29% in 2010 to 2.67% in 2013, reflecting an improvement in collection risk or a more optimistic outlook on receivables collectability. However, in 2014, this ratio surged to 6.8%, which is more than double the previous year, indicating a significant deterioration in the expected collectability of receivables in that year.
- Overall Analysis
- Over the examined period, gross trade receivables expanded steadily, evidencing increased credit extended to customers. Initially, the allowance for doubtful accounts and its ratio to gross receivables declined, suggesting improved credit quality or collection efficiency up to 2013. However, in 2014, a marked rise in the allowance and its ratio signals a reversal, potentially reflecting increased credit risk, changes in customer payment behavior, or more conservative accounting estimates regarding doubtful accounts.