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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- Balance Sheet: Assets
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Price to FCFE (P/FCFE)
- Selected Financial Data since 2005
- Analysis of Revenues
- Aggregate Accruals
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Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2011-12-31).
1 2015 Calculation
Allowance as a percentage of receivables, gross = 100 × Allowance for doubtful accounts ÷ Receivables, gross
= 100 × ÷ =
- Allowance for Doubtful Accounts
- There is a clear upward trend in the allowance for doubtful accounts over the five-year period. The balance increased steadily from 58 million USD in 2011 to 103 million USD in 2015. This indicates a growing provision for potential credit losses.
- Gross Receivables
- Gross receivables exhibit a declining trend. The amount decreased from 3,137 million USD in 2011 to 1,356 million USD in 2015. This represents a significant reduction, particularly notable after 2013.
- Allowance as a Percentage of Gross Receivables
- The allowance as a percentage of gross receivables shows a marked increase throughout the period, rising from 1.85% in 2011 to 7.6% in 2015. This suggests a higher proportion of receivables is considered doubtful, indicative of more conservative credit risk management or deteriorating receivables quality.
- Overall Analysis
- The data reveals an inverse relationship between gross receivables and the allowance for doubtful accounts. As gross receivables declined, the allowance increased both in absolute terms and as a percentage, highlighting heightened credit risk or stricter provisioning policies. The growing allowance ratio points to increasing concerns about the collectability of the receivables portfolio.