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: 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 accounts and other receivables, gross = 100 × Allowance for doubtful accounts ÷ Accounts and other receivables, gross
= 100 × 110 ÷ 2,017 = 5.45%
The analysis of the allowance for doubtful accounts and gross receivables from 2011 to 2015 reveals a fluctuating credit risk profile, characterized by a significant contraction in total receivables toward the end of the period.
- Gross Receivables Trend
- Accounts and other receivables, gross, remained relatively stable between 2011 and 2012 before increasing to a peak of 3,296 million US$ in 2013. A subsequent decline occurred in 2014, culminating in a sharp reduction to 2,017 million US$ by December 31, 2015, representing a substantial decrease in the total volume of outstanding credit.
- Allowance for Doubtful Accounts Volume
- The absolute value of the allowance for doubtful accounts generally mirrored the movement of gross receivables, peaking at 169 million US$ in 2013. Following this peak, the allowance trended downward over the next two years, reaching a five-year low of 110 million US$ in 2015.
- Credit Risk Ratio Analysis
- The allowance as a percentage of gross receivables remained consistent at approximately 4.6% to 4.7% during 2011 and 2012. An increase to 5.13% in 2013 indicates a period of heightened perceived credit risk. Although the ratio improved to 4.53% in 2014, it rose to its highest level of 5.45% in 2015. This final increase is significant as it occurred simultaneously with a sharp decline in total gross receivables, suggesting a deterioration in the overall collectability or quality of the remaining receivables portfolio.
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