Analysis of Bad Debts
Allowance for doubtful accounts receivable (bad debts) is a contra account which reduce the balance of the company’s 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 Credit Losses
Based on: 10-K (filing date: 2021-02-17), 10-K (filing date: 2020-02-19), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15).
1 2020 Calculation
Allowance as a percentage of finance receivables, gross = 100 × Allowance for credit losses ÷ Finance receivables, gross
= 100 × 475 ÷ 22,160 = 2.14%
| Financial ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of finance receivables, gross | Allowance for credit losses divided by the gross financing receivable. | Caterpillar Inc.’s allowance as a percentage of finance receivables, gross decreased from 2018 to 2019 but then increased from 2019 to 2020 not reaching 2018 level. |