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 notes receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts and notes receivable, gross
= 100 × 90 ÷ 4,067 = 2.21%
The allowance for doubtful accounts exhibited a general upward trajectory over the five-year period, peaking in 2015. While gross receivables grew steadily through 2014, a divergence occurred in 2015 when the total receivable balance decreased while the allowance for doubtful accounts reached its highest absolute value.
- Absolute Allowance Trends
- The allowance for doubtful accounts rose from 62 million US dollars in 2011 to 90 million US dollars by the end of 2015. The growth was non-linear, experiencing a slight dip in 2013 before accelerating in the final two years of the period.
- Gross Receivable Movements
- Gross accounts and notes receivable showed consistent growth from 2,999 million US dollars in 2011 to 4,485 million US dollars in 2014. This upward trend was reversed in 2015, with the balance decreasing to 4,067 million US dollars.
- Allowance Percentage Analysis
- The allowance as a percentage of gross receivables decreased from 2.06% in 2011 to a low of 1.58% in 2013. Following a period of relative stability in 2014, the ratio surged to 2.21% in 2015. This represents the highest percentage in the analyzed timeframe, indicating an increase in the estimated uncollectibility of the remaining receivable balance.
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Allowance for Credit Losses
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 gross lease receivables = 100 × Allowance for credit losses ÷ Gross lease receivables
= 100 × 7 ÷ 154 = 4.55%
The financial period between 2011 and 2015 is characterized by a consistent contraction in lease assets and a fluctuating trend in credit loss provisions. While both the total receivables and the absolute allowance for losses decreased for the majority of the period, a divergence in risk assessment occurred in the final year.
- Gross Lease Receivables
- A sustained downward trend is observed in the gross lease receivables, which fell from 336 million US dollars in 2011 to 154 million US dollars in 2015. This represents a significant reduction in the total volume of lease-related assets over the five-year duration.
- Allowance for Credit Losses
- The nominal value of the allowance for credit losses declined sharply from 24 million US dollars in 2011 to 6 million US dollars in 2014. This downward trajectory was interrupted in 2015, when the allowance increased slightly to 7 million US dollars.
- Allowance as a Percentage of Gross Lease Receivables
- The ratio of the allowance to gross lease receivables exhibited a steady decline from 7.23% in 2011 to a period low of 2.58% in 2014, suggesting a period of improving credit quality or a reduction in perceived risk. However, in 2015, this ratio increased to 4.55%. The rise in this percentage, occurring simultaneously with a further decrease in gross receivables and an increase in the absolute allowance, indicates a higher relative expectation of credit losses in the final year of the analyzed period.
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