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Ford Motor Co. (F)

Analysis of Bad Debts

Advanced level

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.

Accounting Policy on Receivables

Trade Receivables

Trade and other receivables consists primarily of Automotive segment receivables from contracts with customers for the sale of vehicles, parts, and accessories. Trade receivables initially are recorded at the transaction amount and are typically outstanding for less than 30 days. Each reporting period, Ford evaluates the collectability of the receivables and record an allowance for doubtful accounts representing the estimate of the probable losses. Additions to the allowance for doubtful accounts are made by recording charges to bad debt expense reported in Selling, administrative, and other expenses.

Source: 10-K (filing date: 2019-02-21).

Allowance for Doubtful Accounts Receivable

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Allowances for doubtful receivables 94  404  377  372  455 
Receivables, gross 11,289  11,003  11,479  11,414  12,163 
Financial Ratio
Allowance as a percentage of receivables, gross1 0.83% 3.67% 3.28% 3.26% 3.74%

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-13).

1 2018 Calculation
Allowance as a percentage of receivables, gross = 100 × Allowances for doubtful receivables ÷ Receivables, gross
= 100 × 94 ÷ 11,289 = 0.83%

Financial ratio Description The company
Allowance as a percentage of receivables, gross Allowance for doubtful accounts divided by the gross accounts receivable. Ford Motor Co.’s allowance as a percentage of receivables, gross increased from 2016 to 2017 but then decreased significantly from 2017 to 2018.

Allowance for Credit Losses

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Allowance for credit losses 589  597  484  373  321 
Recorded investment in finance receivables 110,486  108,989  96,674  91,064  86,462 
Financial Ratio
Allowance as a percentage of recorded investment in finance receivables1 0.53% 0.55% 0.50% 0.41% 0.37%

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-13).

1 2018 Calculation
Allowance as a percentage of recorded investment in finance receivables = 100 × Allowance for credit losses ÷ Recorded investment in finance receivables
= 100 × 589 ÷ 110,486 = 0.53%

Financial ratio Description The company
Allowance as a percentage of recorded investment in finance receivables Allowance for credit losses divided by the gross financing receivable. Ford Motor Co.’s allowance as a percentage of recorded investment in finance receivables increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.