HP Inc. (NYSE:HPQ)

Between 2013 and 2018, a significant transformation occurred in the scale of accounts receivable and the associated allowance for doubtful accounts. The period is characterized by an initial phase of declining absolute risk and volume, followed by a sharp contraction in receivables and a subsequent increase in the relative credit risk profile.

Allowance for Doubtful Accounts Trend

The absolute value of the allowance for doubtful accounts exhibited a consistent downward trajectory from 2013 to 2017, falling from US$ 332 million to US$ 101 million. A reversal of this trend occurred in 2018, where the allowance increased to US$ 129 million, indicating a potential increase in projected credit losses toward the end of the analyzed period.

Gross Accounts Receivable Dynamics

Gross accounts receivable experienced a moderate decline between 2013 and 2015, moving from US$ 16,208 million to US$ 13,552 million. A substantial contraction occurred in 2016, with balances dropping sharply to US$ 4,221 million. Following this event, receivables grew steadily through 2018, reaching US$ 5,242 million.

Relative Credit Risk Analysis

The allowance as a percentage of gross accounts receivable reveals a shift in asset quality. From 2013 to 2015, the ratio decreased from 2.05% to a period low of 1.39%, suggesting improving credit quality. However, starting in 2016, the ratio spiked to 2.53% and remained elevated through 2018, ending at 2.46%. This indicates that while the total volume of receivables was significantly lower than in previous years, a higher proportion of the remaining balance was deemed doubtful, reflecting an increase in the perceived credit risk per dollar of outstanding receivable.

An analysis of the allowance for credit losses from 2013 to 2015 indicates a consistent improvement in the credit quality of the financing receivables portfolio. Both the absolute value of the allowance for doubtful accounts and the corresponding percentage of gross receivables exhibited a steady downward trajectory over the observed three-year period.

Allowance for Doubtful Accounts

The absolute reserve for doubtful accounts declined consistently each year, falling from 131 million US dollars in 2013 to 111 million US dollars in 2014, and further to 95 million US dollars by October 31, 2015. This represents a cumulative reduction of approximately 27.5% over the period.

Gross Financing Receivables

Gross financing receivables remained relatively stable, despite a slight contraction between 2013 and 2014, moving from 7,153 million US dollars to 6,670 million US dollars. A marginal increase followed in 2015, with the balance ending at 6,689 million US dollars.

Allowance as a Percentage of Gross Financing Receivables

The credit loss ratio showed a continuous decline, decreasing from 1.83% in 2013 to 1.66% in 2014, and reaching 1.42% in 2015. The combination of decreasing allowance reserves and relatively stable gross receivables suggests a reduction in perceived credit risk or an improvement in the overall creditworthiness of the financing counterparties.