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.
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 2018 Calculation
Allowance as a percentage of receivables, gross = 100 × Allowances for bad debts ÷ Receivables, gross
= 100 × ÷ =
- Allowance for Bad Debts
- The allowance for bad debts experienced a substantial increase over the five-year period. Starting at 137 million US dollars in 2014, it rose moderately to 175 million by 2016. However, there was a sharp escalation in 2017, reaching 725 million and slightly increasing further to 738 million in 2018. This indicates a growing expectation of uncollectible receivables.
- Receivables, Gross
- The gross receivables showed a declining trend from 2014 to 2016, dropping from 7,701 million to 4,097 million US dollars. In 2017, the amount rebounded to 5,761 million and increased slightly to 5,972 million in 2018. Thus, after a significant reduction during the first three years, the gross receivables stabilized and showed marginal growth in the last two years.
- Allowance as a Percentage of Receivables
- The allowance as a percentage of gross receivables increased markedly throughout the period. It was relatively low, at 1.78% in 2014, but more than doubled to 4.27% by 2016. The percentage saw an even sharper increase to approximately 12.5% in 2017 and remained nearly stable in 2018 at 12.36%. This trend suggests a heightened risk of non-collection associated with the receivables.