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: 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 accounts receivable, gross = 100 × Allowance for doubtful accounts receivable ÷ Accounts receivable, gross
= 100 × 16 ÷ 3,519 = 0.45%
The analysis of credit risk provisions from 2014 to 2018 reveals a general reduction in the allowance for doubtful accounts receivable, occurring alongside fluctuations in total gross receivables. This trend indicates a systemic decrease in the amount of capital set aside to cover potential credit losses relative to the total outstanding receivables.
- Allowance for Doubtful Accounts Receivable Trends
- The absolute value of the allowance experienced a downward trajectory, decreasing from 29 million US dollars in 2014 to 16 million US dollars by 2018. A significant reduction occurred between 2015 and 2016, where the provision fell from 24 million US dollars to 16 million US dollars, maintaining a level of stability between 16 and 17 million US dollars for the remainder of the period.
- Gross Accounts Receivable Dynamics
- Gross receivables exhibited volatility over the five-year span. A contraction was observed in 2015, with balances dropping to 2,541 million US dollars. Subsequently, a recovery phase occurred, with balances rising to a peak of 3,556 million US dollars in 2017, before stabilizing at 3,519 million US dollars in 2018.
- Credit Quality Ratio Analysis
- The allowance as a percentage of gross accounts receivable demonstrates a consistent decline following a peak of 0.94% in 2015. By 2018, this ratio decreased to 0.45%, representing a significant reduction in the proportion of receivables deemed doubtful. This pattern suggests an improvement in the quality of the accounts receivable portfolio or the implementation of more stringent credit control measures, as the allowance decreased even while the gross receivables balance increased from 2015 to 2018.
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