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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- Analysis of Profitability Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Operating Profit Margin since 2011
- Return on Equity (ROE) since 2011
- Debt to Equity since 2011
- Price to Earnings (P/E) since 2011
- Price to Operating Profit (P/OP) since 2011
- Analysis of Revenues
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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 accounts receivable, gross = 100 × Allowance for doubtful accounts receivable ÷ Accounts receivable, gross
= 100 × ÷ =
The analysis of the financial data reveals several notable trends in the company's accounts receivable and related allowances over the five-year period ending December 31, 2018.
- Allowance for doubtful accounts receivable
- This allowance demonstrates a general decline, starting at 29 million US dollars in 2014 and dropping to 16 million US dollars by 2018. There is a marked decrease from 2014 to 2016, where the allowance fell from 29 million to 16 million, followed by a slight increase to 17 million in 2017, before returning to 16 million in 2018.
- Accounts receivable, gross
- The gross accounts receivable exhibit fluctuations throughout the period. After starting at 3,477 million US dollars in 2014, the value declined to 2,541 million in 2015, suggesting a significant reduction in outstanding receivables. Subsequently, the amount rose to 2,858 million in 2016 and continued increasing to a peak of 3,556 million in 2017 before slightly dropping to 3,519 million in 2018.
- Allowance as a percentage of accounts receivable, gross
- The percentage of allowance relative to gross accounts receivable shows a downward trend, moving from 0.83% in 2014 to 0.45% in 2018. This ratio decreased gradually each year, indicating improved credit quality or more favorable collection conditions over time. The most pronounced reduction occurs between 2015 and 2016, decreasing from 0.94% to 0.56%, and continuing to decline steadily thereafter.
Overall, the data suggests an improvement in the quality of receivables, as evidenced by the decreasing allowance for doubtful accounts both in absolute terms and as a percentage of gross receivables. Despite fluctuations in the gross accounts receivable, the company appears to have strengthened its credit risk management or collection practices during the period under review.