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: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).
1 2015 Calculation
Allowance as a percentage of accounts and notes receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts and notes receivable, gross
= 100 × 16 ÷ 393 = 4.07%
Between 2011 and 2015, the management of receivables demonstrated a period of initial volatility followed by a phase of steady growth and adjusted risk provisioning. While gross receivables increased consistently year-over-year, the allowance for doubtful accounts fluctuated, indicating shifts in the estimated credit risk associated with the accounts receivable portfolio.
- Gross Accounts and Notes Receivable Trend
- A consistent upward trajectory is observed in gross receivables, which grew from 308 million USD in 2011 to 393 million USD by 2015. This steady increase suggests an expansion in credit extended to customers or an increase in overall sales volume conducted on credit terms.
- Allowance for Doubtful Accounts Analysis
- The nominal value of the allowance for doubtful accounts experienced a sharp decline from 22 million USD in 2011 to 11 million USD in 2013. However, this trend reversed after 2013, with the allowance rising to 16 million USD by 2015. This suggests a period of improved collectability or more aggressive write-offs between 2011 and 2013, followed by a more conservative provisioning approach in the subsequent years.
- Allowance Coverage Ratio
- The allowance as a percentage of gross receivables peaked at 7.14% in 2011 before dropping significantly to a low of 3.33% in 2013. From 2013 to 2015, the ratio trended upward, ending at 4.07%. The substantial decrease between 2011 and 2013 indicates a reduction in the perceived risk of default relative to the total receivables balance. The gradual increase from 2013 onward reflects a cautious adjustment in the reserve level to align with the growing gross receivable balance.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?