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Bad debt Print E-mail

overdue bills

See bad debt in the Cambridge Business English Dictionary

What is it?

The term “bad debt” refers to accounts receivable which will likely remain uncollectable and will be written off. Bad debts appear as an expense on the company’s profit and loss statement and reduce the net income. Companies make an estimate of bad debt expenses in advance based on their past records as part of the process when they estimate their earnings for the future. Most companies have bad debt allowances as they assume that not all their debtors will pay their bills in full. In addition, banks made provisions again bad debt and these play a major role in their earnings reports.

Why is it in the news?

As companies are beginning to report their earnings for 2010, looking at the amount of bad debts they recorded is part of the annual report.  When the amount of bad debt goes down, companies may have a higher net income even if they did not earn more money. On the other hand, a larger amount of uncollectable bills can adversely affect the bottom line.

How can I use it in class?

Vocabulary

Look at these words and expressions from the Bloomberg article and choose the correct of the two definitions.

1 to dent (earnings growth) 
A to reduce an amount of money   B to increase an amount of money

2 peers
A those who are members of a group you are a part of  
B those who are members of a different group

3 revenue
A expenses    B income

4 to bet
A to be certain   B to estimate or speculate

5 to sap profits
A to make profits stronger   B to make profits weaker

6 stellar
A excellent   B not very good

7 to beat the average
A to be better than the average   B to be worse than the average

8 to decline to say
A to publicly state   B to refuse to say

9 to remain elevated
A to stay high   to B fall

10 the economy contracted
A the economy got stronger   B the economy got weaker

11 quarterly
A every three months   B every four months

12 systemically important
A important on its own   B important to the system

Discussion questions

1 What reasons might a company have for not paying back a loan? Do you know of any specific example?
2 How important is it that banks and other companies make provisions for bad debt? What could happen if they don’t do this?
3 Do you think that bad loans are simply a fact of business or can this be changed? If so, how?
4 Have you had any personal experiences in your job where you had to deal with uncollectible debts? Did your company have any particular process for doing this?

Where can I read about it?

  • Erste Shares Fall on Revenue as Hungary, Romania Curb Growth, Bloomberg, February 25th 2011
  • HSBC sees full year profits more than double, BBC, February 28th 2011
  • Lloyds returns to profit to make £2.21bn, BBC, February 25th 2011
  • Ulster Bank reports operating losses of £761m for 2010, BBC, February 24th  2011

Key

1A, 2A, 3B, 4B, 5B, 6A, 7A, 8B, 9A, 10B, 11A, 12B

 

 

 
Bailout Print E-mail

bailout jargon buster

See bailout in the Cambridge Business English Dictionary

What is it?

Literally, it means trying to save a sinking boat by throwing bucketfuls of water over the side. ‘Baile’ was an old English word meaning ‘bucket’. In business, it means rescuing a failing company, and is typically used when the government provides money to a strategically important company to avoid a messy collapse. There is also a noun, a bailout (or a bail-out), to refer to this attempted rescue.

Why is it in the news?

The US government has recently bailed out AIG, a huge insurance company. The bailout was considered necessary because the collapse of AIG would have had severe consequences for the US and global economy. This bailout came only a week after the US bailed out Fannie Mae and Freddie Mac, two mortgage lenders considered to be at the heart of the US real estate market.

How can I use it in class?

The issue of bailing out struggling companies raises all sorts of interesting questions connected with the limits of the free market and the degree to which government intervention is necessary or desirable. Governments are in the undesirable position of being criticised if they bail a company out (i.e. for wasting taxpayers’ money and rewarding bad management) and criticised if they stand back (i.e. for allowing key firms to collapse and wreck people’s lives and businesses). These questions could provoke considerable discussion, especially if you push students to give concrete examples to back up their arguments.

  • Which companies have been bailed out in your country and around the world?
  • What are the short-term advantages and disadvantages of bailing out struggling companies? Think about the bailed-out companies, the government, the taxpayer, the companies’ customers, the companies’ competitors, other countries’ governments, etc.
  • What about the long-term advantages and disadvantages?
  • Do you think governments should bail out more struggling companies?

Where can I read about it?

  • Bailout banks hit by fear that slump will still hurt, Times, 18th November 2008.
 
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