We penalise companies with a high and rising level of delinquent accounts receivable relative to total receivables. The danger of large delinquencies is that companies will have to recognise future impairment charges. We have limited information on delinquencies as data is only collected on 12% of all companies, with the highest disclosure provided in China, Thailand and Hong Kong. There is some variance in delinquencies by industry, as shown in Figure 17, but we feel it is better to compared delinquencies against the entire sample. As such, the median delinquent receivable is 6% of total receivables.
Under our accounting screen a red flag is triggered when delinquent receivables exceed the 80th percentile relative to global peers (i.e. it is very high at 23% or more of total). Red flags are also triggered when delinquent receivables increase at an unusually large rate over 1 and 3 years. Again, this is when the increase exceeds the 80th percentile relative to global peers between 2010 and 2015.
