UPDATE 3-Apollo sees higher bad debt, drags education stocks

http://www.reuters.com/article/idUSSGE61I0DR20100219

Summary:

Apollo Group, Inc. is a corporate base parent education group of South Phoenix and large higher-learning institution has recently launched their Quarter 2 financial report. In the Quarter 2 EPS, the estimated bad-debt expense was as high as 7.1%. This dragged the share prices down to 11%. This downfall in shares not only effects the company, Apollo Group Inc, but also other common education companies such as Strayer Education and ITT Education Services. The downfall of 6.8% to 7.1% is equivalent to $73-$76 million of the revenue. The main problem of decreased in revenue is explained by RBC Capital Marketer; Weak economy and shift in student degree programs result in increased bad-debt expense.

Connection:

In chapter 6, we learned about the direct write-off of bad debts. Bad debt expense is when the company decides part of the revenue amount is decided to be uncollectible. In the article, Apollo Group Inc. reported that it has an increase in bad debt expense and result in a share price loss. The article also mentioned about the decrease in share prices. This would be resulted from the company’s share buyback because the shareholders’ are does not have confident in the not yet collectible revenue in the company. An increase in bad debt expense and low share prices could also affect cash flow because if the company does not have sufficient cash flow to pay off its expenses then the company could face a lot of financial crisis.

Reflection:

The Apollo Group Inc. has faced the rise in bad debt expense because of the “weak economy and shift in student mix towards the two-year associate degree programs.” I agree with the education plan that Apollo has raised, they should offer the higher bachelor degree for students so they will continue their education in Apollo education centers so there would be lower bad debt rate. Also, Apollo Group Inc. was being optimistic that the economy is recovering so there would be more revenue coming in but they didn’t consider the fact that there is much unemployment in the business world. They should offer the co-op program that help student find potential jobs and financial foundation so they would be able to pay off their loans. This will definitely decrease their bad-debt expense.