In its November, 2009, press release discussing third quarter financial results, the construction management and consulting firm Hill International specifically cited an increase in bad debt expense as a drag on otherwise improved operating profits. Hill provides its services globally to companies involved in large construction projects.
REQUIRED:
Discuss the effects of an international real estate recession on construction projects and why this macroeconomic event would affect a company's bad debt expense. Who is on the other side of a company's bad debt expense? How does this expense affect the income statement and the balance sheet? How could an analyst following the global construction markets use a company's disclosure on bad debts to better understand the industry?