Net Charge Off - NCO

AAA

DEFINITION of 'Net Charge Off - NCO'

The dollar amount representing the difference between gross charge-offs and any subsequent recoveries of delinquent debt. Net charge offs refer to debt owed to a company that is unlikely to be recovered by that company. This "bad debt" often written off and classified as gross charge-offs. If, at a later date, some money is recovered on the debt, the amount is subtracted from the gross charge-offs to compute the net charge-off value.

INVESTOPEDIA EXPLAINS 'Net Charge Off - NCO'

Bad debt or poor credit quality loans are regularly charged off as bad debt and purged from the books, often on a monthly or quarterly basis. If, at a later date, the company find out it was wrong and part of the debt is actually repaid, the net charge-off can be calculated by finding the difference the gross charge-offs and the repaid debt. A negative value for net charge-offs indicates that recoveries are greater than charge-offs during a particular accounting period. Companies want this number to be low.

RELATED TERMS
  1. Return On Total Assets - ROTA

    A ratio that measures a company's earnings before interest and ...
  2. Bad Debt

    A debt that is not collectible and therefore worthless to the ...
  3. Accounting

    The systematic and comprehensive recording of financial transactions ...
  4. Allowance For Doubtful Accounts

    A contra-asset account that records the portion of a company's ...
  5. Bad Debt Expense

    An entry found on a business's income statement that represents ...
  6. Chart Of Accounts

    A listing of each account a company owns, along with the account ...
RELATED FAQS
  1. Who bears the risk of bad debts in securitization?

    Bad debts arise when borrowers default on their loans. This is one of the primary risks associated with securitized assets, ... Read Full Answer >>
  2. What happens if a company doesn't think it will collect on some of its receivables?

    The accounts receivable account, or receivables for short, is created when a company extends credit to a customer based on ... Read Full Answer >>
  3. What happens to the company stock if a subsidiary gets spun off?

    When a subsidiary gets spun off, the company's stock tends to drop. However, the investor in the stock does not lose any ... Read Full Answer >>
  4. How is minimum transfer price calculated?

    A company that transfers goods between multiple divisions needs to establish a transfer price so that each division can track ... Read Full Answer >>
  5. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Book value of equity per share (BVPS) is a ratio used in fundamental analysis to compare the amount of a company's shareholders' ... Read Full Answer >>
  6. What is the effective interest method of amortization?

    The effective interest method is an accounting practice used for discounting a bond. This method is used for bonds sold at ... Read Full Answer >>
Related Articles
  1. Markets

    A Clear Look At EBITDA

    This measure has its benefits, but it can also present earnings through rose-colored glasses.
  2. Fundamental Analysis

    Are Fast-Casual Restaurants Overvalued?

    Can fast-casual restaurants actually grow to the levels that investors believe they can?
  3. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  4. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  5. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
  6. Economics

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.
  7. Entrepreneurship

    Samsung and Google: A Beautiful Friendship?

    Google and Samsung have more than a hardware/software relationship. These two technology giants have collaborated time and again to define mobile's future.
  8. Personal Finance

    How The NFL Makes Money

    The National Football League is the most successful sports league in the world. How does the NFL make money, and what is its strategy to stay on top?
  9. Personal Finance

    Major League Baseball's Business Model & Strategy

    Major League Baseball is big business. Let's take a look at where the money comes from.
  10. Investing Basics

    5 Things Investors Can Learn From Shark Tank

    Retail investors can watch "Shark Tank" to learn how the wealthy analyze investment opportunities.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!