Analysis of Bad Debts
Allowance for doubtful accounts receivable (bad debts) is a contra account which reduce the balance of the company gross accounts receivable. The relationship between the allowance and the balance in receivables should be relatively constant unless there is a change in the economy overall or a change in customer base.
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowances for sales returns and price protection and other allowances ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowances for sales returns and price protection and other allowances
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The allowances for sales returns, price protection, and other related allowances experienced a significant downward trend over the five-year period. Starting at 186 million US dollars in 2018, the value dropped sharply to 118 million in 2019 and continued declining to 63 million in 2020. By 2021 and 2022, the figures further decreased to 17 million and 16 million respectively, indicating a notable reduction in these allowances.
- Accounts receivable, gross
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Gross accounts receivable exhibited some fluctuations but generally maintained a stable range. Beginning at 1,221 million US dollars in 2018, it decreased to 966 million in 2019, then rose again to 1,115 million in 2020. Afterwards, it declined to 989 million in 2021, followed by an increase to 1,220 million in 2022. Overall, the levels of accounts receivable gross stayed within a roughly consistent bandwidth.
- Allowance as a percentage of accounts receivable, gross
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The allowance as a percentage of gross accounts receivable showed a marked decrease throughout the period. Starting at a relatively high 15.23% in 2018, the ratio declined steadily each year, reaching 12.22% in 2019, then falling more sharply to 5.65% in 2020. The downward trend accelerated, with the percentage dropping to 1.72% in 2021 and further to 1.31% in 2022. This reduction suggests improved quality of receivables or more conservative allowances being recorded against accounts receivable over time.
- Summary
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Overall, the data reveals a consistent decline in allowances related to sales returns and price protections, paralleled by a decrease in the allowance ratio relative to gross accounts receivable. Despite some fluctuations in gross accounts receivable values, the allowance metrics indicate improved receivable positions and possibly enhanced collection or credit management practices during the period analyzed.