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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- Income Statement
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- Analysis of Liquidity Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Reportable Segments
- Dividend Discount Model (DDM)
- Operating Profit Margin since 2005
- Price to Earnings (P/E) since 2005
- Price to Operating Profit (P/OP) since 2005
- Aggregate Accruals
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts shows a consistent upward trend over the five-year period. The figure increased from US$1,100 million in 2020 to US$2,000 million in 2024, demonstrating a progressive rise each year. This suggests a growing anticipation of potential credit losses, possibly due to an increase in credit sales or a more conservative approach to credit risk management.
- Accounts Receivable, Gross
- The gross accounts receivable amount experienced significant growth throughout the analyzed years. Starting at US$21,081 million in 2020, it surged to US$51,300 million by 2024. The most substantial increases occurred between 2021 and 2023, indicating a rapid expansion in outstanding customer balances, which could be reflective of higher sales volumes or extended credit terms.
- Allowance as a Percentage of Accounts Receivable, Gross
- Despite the nominal increase in the allowance for doubtful accounts, the ratio of this allowance relative to gross accounts receivable declined from 5.22% in 2020 to a low of 3.5% in 2023, before slightly rising to 3.9% in 2024. This downward trend in percentage terms suggests an improvement in the expected collectability of receivables or changes in the composition of the receivables portfolio, potentially indicating enhanced credit quality or more efficient collection processes.