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: 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 trade receivables, gross = 100 × Allowance for doubtful accounts ÷ Trade receivables, gross
= 100 × ÷ =
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts fluctuated over the analyzed period. It decreased from 32 million USD in 2020 to 22 million USD in 2022, then increased notably in the subsequent years, reaching 38 million USD by the end of 2024. This indicates a cautious shift in estimation of potential credit losses during the later years.
- Trade Receivables, Gross
- Trade receivables on a gross basis showed a strong upward trend from 4557 million USD in 2020 to a peak of 7296 million USD in 2023. However, there was a decline to 6820 million USD in 2024. Overall, the period reflects significant growth in receivables, suggesting increased sales or extended credit terms, followed by a slight contraction in the most recent year.
- Allowance as a Percentage of Trade Receivables, Gross
- The allowance as a percentage of gross trade receivables generally trended downward from 0.7% in 2020 to 0.38% in 2023, indicating an improved credit risk profile or more optimistic collection expectations during this period. However, this ratio increased to 0.56% in 2024, which may suggest a reassessment of credit risk or recognition of higher expected credit losses.
- Overall Observations
- The data shows that while gross trade receivables increased substantially over the five-year period, the allowance for doubtful accounts initially decreased both in absolute terms and relative to receivables. This trend reversed in the final year, with both the allowance amount and its percentage of receivables rising. This pattern may reflect changing economic conditions, shifts in credit policies, or the collection experience that led to a more conservative stance on bad debt provisions in the latest year.