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
- Statement of Comprehensive Income
- Cash Flow Statement
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Price to Operating Profit (P/OP) since 2005
- Analysis of Debt
- 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 expected credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The analysis of the financial data over the five-year period reveals several notable trends in the allowance for expected credit losses and accounts receivable.
- Allowance for expected credit losses
- This figure demonstrated an initial decrease from 166 million USD at the end of 2020 to 101 million USD in 2021, followed by a gradual increase to 146 million USD by the end of 2024. Despite the increase in later years, the allowance in 2024 remains slightly below the 2020 level, indicating a general stabilization after an initial drop.
- Accounts receivable, gross
- There was a consistent and significant increase in gross accounts receivable, growing from 695 million USD in 2020 to a peak of 3,390 million USD in 2023 before slightly declining to 3,345 million USD in 2024. This progression suggests an expansion in sales or credit extended to customers over the reviewed period, possibly indicating growth or a shift in credit policies.
- Allowance as a percentage of accounts receivable, gross
- This ratio declined sharply from 23.88% in 2020 to approximately 4-5% range in subsequent years, with slight fluctuations between 4.04% and 4.36% from 2023 to 2024. The marked decrease indicates that while accounts receivable increased substantially, the provision for expected credit losses has not grown at a comparable rate, implying improved credit quality or changes in loss estimation methodologies.
In summary, while the gross accounts receivable increased markedly, reflecting expanded receivables or business growth, the allowance for expected credit losses initially fell and then modestly rose but remained proportionally small relative to receivables. The substantial decline in the allowance as a percentage of gross accounts receivable suggests an improvement in credit risk management or expected credit loss experience during the period under review.