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 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Credit Losses
- The allowance for credit losses exhibited a generally increasing trend over the observed period. Starting at $26 million in 2018, the allowance rose to $30 million in 2019, slightly declined to $28 million in 2020 and 2021, followed by an increase to $33 million in 2022. This pattern suggests a cautious approach to credit risk management, with adjustments made in response to changing conditions.
- Accounts Receivable, Gross
- Gross accounts receivable values showed fluctuations with an overall upward trajectory. The figures decreased modestly from $1,036 million in 2018 to $940 million in 2020, before experiencing a significant rebound to $1,176 million in 2021 and further growth to $1,346 million in 2022. This increase in receivables may reflect higher sales activity or changes in credit terms.
- Allowance as a Percentage of Accounts Receivable, Gross
- The ratio of allowance for credit losses to gross accounts receivable fluctuated within a relatively narrow range. It increased from 2.51% in 2018 to a peak of 2.98% in 2020 before declining to 2.38% in 2021 and slightly rising again to 2.45% in 2022. This indicates some variability in the relative provision against receivables, though it remained fairly stable over the five-year period, suggesting consistent credit risk assumptions relative to the size of receivables.