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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- Statement of Comprehensive Income
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Geographic Areas
- Common Stock Valuation Ratios
- Price to FCFE (P/FCFE)
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Current Ratio since 2005
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit loss ÷ Accounts receivable, gross
= 100 × ÷ =
The analysis of the presented financial data reveals several notable trends related to the company's accounts receivable and allowance for credit loss over the six-year period from 2019 to 2024.
- Allowance for Credit Loss
- The allowance for credit loss demonstrates a fluctuating but generally decreasing trend from 2019 through 2022, dropping from 136 million USD in 2019 to a low of 83 million USD in 2022. After this decrease, it slightly increased to 85 million USD in 2023 and 87 million USD in 2024, suggesting a cautious adjustment upward in the expected credit losses.
- Accounts Receivable, Gross
- The gross accounts receivable exhibits a pattern of moderate growth with some volatility. Starting at 5,627 million USD in 2019, it remained relatively stable in 2020 with a marginal decrease to 5,615 million USD. However, a significant increase occurred in 2022, rising to 6,705 million USD. This was followed by a decrease to 5,939 million USD in 2023, and then an increase again to 6,772 million USD in 2024, indicating variability in credit sales and collections over the years.
- Allowance as a Percentage of Accounts Receivable
- The allowance as a percentage of gross accounts receivable shows a clear downward trend from 2019 to 2022, decreasing from 2.42% to 1.24%. This reduction implies an improvement in the expected recoverability of receivables or a conservative approach towards credit risk that was relaxed during this period. In 2023 and 2024, this ratio slightly increased to 1.43% and 1.28%, respectively, suggesting a minor recalibration of credit loss expectations relative to the total receivables.
Overall, the data indicates that the company managed to reduce its credit loss allowance relative to the size of its accounts receivable up until 2022, despite fluctuations in gross receivables. The recent modest increases in both the allowance amount and its percentage may reflect caution in credit risk assessment as accounts receivable amounts grew again in 2024.
Allowance for Credit Losses
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
1 2024 Calculation
Allowance as a percentage of gross financing receivables less unearned income = 100 × Allowance for credit loss ÷ Gross financing receivables less unearned income
= 100 × ÷ =
The financial data indicates several noteworthy trends over the reported periods.
- Allowance for Credit Loss
- The allowance for credit loss shows a general declining trend from 2019 to 2024. Initially, it rose slightly from 126 million USD in 2019 to 138 million USD in 2020, but then steadily decreased to 65 million USD by 2024. This reduction suggests improvements in credit quality or changes in risk assessment practices.
- Gross Financing Receivables less Unearned Income
- This metric presents a downward trend across the periods, starting at 10,037 million USD in 2019 and falling to 6,712 million USD in 2024. The decline is consistent year over year, reflecting a decrease in financing receivables which could be due to shifts in business strategy, reductions in lending activities, or repayment of outstanding loans.
- Allowance as a Percentage of Gross Financing Receivables less Unearned Income
- Despite fluctuations in absolute allowance values, this percentage initially increased from 1.26% in 2019 to a peak of 1.58% in 2022, indicating an elevated level of reserves relative to receivables. However, after 2022, there is a marked decrease to 0.97% by 2024, suggesting either a reduced perceived risk or an improvement in asset quality relative to the amount financed.
Overall, the data reflects a contraction in financing activities accompanied by a reduction in credit loss allowances both in absolute terms and relative to financing receivables. The peak in allowance percentage around 2022 may correspond to heightened risk or economic uncertainty, followed by improved credit conditions leading to lower reserves in more recent periods.