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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- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Price to FCFE (P/FCFE)
- Price to Operating Profit (P/OP) since 2020
- Price to Book Value (P/BV) since 2020
- Price to Sales (P/S) since 2020
- Analysis of Revenues
- 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 credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The analysis of the provided financial data reveals notable trends in the allowance for credit losses and accounts receivable of the company over the five-year period from 2020 to 2024.
- Allowance for Credit Losses
- The allowance for credit losses experienced significant fluctuations during the period. It increased sharply from $13 million in 2020 to $39 million in 2021, indicating a heightened recognition of potential credit risks. Subsequently, the allowance decreased to $20 million in 2022, followed by further declines to $17 million in 2023 before rising slightly to $22 million in 2024. This pattern suggests an initial cautious approach which was partially reversed as conditions evolved.
- Accounts Receivable, Gross
- Gross accounts receivable demonstrated a consistent and substantial growth trend across the years. The balance rose from $304 million in 2020 to $388 million in 2021, then continued increasing to $420 million in 2022, $550 million in 2023, and reaching $754 million in 2024. This steady expansion signals increasing sales or credit extended to customers, reflecting company growth or changing credit policies.
- Allowance as a Percentage of Accounts Receivable, Gross
- Despite the increase in the absolute allowance for credit losses between 2023 and 2024, the allowance's ratio to gross accounts receivable consistently decreased over the years. Starting at 4.28% in 2020, it peaked at 10.05% in 2021, then declined steadily to 4.76% in 2022, 3.09% in 2023, and 2.92% in 2024. This downward trend indicates improved credit quality or more effective collection efforts relative to the size of the receivables portfolio, with the company setting aside proportionally less against its growing receivables balance.