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.
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).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 11 ÷ 1,237 = 0.89%
An analysis of the credit risk reserves from 2021 to 2024 reveals a period of relative stability followed by a significant increase in the allowance for doubtful accounts in the final year. The relationship between gross receivables and the allowance indicates a shift in the company's assessment of collectibility or a change in the credit quality of its customer base by the end of 2024.
- Gross Accounts Receivable Trends
- Gross accounts receivable exhibited substantial volatility, increasing from US$ 1,118 million in 2021 to US$ 1,441 million in 2022, before experiencing a sharp contraction to US$ 594 million in 2023. The balance subsequently rebounded to US$ 1,237 million by December 31, 2024.
- Allowance for Doubtful Accounts Movements
- The absolute value of the allowance for doubtful accounts remained stagnant at US$ 3 million through 2021 and 2022, followed by a decrease to US$ 1 million in 2023. A pronounced upward adjustment was recorded in 2024, with the allowance rising to US$ 11 million.
- Allowance as a Percentage of Gross Receivables
- The allowance ratio showed a steady decline from 0.27% in 2021 to 0.17% in 2023. This trend reversed sharply in 2024, with the ratio increasing to 0.89%. This spike represents a significant expansion of the reserve relative to the gross receivable balance, suggesting a heightened anticipation of credit losses.
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