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: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Selected Financial Data since 2005
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
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Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for expected credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
Analysis of the provided financial data reveals noteworthy fluctuations and trends in the allowance for expected credit losses and accounts receivable over the five-year period.
- Allowance for expected credit losses
- This item showed a gradual increase from US$31 million in 2017 to US$41 million in 2019, indicating a rising anticipated risk or prudence in credit loss provisioning during those years. In 2020, there was a significant surge to US$101 million, more than doubling the previous year’s value, which may reflect heightened credit risk or conservative provisions likely influenced by external circumstances. In 2021, the allowance decreased to US$65 million, which still remains elevated relative to the pre-2020 levels.
- Accounts receivable, gross
- The gross accounts receivable showed growth from US$1,897 million in 2017 to US$2,565 million in 2019. However, a substantial decline is observed in 2020, falling sharply to US$802 million, which then partially recovered to US$1,329 million in 2021. This volatility may indicate a contraction in sales or collection of receivables during the impact period, followed by some recovery.
- Allowance as a percentage of accounts receivable, gross
- The allowance as a percentage of gross accounts receivable remained relatively stable and low from 2017 to 2019, fluctuating narrowly between approximately 1.56% and 1.62%. In 2020, this ratio dramatically increased to 12.59%, mainly driven by a sharp reduction in gross accounts receivable combined with the spike in the allowance for credit losses. By 2021, the ratio decreased significantly to 4.89%, reflecting both the partial recovery in receivables and the reduced allowance balance, yet it remained higher than in the initial years.
Overall, the data suggests a period of relative stability in expected credit losses and receivables up to 2019, followed by considerable disruption in 2020, with elevated credit risk concerns and reduced receivable balances. The partial recovery in 2021 shows improvement, but credit risk provisions remain higher compared to the pre-2020 period, indicating continued caution or changes in credit policy.