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: 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 trade accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Trade accounts receivable, gross
= 100 × 55 ÷ 2,915 = 1.89%
An analysis of the credit risk provisions reveals a consistent upward trajectory in the nominal allowance for doubtful accounts from 2017 to 2021. This growth correlates with a substantial expansion of the gross trade accounts receivable balance, particularly observed starting in 2019. Despite the increase in absolute figures, the percentage of receivables reserved for doubtful accounts remained relatively stable, suggesting that the growth in reserves was primarily driven by the scale of the receivables balance rather than a significant deterioration in credit quality.
- Nominal Allowance Growth
- The allowance for doubtful accounts grew from 15 million USD in 2017 to 55 million USD in 2021. A notable escalation occurred between 2018 and 2019, where the reserve increased by approximately 117%, rising from 18 million USD to 39 million USD.
- Gross Trade Receivables Trends
- Trade accounts receivable, gross, exhibited a significant structural increase in 2019, jumping from 1.07 billion USD to 2.82 billion USD. After a slight reduction to 2.53 billion USD in 2020, the balance reached its period peak of 2.92 billion USD by the end of 2021.
- Provisioning Ratio Analysis
- The allowance as a percentage of gross trade accounts receivable fluctuated within a narrow band between 1.38% and 1.90%. The ratio reached its lowest point in 2019 at 1.38%, indicating that the expansion of gross receivables momentarily outpaced the growth of the allowance. The ratio subsequently peaked in 2020 at 1.90% before stabilizing at 1.89% in 2021, reflecting a shift toward a more conservative provisioning stance in the later years of the period.
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