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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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-29), 10-K (reporting date: 2018-12-30), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31).
1 2020 Calculation
Allowance as a percentage of trade accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Trade accounts receivable, gross
= 100 × ÷ =
- Allowance for doubtful accounts
- The allowance for doubtful accounts displayed a decreasing trend from 2016 to 2019, declining from 4 million US dollars in 2016 to 2 million US dollars in both 2018 and 2019. However, in 2020, there was a notable increase back to 4 million US dollars, matching the level seen in 2016.
- Trade accounts receivable, gross
- The gross trade accounts receivable exhibited an overall upward trend from 2016 through 2019, rising steadily from 386 million US dollars in 2016 to a peak of 575 million US dollars in 2019. In 2020, the value declined to 491 million US dollars, indicating a reduction after several years of growth.
- Allowance as a percentage of trade accounts receivable, gross
- This ratio showed a consistent decline from 1.1% in 2016 to a low of 0.35% in 2019. In 2020, the percentage increased again to 0.81%, reflecting a relative rise in the allowance compared to gross receivables. This suggests a more cautious approach to credit risk provisioning in 2020 compared to the previous three years.