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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- Analysis of Geographic Areas
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Selected Financial Data since 2008
- Net Profit Margin since 2008
- Operating Profit Margin since 2008
- Return on Equity (ROE) since 2008
- Price to Operating Profit (P/OP) since 2008
- Price to Sales (P/S) since 2008
- Aggregate Accruals
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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).
1 2021 Calculation
Allowance as a percentage of trade accounts receivable, gross = 100 × Allowance for expected credit losses ÷ Trade accounts receivable, gross
= 100 × ÷ =
The analysis of the financial data over the four-year period reveals several noteworthy trends.
- Allowance for Expected Credit Losses
- This item exhibited fluctuations with an initial increase from 8 million USD in 2018 to 9 million USD in 2019, followed by a significant spike to 21 million USD in 2020. Subsequently, it declined sharply to 7 million USD in 2021, indicating a reduction in expected credit losses toward the end of the period.
- Trade Accounts Receivable, Gross
- The gross trade accounts receivable demonstrated a general downward trend from 1,158 million USD in 2018 to 1,069 million USD in 2020, followed by a recovery to 1,155 million USD in 2021. This pattern suggests variability in receivables with a return to near initial levels at the end.
- Allowance as Percentage of Trade Accounts Receivable, Gross
- This ratio reflects the proportion of the allowance relative to total trade accounts receivable. It rose moderately from 0.69% in 2018 to 0.8% in 2019, then surged sharply to 1.96% in 2020, aligning with the spike in allowance for credit losses that year. In 2021, it decreased substantially to 0.61%, the lowest across the timeline, consistent with the lowered allowance and the rebound in receivables.
In summary, the data indicates that 2020 was an atypical year with a considerable increase in expected credit losses relative to trade receivables, possibly reflecting heightened credit risk or economic challenges during that period. The recovery in 2021 suggests improved credit conditions or more effective credit risk management subsequently. The gross trade accounts receivable trends show some volatility but conclude near the levels observed at the beginning of the period.