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: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Wholesalers chargebacks, discounts and fees ÷ Accounts receivable, gross
= 100 × 692 ÷ 1,584 = 43.69%
The trajectory of gross accounts receivable exhibits significant volatility between 2019 and 2023. Starting from a negligible base of 5 million USD in 2019, balances surged to a peak of 3,175 million USD in 2021 before contracting to 1,385 million USD in 2022 and moderately recovering to 1,584 million USD by the end of 2023.
- Accounts Receivable Volatility
- A rapid expansion in gross receivables occurred between 2019 and 2021, indicating a substantial increase in commercial activity. The subsequent decline in 2022 and relative stabilization in 2023 suggest a shift in revenue cycles or changes in the timing of collections from customers.
- Valuation and Credit Risk
- As of December 31, 2023, the allowance as a percentage of gross accounts receivable is 43.69%. This represents a significant reduction in the net realizable value of the receivables, indicating that nearly half of the gross balance is designated as uncollectible or subject to adjustment.
- Impact of Distribution Costs
- The 692 million USD recorded for wholesalers chargebacks, discounts, and fees in 2023 correlates closely with the calculated allowance for the same period. This suggests that the allowance is primarily driven by contractual pricing adjustments and distribution fees inherent to the pharmaceutical wholesale model rather than traditional credit defaults or insolvency of debtors.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?