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 Profitability Ratios
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2013
- Price to Sales (P/S) since 2013
- Analysis of Debt
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2024-12-31), 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).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The analyzed data reveals the following trends in the financial items over the five-year period ending December 31, 2024:
- Allowance for Credit Losses
- The allowance for credit losses showed a fluctuating pattern. It decreased from 194 million US dollars in 2020 to 146 million US dollars in 2021, indicating a significant reduction in the estimated uncollectible accounts. However, it subsequently increased to 167 million in 2022, then slightly decreased to 161 million in 2023, before rising again to 176 million in 2024. This variability suggests some changes in management’s estimation of credit risk over time.
- Accounts Receivable, Gross
- The gross accounts receivable exhibited an overall increasing trend from 4470 million US dollars in 2020, rising to 4853 million in 2023, before a decline to 4452 million in 2024. The initial increase indicates growth in outstanding customer balances, possibly reflecting higher sales or extended credit terms, while the drop in 2024 may suggest improved collections or reduced sales volume on credit.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio, representing the allowance for credit losses as a percentage of gross accounts receivable, decreased from 4.34% in 2020 to 3.36% in 2021, implying a lower relative provision for doubtful accounts. It then rose modestly to 3.62% in 2022, fell to 3.32% in 2023, and increased again to 3.95% in 2024. These fluctuations indicate changes in the credit risk assessment relative to the size of gross receivables, with a notable reduction in 2021 and partial increases in later years.
Overall, the data suggests that while gross accounts receivable experienced growth and then a decline in the last year, the allowance for credit losses has been adjusted variably, reflecting management’s ongoing reassessment of credit risk. The allowance as a percentage of accounts receivable generally remained within a narrow range around 3.3% to 4.3%, denoting consistent attention to potential credit losses relative to receivables over the analyzed period.
Allowance for Credit Losses
Based on: 10-K (reporting date: 2024-12-31), 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).
1 2024 Calculation
Allowance as a percentage of equipment installment plan receivables, net of unamortized imputed discount = 100 × Allowance for credit losses ÷ Equipment installment plan receivables, net of unamortized imputed discount
= 100 × ÷ =
- Allowance for Credit Losses
- The allowance for credit losses fluctuated over the analyzed period. It decreased from $280 million in 2020 to $252 million in 2021, indicating a reduction in expected credit loss during that year. However, it then increased to $328 million in 2022, reflecting a reassessment or worsening of credit risk. The allowance subsequently declined to $268 million in 2023 before rising again to $290 million in 2024. These variations suggest periodic adjustments in credit loss expectations, possibly influenced by changing market conditions or credit risk evaluations.
- Equipment Installment Plan Receivables, Net of Unamortized Imputed Discount
- The net equipment installment plan receivables showed an overall upward trend from 2020 to 2022, increasing from $5,888 million to $7,997 million, which denotes growth in financing activities or customer purchases on installments. However, this amount declined to $6,766 million in 2023 before a slight increase to $6,878 million in 2024. The initial growth followed by a drop suggests a possible contraction or change in installment sales or collection policies during the latter years.
- Allowance as a Percentage of Equipment Installment Plan Receivables
- This ratio showed a declining trend from 4.76% in 2020 to 3.22% in 2021, indicating improved credit quality or more favorable collection prospects. It then rose to 4.1% in 2022, decreased slightly to 3.96% in 2023, and increased again to 4.22% in 2024. These fluctuations imply varying levels of credit risk relative to receivables, with the ratio moving between roughly 3.2% and 4.8%, reflecting ongoing reassessments of the adequacy of the allowance against installment plan receivables.