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: 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 receivables, gross = 100 × Allowance for credit losses ÷ Receivables, gross
= 100 × ÷ =
- Allowance for credit losses
- The allowance for credit losses exhibited moderate fluctuations over the examined period. It started at 55 million USD in 2017, decreased to a low of 46 million USD in 2018, before rising again to 59 million USD in 2020, and then settling slightly lower at 54 million USD in 2021. This trend indicates some variability in the estimation of potential credit losses but generally remained within a narrow range.
- Receivables, gross
- Gross receivables showed an overall upward trend from 2017 through 2019, increasing from 1,893 million USD to 2,687 million USD. However, this was followed by a decline in the subsequent years, with receivables falling to 2,596 million USD in 2020 and further to 2,500 million USD in 2021. This pattern suggests initial growth in receivables, potentially reflecting increased sales or credit extension, followed by a contraction or more conservative credit practices in later years.
- Allowance as a percentage of receivables, gross
- The allowance as a percentage of gross receivables decreased significantly from 2.91% in 2017 to 1.73% in 2018, indicating a reduced proportion of receivables being reserved for potential credit losses. Thereafter, it gradually increased over the next years, reaching 2.27% in 2020 and slightly declining to 2.16% in 2021. These movements suggest adjustments in credit loss provisioning relative to the size of receivables, with a noticeable dip in 2018 followed by a return to levels closer to the initial ratio.