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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- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Analysis of Profitability Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Dividend Discount Model (DDM)
- Selected Financial Data since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
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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 loss ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Credit Loss
- There is a consistent decline in the allowance for credit loss over the five-year period. The amount decreased from 1,221 million USD in 2020 to 375 million USD in 2024, indicating a reduction of approximately 69%. This suggests an improvement in credit quality or more conservative provisioning practices.
- Accounts Receivable, Gross
- Gross accounts receivable show a significant downward trend from 21,436 million USD in 2020 to 10,013 million USD in 2024. This corresponds to a reduction of over 50% during the period, pointing to potentially improved collection processes, changes in sales volume, or shifts in credit policy.
- Allowance as a Percentage of Accounts Receivable, Gross
- The allowance as a percentage of gross accounts receivable fluctuates but overall trends downward, moving from 5.7% in 2020 to 3.75% in 2024. This decrease suggests that the company perceives lower credit risk relative to the volume of receivables, which aligns with the declining absolute allowance for credit losses and reducing accounts receivable balances.
- Summary of Trends
- The data collectively indicates a strengthening credit position and improved management of accounts receivable. The combined reductions in gross accounts receivable and allowance for credit loss, alongside a declining allowance percentage, reflect enhanced receivables quality, possibly due to improved collection efficiency or tighter credit standards.