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: 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 trade receivables, gross = 100 × Allowance for doubtful accounts ÷ Trade receivables, gross
= 100 × ÷ =
- Trade receivables, gross
- The gross trade receivables exhibit a fluctuating but generally increasing trend over the five-year period. Starting at $6,702 million in 2020, there was a small increase to $6,800 million in 2021, followed by a decline to $6,480 million in 2022. In the subsequent years, the figures rose again to $6,806 million in 2023 and further to $7,172 million in 2024, indicating recovery and growth in receivables toward the end of the period.
- Allowance for doubtful accounts
- The allowance for doubtful accounts experienced a downward trend overall. It decreased from $288 million in 2020 to $247 million in 2024, with some variability in the interim years, notably dropping from $313 million in 2021 to $241 million by 2023 before a slight increase in 2024. This decline suggests improving credit quality or tighter credit risk management over time.
- Allowance as a percentage of trade receivables, gross
- The allowance as a percentage of gross trade receivables consistently declined throughout the period, moving from 4.3% in 2020 down to 3.44% in 2024. This trend further supports the observation of an improving credit environment or enhanced collection effectiveness, resulting in a lower proportion of doubtful accounts relative to the receivables base.