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 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 68,400 ÷ 2,686,800 = 2.55%
The financial trajectory from 2019 to 2023 indicates a general increase in both the absolute value of the allowance for doubtful accounts and the percentage of gross accounts receivable it represents. While the growth of the credit portfolio drove early increases in the allowance, the latter period shows a distinct shift toward a more conservative credit risk profile.
- Allowance for Doubtful Accounts Analysis
- The allowance grew from $33.6 million in 2019 to $68.4 million in 2023, representing an overall increase of approximately 103.6%. The most significant escalation occurred between 2021 and 2022, where the provision increased by $20.4 million, followed by a further increase of $4.5 million in 2023.
- Gross Accounts Receivable Trends
- Gross accounts receivable exhibited a steady upward trend from 2019 through 2022, rising from $1.77 billion to $2.69 billion. In 2023, the balance remained relatively flat, ending at $2.68 billion, which indicates a stabilization of the total outstanding receivables.
- Ratio of Allowance to Gross Receivables
- The allowance as a percentage of gross accounts receivable fluctuated over the five-year period, ranging from a low of 1.74% in 2021 to a high of 2.55% in 2023. The rise from 1.74% in 2021 to 2.55% in 2023 suggests a deteriorating expectation of collectability or a strategic increase in the risk reserve, particularly as this percentage increase occurred while gross receivables remained stagnant in the final year.
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