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: Assets
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Capital Asset Pricing Model (CAPM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Debt to Equity since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) 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 × Valuation allowance ÷ Accounts receivable, gross
= 100 × ÷ =
- Valuation Allowance Trend
- The valuation allowance has shown a significant downward trend from 2020 through 2023, decreasing from 444 million US dollars in 2020 to 89 million US dollars in 2023. In 2024, it slightly increased to 92 million US dollars. This overall reduction indicates a decreased need for valuation allowances over the observed periods, potentially reflecting improved asset quality or better estimates related to asset recoverability.
- Accounts Receivable, Gross
- Gross accounts receivable exhibits some fluctuations throughout the years. Starting at 2399 million US dollars in 2020, it increased to a peak of 3031 million US dollars in 2021. In subsequent years, it declined to 2633 million in 2022 before slightly rising again to 2738 million and 2723 million in 2023 and 2024, respectively. The data suggests variability but no clear upward or downward long-term trend, perhaps indicating fluctuations in sales or credit terms.
- Allowance as a Percentage of Accounts Receivable, Gross
- This percentage has consistently declined over the reported period. In 2020, the allowance was 18.51%, dropping sharply to 12.87% in 2021, then further to 4.41% in 2022. The drop continued but at a slower pace to 3.25% in 2023, with a slight rise to 3.38% in 2024. This diminishing allowance percentage signals improvements in the collectability of receivables or more conservative write-downs in earlier years being adjusted downward as assets stabilize.
- Overall Analysis
- The combination of decreasing valuation allowance and declining allowance percentage against a relatively stable accounts receivable base suggests an overall enhanced credit quality of receivables. The company appears to have reduced its reserve for doubtful accounts markedly, reflecting greater confidence in the recoverability of these assets after 2020. Despite minor fluctuations, the financial health regarding receivables and associated valuation allowances shows improvement over the five-year 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 financing receivables, gross = 100 × Allowance for losses on receivables ÷ Financing receivables, gross
= 100 × ÷ =
- Allowance for losses on receivables
- The allowance for losses on receivables increased notably from US$17 million in 2020 to US$55 million in 2022, indicating a more conservative stance or higher anticipated credit risks during this period. It then slightly decreased to US$51 million in 2023, followed by a sharp decline to US$7 million in 2024, which may suggest improved credit quality or adjustments in estimation methodology.
- Financing receivables, gross
- The gross financing receivables exhibited a downward trend over the analyzed period. Starting at US$1,339 million in 2020, the figure saw a marginal increase to US$1,356 million in 2021 before declining significantly to US$1,189 million in 2022. This decline accelerated in 2023 and 2024, falling to US$658 million and US$288 million respectively. The persistent reduction in gross receivables could indicate a contraction in financing activities or collection of outstanding receivables.
- Allowance as a percentage of financing receivables, gross
- This ratio rose sharply from around 1.3% in 2020 and 2021 to a peak of 7.75% in 2023, reflecting heightened expected credit losses relative to gross receivables. By 2024, the percentage decreased substantially to 2.43%, corresponding with both the reduction in allowance and the significant drop in gross financing receivables. The initially rising trend could suggest increased credit risk exposure or a more cautious provisioning approach, whereas the subsequent fall may point to improved credit conditions or portfolio restructuring.