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: 2022-12-31), 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).
1 2022 Calculation
Allowance as a percentage of trade accounts receivable, gross = 100 × Allowance for credit losses ÷ Trade accounts receivable, gross
= 100 × 109 ÷ 2,079 = 5.24%
The analysis of credit loss provisions reveals a general upward trajectory in the total allowance for credit losses, coupled with volatility in gross trade accounts receivable over the five-year period ending December 31, 2022.
- Growth in Allowance for Credit Losses
- The total allowance for credit losses demonstrated consistent annual growth, increasing from US$ 68 million in 2018 to US$ 109 million by 2022. A significant increase was observed between 2019 and 2020, during which the allowance rose by approximately 41.9%.
- Gross Trade Accounts Receivable Trends
- Gross trade accounts receivable showed an overall increasing trend, rising from US$ 1,676 million in 2018 to US$ 2,079 million in 2022. However, a notable contraction occurred in 2020, where the balance fell to US$ 1,637 million before recovering and expanding in subsequent years.
- Analysis of the Allowance Ratio
- The allowance as a percentage of gross trade accounts receivable peaked in 2020 at 6.41%. This spike is particularly significant as it occurred simultaneously with a decrease in gross receivables, suggesting a heightened assessment of credit risk or a more conservative provisioning strategy during that period. Following 2020, the ratio trended downward to 5.24% by 2022, although it remained higher than the 3.89% to 4.06% levels recorded in 2018 and 2019.
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