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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Chipotle Mexican Grill Inc. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Price to Earnings (P/E) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) since 2005
- Aggregate Accruals
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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 losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Credit Losses
- The allowance for credit losses exhibited fluctuations over the five-year period. Beginning at 1,588 thousand USD in 2020, the figure increased to 1,950 thousand USD in 2021, then declined significantly to 1,180 thousand USD in 2022. Following this dip, it increased notably in the subsequent years, reaching 2,742 thousand USD in 2023 and 2,953 thousand USD in 2024. Overall, there was a rising trend from 2022 onwards, with the allowance nearly doubling within two years.
- Accounts Receivable, Gross
- The gross accounts receivable demonstrated a generally upward trajectory. Starting at 106,088 thousand USD in 2020, it saw a slight decline to 101,549 thousand USD in 2021, followed by steady increases in the following years: 108,060 thousand USD in 2022, 118,277 thousand USD in 2023, and a substantial rise to 146,916 thousand USD in 2024. The data indicate growth in accounts receivable, particularly strong in the final year.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio varied over the period, reflecting changes in both the allowance for credit losses and gross accounts receivable. It started at 1.5% in 2020 and rose to 1.92% in 2021, suggesting a relative increase in reserves despite a decline in gross receivables that year. In 2022, the percentage dropped markedly to 1.09%, coinciding with the low allowance figure that year. However, the ratio increased again to 2.32% in 2023 before slightly decreasing to 2.01% in 2024. The pattern suggests a more conservative approach to credit loss provisioning in recent years, with higher reserves maintained relative to receivables.