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
- Analysis of Profitability Ratios
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Geographic Areas
- Price to FCFE (P/FCFE)
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2005
- Total Asset Turnover 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 trade accounts receivable, gross = 100 × Allowances ÷ Trade accounts receivable, gross
= 100 × ÷ =
- Trade Accounts Receivable, Gross
- The trade accounts receivable, gross exhibited a general upward trend from 2020 through 2024. The value increased from $3,670 million in 2020 to $4,075 million in 2024, peaking at $4,028 million in 2021 before experiencing a slight dip in 2022 and 2023, then rising again in 2024. Overall, this indicates a gradual growth in receivables over the five-year period, suggesting either increased sales on credit or changes in credit terms.
- Allowances
- Allowances for doubtful accounts showed a gradual decline over the same period, decreasing from $526 million in 2020 to $506 million in 2024. The reduction was steady but modest, reflecting a consistent management approach towards expected credit losses or improvements in credit quality.
- Allowance as a Percentage of Trade Accounts Receivable, Gross
- The allowance as a percentage of gross trade accounts receivable exhibited a declining trend from 14.33% in 2020 to 12.42% in 2024. This decline suggests that, relative to the increasing gross receivables, the provision for doubtful accounts did not increase proportionally. This could imply either improved collection efficiency or reduced credit risk over the period.
- Overall Analysis
- The data reveals a scenario wherein accounts receivable grew modestly while provisions for doubtful accounts slightly decreased both in absolute terms and relative to receivables. This combination points to a strengthening credit position or better management of receivables, potentially reducing financial risk associated with uncollected debts. The decrease in the allowance ratio further corroborates improved credit quality or more effective collection processes.