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 receivables, gross = 100 × Allowance for doubtful accounts and estimated returns ÷ Receivables, gross
= 100 × 70 ÷ 1,574 = 4.45%
The analysis of the allowance for doubtful accounts and estimated returns reveals a period of volatility followed by a declining trend in both absolute terms and as a proportion of gross receivables. While there was a notable increase in credit risk provisioning in 2020, the subsequent years demonstrate a consistent reduction in the allowance.
- Allowance for Doubtful Accounts and Estimated Returns
- The absolute value of the allowance fluctuated between 2018 and 2022, beginning at 82 million USD and ending at 70 million USD. A peak occurred in 2020 at 89 million USD, indicating a temporary increase in the estimated credit losses or product returns for that fiscal year.
- Gross Receivables Performance
- Gross receivables exhibited significant volatility, dropping to a period low of 1,353 million USD in 2020 before rising to a period high of 1,574 million USD by December 31, 2022. The expansion of the receivables balance in 2022 occurred simultaneously with a decrease in the allowance, suggesting a shift in the risk profile of the outstanding balances.
- Allowance as a Percentage of Gross Receivables
- The ratio of allowance to gross receivables peaked at 6.58% in 2020, reflecting a more conservative provisioning stance during that period. By 2022, the ratio declined to 4.45%, representing the lowest level observed over the five-year duration. This downward trajectory indicates a decrease in the estimated percentage of uncollectible accounts relative to the total receivables balance.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?