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: 2023-12-31), 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).
1 2023 Calculation
Allowance as a percentage of trade accounts receivable, gross = 100 × Doubtful accounts ÷ Trade accounts receivable, gross
= 100 × 30 ÷ 1,602 = 1.87%
The financial trajectory from 2019 to 2023 reveals a general contraction in both the gross credit exposure and the associated risk reserves for doubtful accounts.
- Gross Trade Accounts Receivable Trends
- Gross trade accounts receivable peaked in 2020 at 2,179 million US dollars. Following this peak, a consistent downward trend is observed, with balances decreasing annually to reach 1,602 million US dollars by December 31, 2023. This decline suggests a reduction in the total volume of outstanding credit extended to customers.
- Doubtful Accounts Reserve Analysis
- The allowance for doubtful accounts mirrored the movement of gross receivables, increasing to a high of 46 million US dollars in 2020 before steadily declining. A significant reduction occurred between 2022 and 2023, where the allowance dropped from 40 million to 30 million US dollars, representing the lowest absolute value within the analyzed five-year period.
- Allowance Percentage and Credit Quality
- The allowance as a percentage of gross trade accounts receivable remained relatively stable between 2019 and 2022, fluctuating within a narrow band from 2.05% to 2.27%. However, 2023 marked a distinct shift, with the ratio falling to 1.87%. This decrease indicates a lower proportion of receivables deemed uncollectible, which may suggest an improvement in the overall credit quality of the receivables portfolio or a more optimistic assessment of customer payment reliability.
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