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 gross accounts receivable = 100 × Allowance for doubtful accounts ÷ Gross accounts receivable
= 100 × 9 ÷ 1,776 = 0.51%
The analysis of bad debt provisions reveals a significant divergence between the growth of gross accounts receivable and the corresponding allowance for doubtful accounts. While the volume of outstanding receivables experienced substantial volatility over the five-year period, the nominal provision for doubtful accounts remained relatively constant, leading to a decline in the relative credit risk reserve.
- Gross Accounts Receivable Trends
- A notable fluctuation is observed in the gross accounts receivable balance. After a steady decline from 893 million USD in 2018 to a low of 612 million USD in 2020, the balance experienced an aggressive increase. By December 31, 2021, receivables rose to 1,550 million USD, further climbing to 1,776 million USD by the end of 2022.
- Nominal Allowance for Doubtful Accounts
- The absolute value of the allowance for doubtful accounts remained stable, fluctuating within a narrow range between 7 million USD and 11 million USD. The highest nominal provision was recorded in 2020 at 11 million USD, which coincided with the period of lowest gross receivables.
- Allowance as a Percentage of Gross Receivables
- The ratio of the allowance to gross receivables peaked at 1.80% in 2020, representing the highest relative provision for bad debts in the analyzed period. Following the rapid expansion of the receivables balance in 2021 and 2022, this percentage dropped sharply to 0.45% and 0.51%, respectively. This trend indicates that the growth in the total receivables portfolio was not matched by a proportional increase in the allowance for doubtful accounts, resulting in a lower overall percentage of coverage against potential credit losses.
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