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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Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for expected credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for expected credit losses
- The allowance for expected credit losses exhibits a fluctuating trend over the analyzed period. Beginning at 71,500 thousand USD at the end of 2017, it decreased to 60,600 thousand USD in 2018, followed by a slight increase to 62,000 thousand USD in 2019. In 2020, this allowance rose further to 68,400 thousand USD before declining significantly to 52,800 thousand USD by the end of 2021. This pattern suggests variability in anticipated credit risks, with a notable reduction in the most recent year.
- Accounts receivable, gross
- The gross accounts receivable amount shows variability with a general upward tendency until 2019, rising from 2,645,600 thousand USD in 2017 to 2,858,500 thousand USD in 2019. However, a sharp decline to 2,342,200 thousand USD is observed in 2020, potentially reflecting collection efforts or reduced sales. The figure then increased again to 2,531,200 thousand USD in 2021, indicating partial recovery but still below the 2019 peak.
- Allowance as a percentage of accounts receivable, gross
- The allowance expressed as a percentage of gross accounts receivable has generally declined over the period. Starting at 2.7% in 2017, it decreased consistently to 2.23% in 2018 and further to 2.17% in 2019. A temporary increase to 2.92% occurred in 2020, aligning with the spike in credit loss allowance, before dropping to the lowest value of 2.09% in 2021. The reduction in this ratio by the end of the period suggests improved credit quality or changes in risk assessment practices.