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: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Revenues
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
1 2023 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Credit Losses
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The allowance for credit losses exhibited notable fluctuations during the observed period. Starting at $29 million in mid-2018, it increased slightly to $32 million in mid-2019 before experiencing a significant spike to $63 million in mid-2020. This sharp rise could indicate heightened perceived risk or a downturn impacting receivables. Subsequently, the allowance dropped sharply to $20 million in mid-2021 and continued to decline to $10 million by mid-2022, indicating improved credit conditions or revised risk assessments. However, there was a slight increase to $16 million by mid-2023, suggesting a modest uptick in potential credit losses towards the end of the period.
- Accounts Receivable, Gross
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The gross accounts receivable showed considerable volatility over the years. The figure increased from $1,516 million in mid-2018 to a peak of $1,863 million in mid-2019, followed by a sharp decline to $1,257 million in mid-2020, possibly reflecting the effects of market conditions or changes in sales credit policies. Subsequently, the amount rose again to $1,722 million in mid-2021, then experienced a gradual decline over the next two years to $1,639 million in mid-2022 and further to $1,468 million by mid-2023. This pattern suggests fluctuations in credit sales or collections efficiency through the period.
- Allowance as a Percentage of Gross Accounts Receivable
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The allowance as a percentage of gross accounts receivable followed a fluctuating yet generally downward trend after the peak in mid-2020. Starting at 1.91% in mid-2018, it decreased slightly to 1.72% in mid-2019. It then surged to 5.01% in mid-2020, reflecting the heightened allowance for credit losses relative to receivables during that year. After this peak, the ratio declined sharply to 1.16% in mid-2021 and further dropped to a low of 0.61% in mid-2022. There was a moderate increase to 1.09% by mid-2023. This pattern indicates that the company adjusted its credit loss provisions relative to outstanding receivables in response to changing risk assessments, with significant caution in 2020 followed by reduced provisions in subsequent years.