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: 2024-12-31), 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).
1 2024 Calculation
Allowance as a percentage of current receivables, gross = 100 × Allowance for credit losses ÷ Current receivables, gross
= 100 × ÷ =
The financial data indicates a progressive improvement in the management of credit risk over the observed period. The allowance for credit losses, expressed in millions of US dollars, demonstrates a consistent and significant decline from 1,164 in 2020 to 106 in 2024. This downward trend reflects a substantial reduction in the estimated potential losses related to receivables.
In tandem, the gross current receivables exhibit fluctuations with an initial decrease from 17,855 million in 2020 to 16,694 million in 2021, followed by an increase peaking at 18,835 million in 2022. Subsequently, there is a decline in receivables to 16,113 million in 2023 and further to 9,433 million in 2024. This pattern suggests variability in the volume of receivables, with a notable contraction in the final year.
When analyzing the allowance as a percentage of gross current receivables, there is a clear downward trajectory from 6.52% in 2020 to 1.12% in 2024. This percentage decline indicates improved credit quality or more efficient collection processes, as the proportion of allowance relative to the total receivables has decreased significantly.
- Key Observations:
- - The allowance for credit losses has decreased consistently each year, showing a near 90% reduction over five years.
- - Gross current receivables experienced fluctuations but showed an overall decline by the end of the period, with the most pronounced decrease occurring between 2023 and 2024.
- - The allowance as a percentage of gross receivables decreased steadily, signifying an improvement in credit risk management and possibly a lower incidence of uncollectible accounts.
Overall, the data reflects positive developments in credit risk management and asset quality with a marked reduction in potential credit losses and a smaller relative proportion of allowances against receivables over the five-year timeframe.
Allowance for Credit Losses
Based on: 10-K (reporting date: 2024-12-31), 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).
1 2024 Calculation
Allowance as a percentage of financing receivables, gross = 100 × Allowance for credit losses ÷ Financing receivables, gross
= 100 × ÷ =
The available financial data consists mainly of figures recorded in the year 2020, with subsequent years presenting no numerical entries. The primary focus is on financing receivables and associated allowances for credit losses.
- Allowance for Credit Losses
- As of December 31, 2020, the allowance for credit losses stood at US$70 million. There are no recorded values for the following years, which makes it challenging to assess trends or changes over time in the allowance for potential credit risks.
- Financing Receivables, Gross
- Gross financing receivables were reported at US$3,106 million at the end of 2020. Similar to the allowance for credit losses, data for subsequent years is missing, preventing any trend analysis for the growth or reduction in financing receivables.
- Allowance as a Percentage of Financing Receivables, Gross
- This ratio was 2.25% in 2020, indicating the proportion of the gross financing receivables that the company set aside as allowance for credit losses. Due to a lack of subsequent year data, it is not possible to evaluate whether the company's risk exposure or credit loss expectations improved or deteriorated.
Overall, the analysis is limited by the data availability, which restricts the ability to identify trends or make period-over-period comparisons. The single point-in-time data suggests a moderate allowance relative to the financing receivables, but no further insights on changes or management strategies regarding credit losses can be drawn from the provided figures.