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: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to EBITDA (EV/EBITDA)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2010
- Debt to Equity since 2010
- Price to Book Value (P/BV) since 2010
- Analysis of Revenues
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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 accounts and notes receivable, gross = 100 × Allowance ÷ Accounts and notes receivable, gross
= 100 × ÷ =
The data reveals several key trends relating to the allowance and accounts and notes receivable for the observed periods.
- Allowance (US$ in millions)
- The allowance shows an overall upward trend from 224 million in 2020 to 313 million in 2024. There was a slight decrease from 224 million in 2020 to 192 million in 2021, followed by a steady increase over the subsequent years, reaching the highest reported value of 313 million in 2024. This indicates a growing provision for potential uncollectible accounts.
- Accounts and Notes Receivable, Gross (US$ in millions)
- The gross accounts and notes receivable exhibit significant fluctuations. After a decline from 8,259 million in 2020 to 7,586 million in 2021, there was a marked increase to 13,593 million in 2022. This was followed by a slight decrease to 12,676 million in 2023, then a modest recovery to 13,140 million in 2024. These patterns suggest variability in credit sales or collections over the years, with an overall growth trend favoring receivables expansion compared to 2020 figures.
- Allowance as a Percentage of Accounts and Notes Receivable, Gross (%)
- The ratio of allowance to gross receivables decreased from 2.71% in 2020 to a low of 1.91% in 2022, indicating that the allowance did not grow proportionally with the rapid increase in receivables during that period. Subsequently, the percentage increased to 2.35% in 2023 and stabilized slightly higher at 2.38% in 2024. This suggests a return to a more consistent provisioning level relative to the size of receivables after the sharp growth in 2022.
In summary, despite fluctuations in gross receivables, the company has maintained an increasing allowance, which serves as a buffer against potential credit losses. The allowance as a percentage of receivables initially declined due to rapid receivables growth but readjusted upwards in the later years, reflecting prudent risk management in credit policy and provisioning practices.
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 gM Financial receivables = 100 × Allowance for loan losses ÷ GM Financial receivables
= 100 × ÷ =
The financial data reveals several notable trends regarding the allowance for loan losses and GM Financial receivables over the five-year period analyzed.
- Allowance for Loan Losses
- The allowance for loan losses has shown a consistent upward trend from 1,978 million US dollars in 2020 to 2,458 million US dollars in 2024. This indicates that the company has been progressively increasing its reserve to cover potential loan defaults.
- GM Financial Receivables
- GM Financial receivables have also exhibited sustained growth, rising from 59,970 million US dollars in 2020 to 95,294 million US dollars in 2024. This reflects an expansion in the company's outstanding loan portfolio over the period.
- Allowance as a Percentage of GM Financial Receivables
- Despite the increase in the absolute allowance for loan losses, the allowance as a percentage of GM Financial receivables has declined steadily from 3.3% in 2020 to 2.58% in 2024. This trend suggests that the allowance growth has not kept pace proportionally with the growth in receivables, possibly indicating an improvement in credit quality or changes in risk management policies.
Overall, the data suggests that the company has experienced growth in its financial receivables while simultaneously managing the allowance for loan losses with a declining relative reserve rate. This pattern may imply enhanced asset quality or increased confidence in receivable recoverability.