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: 2023-12-31), 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).
1 2023 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × 131 ÷ 1,618 = 8.10%
The analysis of credit loss provisions and accounts receivable from 2019 to 2023 reveals a period of significant volatility followed by a steady recovery and stabilization. A marked divergence occurred in 2020, where the allowance for credit losses increased sharply despite a contraction in gross accounts receivable, indicating a heightened assessment of credit risk during that period.
- Allowance for Credit Losses
- The allowance for credit losses rose from 44 million US dollars in 2019 to 132 million US dollars in 2020. Following this surge, the provision remained relatively stable, fluctuating between 117 million and 131 million US dollars through 2023. This suggests that the elevated risk profile established in 2020 was maintained as a baseline for subsequent reporting periods.
- Gross Accounts Receivable
- Gross accounts receivable experienced a notable decline in 2020, falling to 903 million US dollars from 1,305 million US dollars in 2019. A consistent recovery trend followed, with values increasing to 1,194 million in 2021, 1,444 million in 2022, and reaching 1,618 million US dollars by December 31, 2023, surpassing pre-2020 levels.
- Credit Loss Ratio
- The allowance as a percentage of gross accounts receivable spiked from 3.37% in 2019 to a peak of 14.62% in 2020. A gradual downward trend was observed thereafter, with the ratio declining to 10.55% in 2021 and further decreasing to 8.10% in 2022. The ratio remained constant at 8.10% in 2023, signifying a stabilization of expected credit losses relative to the overall growth of the receivables portfolio.
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