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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- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Liquidity Ratios
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Current Ratio since 2005
- Analysis of Revenues
- Analysis of Debt
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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 receivable, gross = 100 × Allowances ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowances
- The allowances decreased from 202 million US dollars in 2020 to 177 million in 2021, indicating a reduction in estimated uncollectible accounts during this period. However, a significant increase occurred in 2022, with allowances rising sharply to 326 million. This elevated level was largely maintained in 2023 at 323 million and showed a slight decrease to 314 million in 2024, suggesting a recognition of greater credit risk or higher expected losses in recent years compared to the initial two years.
- Accounts Receivable, Gross
- The gross accounts receivable remained relatively stable from 2020 (7029 million US dollars) to 2021 (7007 million). From 2021 onwards, a steady upward trend is observed, reaching 7766 million in 2022, 7853 million in 2023, and 8133 million in 2024. This indicates consistent growth in receivables, which could reflect increasing sales or extended credit terms.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio declined from 2.87% in 2020 to 2.53% in 2021, in line with the reduction in allowances despite stable receivables. It then sharply increased to 4.20% in 2022, aligning with the notable rise in allowances. The ratio modestly decreased to 4.11% in 2023 and further to 3.86% in 2024, while remaining elevated compared to the earlier years. This pattern suggests that, relative to receivables, the company has maintained a higher reserve for doubtful accounts in recent years, possibly reflecting more conservative credit risk management or deteriorating credit quality of the accounts receivable.
- Overall Analysis
- The data indicates an initial period of lower estimated credit losses followed by a marked increase starting in 2022. While gross accounts receivable have grown steadily over the last three years, the proportion of allowances relative to these receivables has also increased, signaling heightened caution or increased risk in collectability. The allowance levels and their percentage of gross receivables suggest adjustments to credit loss expectations, which could be due to changing market conditions or customer creditworthiness. This trend warrants ongoing monitoring to ensure that reserve levels adequately cover potential losses without overestimating credit risk.