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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- Statement of Comprehensive Income
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) since 2005
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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 receivables, gross = 100 × Allowance for doubtful accounts ÷ Receivables, gross
= 100 × ÷ =
The financial data reveals several key trends in the accounts receivable and allowance for doubtful accounts over the period from 2019 to 2023.
- Allowance for Doubtful Accounts
- This allowance shows moderate fluctuations throughout the five-year period. It increased from 69 million USD in 2019 to 83 million USD in 2021, followed by a decline to 70 million USD in 2022, and then rose again to 88 million USD in 2023. Overall, the allowance exhibits some variability but tends to hover around the 70 to 90 million USD range.
- Receivables, Gross
- The gross receivables demonstrate a generally upward trend. Starting at 1,125 million USD in 2019, there is steady growth, reaching 1,897 million USD by the end of 2021. Although there is a slight dip in 2022 to 1,744 million USD, the figure rebounds to its highest level of 2,123 million USD in 2023. This indicates an overall increase in credit sales or outstanding customer balances over the period.
- Allowance as a Percentage of Gross Receivables
- This ratio declines consistently from 6.13% in 2019 to a low of 4.01% in 2022, before a marginal increase to 4.15% in 2023. The reduction in this percentage over the years suggests an improved quality of receivables or more conservative allowance practices relative to the growing receivables balance.
In summary, the data suggests that while the gross receivables have expanded significantly over five years, the allowance for doubtful accounts has not increased proportionally. This results in a declining allowance ratio, implying potentially improved collection performance or tightening credit policies. However, the increase in the allowance during 2023 warrants monitoring to determine if credit risk is rising again.