Stock Analysis on Net

Illinois Tool Works Inc. (NYSE:ITW)

$22.49

This company has been moved to the archive! The financial data has not been updated since February 11, 2022.

Analysis of Bad Debts

Microsoft Excel

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

Microsoft Excel
Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Allowance for doubtful accounts
Trade receivables, gross
Financial Ratio
Allowance as a percentage of trade receivables, gross1

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 2021 Calculation
Allowance as a percentage of trade receivables, gross = 100 × Allowance for doubtful accounts ÷ Trade receivables, gross
= 100 × ÷ =


Allowance for Doubtful Accounts
The allowance for doubtful accounts exhibited a notable decline from 43 million USD in 2017 to 20 million USD in 2019, indicating improved credit management or lower expected credit losses during this period. However, it increased again to 29 million USD in 2020 before a slight decrease to 28 million USD in 2021.
Trade Receivables, Gross
Gross trade receivables showed a general downward trend from 2017 through 2019, falling from 2,671 million USD to 2,481 million USD. This trend reversed in 2020, with an increase to 2,535 million USD and a further increase in 2021 to 2,868 million USD, representing growth in receivables and possibly higher sales or extended credit terms in the latter years.
Allowance as a Percentage of Trade Receivables, Gross
This ratio decreased significantly from 1.61% in 2017 to 0.79% in 2018 and remained relatively stable at 0.81% in 2019, reflecting a lower provision relative to receivables. The ratio then increased to 1.14% in 2020, coinciding with the rise in allowance and trade receivables, before dropping again to 0.98% in 2021.
Overall Analysis
Throughout the five-year period, there is a pattern of initial improvement in credit risk management, as evidenced by decreasing allowance and allowance percentage relative to receivables until 2019. The subsequent increases in 2020 suggest a reassessment of credit risks, likely influenced by external factors affecting collection expectations. The increase in gross trade receivables in the last two years may signify business growth or changed credit policies. Overall, the allowance levels and ratios remain below the 2017 high, indicating maintained control over doubtful accounts despite increased receivables.