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: 2023-12-30), 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: 2019-12-28).
1 2023 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for expected credit losses ÷ Accounts receivable, gross
= 100 × 16 ÷ 1,584 = 1.01%
The management of expected credit losses demonstrates a consistent pattern of low credit risk exposure relative to total accounts receivable between 2019 and 2023. The overall credit risk profile remains stable, with the allowance consistently representing a minimal fraction of the gross receivables balance.
- Allowance for Expected Credit Losses
- The absolute value of the allowance for expected credit losses exhibited moderate volatility, starting at US$ 10 million in 2019 and peaking at US$ 19 million in 2020. A downward trend followed, with the allowance reaching US$ 13 million by 2022, before increasing to US$ 16 million in 2023. These fluctuations indicate periodic adjustments to the reserve based on updated credit risk assessments.
- Gross Accounts Receivable Trends
- Gross accounts receivable remained relatively stable throughout the analyzed period, generally oscillating around the US$ 1.5 billion mark. A significant increase was observed in 2022, where the balance peaked at US$ 1,749 million. By 2023, this balance reverted to US$ 1,584 million, returning to levels consistent with the 2019 and 2020 figures.
- Analysis of Credit Loss Percentage
- The allowance as a percentage of gross accounts receivable remained exceptionally low, ranging from a minimum of 0.63% in 2019 to a maximum of 1.22% in 2020. The spike in 2020 suggests a temporary increase in the perceived risk of default. Notably, in 2022, the ratio declined to 0.74% despite the peak in gross receivables, indicating a period of higher perceived credit quality or more efficient collection processes. The ratio concluded the period at 1.01% in 2023, reflecting a stabilization of credit risk expectations.
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