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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- Income Statement
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Capital Asset Pricing Model (CAPM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Aggregate Accruals
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Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Provision for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Provision for credit losses
- The provision for credit losses shows a downward trend over the five-year period. It decreased from 324 million USD in 2018 to 217 million USD in 2022, with some fluctuations in intermediate years, notably a drop to 232 million USD in 2021. This suggests a gradual improvement in anticipated credit risk or changes in credit loss management policies.
- Accounts receivable, gross
- The gross accounts receivable balance experienced a significant decline from 1050 million USD in 2018 to a low of 434 million USD in 2021. In 2022, this figure slightly increased to 484 million USD. This sharp decrease between 2018 and 2021 could indicate improved collection practices, a reduction in sales on credit, or a contraction in business operations impacting receivables.
- Allowance as a percentage of accounts receivable, gross
- This ratio increased markedly from 30.86% in 2018 to a peak of 53.46% in 2021, then decreased to 44.83% in 2022. The rising allowance percentage despite the declining gross receivables implies a more conservative or cautious stance on doubtful accounts, reflecting increased credit risk or tighter assessment criteria. The subsequent reduction in 2022 suggests some alleviation of risk or adjustment in estimation methodology.