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
- Balance Sheet: Assets
- Analysis of Profitability Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Analysis of Geographic Areas
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Total Asset Turnover since 2005
- Analysis of Revenues
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Allowance for Doubtful Accounts Receivable
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 receivables, gross = 100 × Reserve for credit losses ÷ Receivables, gross
= 100 × ÷ =
- Reserve for Credit Losses
- The reserve for credit losses remained relatively stable from 2017 to 2019, holding at 11 to 12 million USD. A significant increase was observed in 2020, nearly doubling to 22 million USD, suggesting a heightened expectation of credit defaults during that period. In 2021, this reserve decreased to 15 million USD, indicating some recovery or re-evaluation of credit risk.
- Receivables, Gross
- The gross receivables showed minor fluctuations from 2017 to 2019, with values slightly increasing from 1,094 million USD to 1,133 million USD. A notable reduction occurred in 2020, dropping to 769 million USD, which may indicate either reduced sales or stricter credit policies in response to market conditions. In 2021, gross receivables rebounded sharply to 1,157 million USD, recovering past pre-2020 levels.
- Allowance as a Percentage of Receivables, Gross
- This ratio declined gradually from 1.1% in 2017 to 0.97% in 2019, reflecting a reduced credit loss reserve relative to receivables, possibly due to improved credit quality or collection efficiency. In 2020, the ratio sharply increased to 2.86%, aligning with the rise in reserve value, indicating increased credit risk or anticipated losses. The percentage then decreased to 1.3% in 2021, suggesting a partial normalization of credit risk after the pandemic's impact.