Stock Analysis on Net

Merck & Co. Inc. (NYSE:MRK)

$24.99

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, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Selected Financial Data (US$ in millions)
Allowance for doubtful accounts
Accounts receivable, gross
Financial Ratio
Allowance as a percentage of accounts receivable, gross1

Based on: 10-K (reporting date: 2024-12-31), 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).

1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =


Allowance for Doubtful Accounts
The allowance for doubtful accounts shows a fluctuating pattern over the five-year period. It decreased from 85 million US dollars in 2020 to 62 million in 2021. Subsequently, it increased to 72 million in 2022 and continued to rise to 88 million in 2023, reaching 89 million in 2024. This indicates a general upward trend in the company's provision for potential credit losses in the latter years.
Accounts Receivable, Gross
The gross accounts receivable consistently increased from 7,936 million US dollars in 2020 to 10,367 million in 2024. There was a steady growth each year, with the most significant increases occurring between 2020 and 2021 and between 2022 and 2023. This suggests a rising volume of credit sales or extended credit terms over time.
Allowance as a Percentage of Accounts Receivable, Gross
The allowance as a percentage of gross accounts receivable exhibits a declining trend from 1.07% in 2020 to 0.67% in 2021, indicating improved expected collectibility or more stringent credit evaluation in that period. However, from 2021 onward, the percentage exhibits a gradual increase, reaching 0.86% by 2024. This upward trend could reflect heightened caution or deterioration in collection prospects relative to the gross accounts receivable amount.
Overall Analysis
Overall, the data reflect a growing accounts receivable balance accompanied by an increasing allowance for doubtful accounts in absolute terms after an initial dip. The initial improvement in allowance percentage between 2020 and 2021 suggests better credit quality or risk management during that period, but the subsequent gradual increase in the allowance percentage points to a cautious stance or slight increase in credit risk exposure in later years. The company's provisioning aligns with the growth in accounts receivable, demonstrating responsiveness to changes in credit risk.