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: 2023-12-31), 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).
1 2023 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × 69 ÷ 1,779 = 3.88%
An analysis of the bad debt provisions reveals a period of stability in absolute allowance amounts contrasted with a significant expansion in the gross accounts receivable balance toward the end of the five-year period. While the total allowance for credit losses has fluctuated, the relative risk associated with the receivables portfolio has generally declined since 2020.
- Allowance for Credit Losses
- The absolute value of the allowance for credit losses exhibits a fluctuating pattern, peaking at 75 million USD in 2020 before declining to a five-year low of 61 million USD in 2022. A modest increase to 69 million USD was recorded in 2023, suggesting dynamic adjustments of reserves based on periodic credit loss expectations.
- Gross Accounts Receivable
- Gross receivables remained relatively stable between 2019 and 2021, hovering around 1.46 billion USD. However, a sharp upward trajectory occurred in 2022 and 2023, with balances rising to 1.58 billion USD and reaching 1.78 billion USD, respectively. This represents a substantial increase in the total volume of outstanding receivables.
- Allowance as a Percentage of Gross Receivables
- The ratio of the allowance to gross receivables peaked at 5.12% in 2020. Subsequent years showed a consistent downward trend, reaching 3.86% in 2022 and remaining nearly flat at 3.88% in 2023. This trend indicates that the growth in gross receivables has significantly outpaced the growth of the credit loss allowance, suggesting an improvement in the perceived credit quality of the receivables portfolio over the analyzed period.
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Allowance for Credit Losses
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Allowance as a percentage of long-term receivables, gross = 100 × Allowance for losses ÷ Long-term receivables, gross
= 100 × 2 ÷ 36 = 5.56%
An analysis of the credit loss provisions reveals a divergence between the absolute value of the allowance for losses and the gross value of long-term receivables. While the absolute allowance remains largely stagnant, the relative risk profile associated with long-term receivables has increased steadily over the five-year period.
- Allowance for Losses
- The absolute value of the allowance for losses has remained remarkably stable, maintaining a consistent level of 2 million US$ for four of the last five fiscal years. A marginal increase to 3 million US$ was recorded in 2020, followed by a return to the baseline of 2 million US$ from 2021 through 2023.
- Long-Term Receivables, Gross
- A significant downward trend is observed in the gross long-term receivables. After peaking at 76 million US$ in 2020, the balance has declined consecutively each year, reaching 36 million US$ by December 31, 2023. This represents a reduction of approximately 52.6% from the 2020 peak, indicating a contraction in the long-term credit exposure of the company.
- Allowance as a Percentage of Long-Term Receivables
- Despite the stability of the absolute allowance, the allowance as a percentage of gross long-term receivables has exhibited a continuous upward trajectory. The ratio increased from 3.23% in 2019 to 5.56% in 2023. This trend suggests that the allowance is growing relative to the shrinking asset base, which may indicate a more conservative approach to credit loss estimation or a deterioration in the credit quality of the remaining long-term receivables.
In summary, the credit risk management strategy appears to be shifting toward higher relative coverage. The combination of a declining gross receivable balance and a flat absolute allowance has resulted in a progressive increase in the provisioning ratio, reflecting a higher proportion of the long-term portfolio being reserved for potential losses.
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