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
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Solvency Ratios
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Debt to Equity since 2005
- Analysis of Revenues
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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 × ÷ =
The financial data reveals several notable trends related to accounts receivable and the associated allowance for credit losses over the five-year period ending December 31, 2023.
- Allowance for Credit Losses (US$ in millions)
- The allowance exhibited some fluctuation, initially increasing from 63 million in 2019 to a peak of 75 million in 2020. It then decreased to 70 million in 2021 and further declined to 61 million in 2022, before rising again to 69 million in 2023. This suggests a dynamic approach to provisioning for potential credit losses, possibly reflecting changes in credit risk assessment or economic conditions.
- Accounts Receivable, Gross (US$ in millions)
- Accounts receivable showed a generally increasing trend over the period. Starting at 1475 million in 2019, the amount remained relatively steady through 2020 and 2021, slightly decreasing from 1475 to 1456 million. However, a marked increase occurred in 2022 and 2023, reaching 1579 million and then 1779 million respectively. This indicates an expansion in credit sales or longer collection cycles.
- Allowance as a Percentage of Accounts Receivable, Gross (%)
- The allowance ratio peaked in 2020 at 5.12%, up from 4.27% in 2019, implying a cautious stance following initial credit risk considerations. Subsequently, the percentage declined steadily to 4.81% in 2021, then to 3.86% in 2022, and remained almost stable at 3.88% in 2023. This reduction despite increasing accounts receivable suggests an improvement in the credit quality of the receivables or enhanced collection effectiveness.
Overall, the data reflects a period of increasing accounts receivable balances alongside a generally cautious but fluctuating allowance for credit losses. The declining allowance ratio points to growing confidence in receivables collectability or improved credit management practices over time.
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 × ÷ =
- Allowance for losses
- The allowance for losses remained relatively stable over the five-year period. It increased slightly from 2 million USD in 2019 to 3 million USD in 2020, then reverted back to 2 million USD from 2021 through 2023. This suggests a conservative approach to loss provisioning with minimal adjustments after 2020.
- Long-term receivables, gross
- Long-term receivables showed a declining trend throughout the period. The amount decreased consistently from 62 million USD in 2019 to 36 million USD in 2023. This substantial reduction indicates a possible strategy to reduce long-term credit exposure or improved collection efforts.
- Allowance as a percentage of long-term receivables, gross
- Despite the stable nominal allowance, the allowance as a percentage of gross long-term receivables increased steadily from 3.23% in 2019 to 5.56% in 2023. This rise reflects a relative increase in the provision for losses compared to the shrinking base of receivables, possibly signaling heightened risk assessment or cautious management policies in recent years.