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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- Balance Sheet: Assets
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to FCFF (EV/FCFF)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Assets (ROA) since 2005
- Total Asset Turnover since 2005
- Price to Operating Profit (P/OP) since 2005
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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 × Allowance for expected credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for expected credit losses
- The allowance for expected credit losses remained relatively stable from 2018 through 2021, with values fluctuating slightly between 33 and 34 million USD. However, there was a significant decrease in 2022, when the allowance dropped sharply to 8 million USD.
- Accounts receivable, gross
- The gross accounts receivable showed some variability over the observed periods. It decreased from 1,482 million USD in 2018 to 1,359 million USD in 2019, then increased noticeably to 1,534 million USD in 2020. Following this peak, it slightly declined in 2021 to 1,501 million USD and then experienced a marginal increase to 1,519 million USD in 2022. Overall, the gross accounts receivable maintained a general upward trend after the initial decline in 2019.
- Allowance as a percentage of accounts receivable, gross
- This ratio was relatively stable in the range of approximately 2.15% to 2.43% from 2018 through 2021, indicating consistent coverage of credit risk relative to accounts receivable. In 2022, a notable decline occurred, with the allowance percentage dropping steeply to 0.53%. This aligns with the observed sharp reduction in the absolute allowance figure, suggesting either improved credit conditions, more efficient receivables management, or a change in the credit loss estimation approach during that year.