Name: Northrop Grumman Corp. (NYSE:NOC) | Analysis of Bad Debts
Creator: Stock Analysis on Net

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

Allowance for Doubtful Accounts Receivable

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in millions)
Allowance for expected credit losses	8)	34)	33)	33)	34)
Accounts receivable, gross	1,519)	1,501)	1,534)	1,359)	1,482)
Financial Ratio
Allowance as a percentage of accounts receivable, gross¹	0.53%	2.27%	2.15%	2.43%	2.29%

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 × 8 ÷ 1,519 = 0.53%

The financial data reveals a period of stability in credit loss provisions from 2018 through 2021, followed by a significant reduction in the allowance for expected credit losses in 2022.

Gross Accounts Receivable Trend: Gross accounts receivable remained relatively stable over the five-year period, fluctuating within a range of US$ 1,359 million to US$ 1,534 million. The lack of extreme volatility indicates a consistent volume of outstanding receivables relative to the scale of operations.
Allowance for Expected Credit Losses: The allowance for expected credit losses showed minimal variance between 2018 and 2021, remaining constant between US$ 33 million and US$ 34 million. However, a sharp decline occurred in 2022, where the allowance dropped to US$ 8 million, representing a reduction of approximately 76% compared to the 2021 balance.
Allowance as a Percentage of Gross Accounts Receivable: The allowance ratio remained consistent from 2018 to 2021, oscillating between 2.15% and 2.43%. In 2022, this ratio fell precipitously to 0.53%. This contraction suggests either a significant improvement in the credit quality of the receivables portfolio or a revision in the internal methodology used to estimate expected credit losses.

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