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: 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 trade receivables, gross = 100 × Allowance for doubtful accounts ÷ Trade receivables, gross
= 100 × 24 ÷ 3,550 = 0.68%
Analysis of the credit risk management indicates a period of significant fluctuation in trade receivables alongside a controlled allowance for doubtful accounts. Between 2020 and 2024, a cycle of expansion and contraction was observed in both the gross credit exposure and the provisions set aside for potential losses.
- Gross Trade Receivables Trends
- A substantial increase in gross trade receivables occurred between 2020 and 2022, with values rising from US$ 2,139 million to a peak of US$ 4,318 million. This expansion was followed by a reduction to US$ 3,224 million in 2023 and a subsequent moderate increase to US$ 3,550 million by the end of 2024, reflecting volatility in the volume of outstanding credit.
- Allowance for Doubtful Accounts Volatility
- The absolute value of the allowance for doubtful accounts trended upward from US$ 24 million in 2020 to a high of US$ 37 million in 2022. Following this peak, the allowance entered a downward trajectory, decreasing to US$ 29 million in 2023 and returning to US$ 24 million by December 31, 2024, effectively neutralizing the growth observed in the early part of the period.
- Credit Risk Ratio Analysis
- The allowance as a percentage of gross trade receivables exhibits a general downward trend over the five-year period. After starting at 1.12% in 2020, the ratio decreased to 0.82% in 2021 and remained relatively stable through 2023. The ratio reached its lowest point of 0.68% in 2024, suggesting an improvement in the quality of the receivables portfolio or a more optimistic outlook regarding the collectability of outstanding debts.
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