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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- Cash Flow Statement
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Net Profit Margin since 2005
- Debt to Equity since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Debt
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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 accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Trade accounts receivable, gross
= 100 × ÷ =
The analysis of the financial data over the five-year period reveals several noteworthy trends and insights regarding the allowance for doubtful accounts and trade accounts receivable.
- Allowance for Doubtful Accounts
- This metric showed a general decline from 508 million USD in 2020 to 438 million USD in 2024, indicating a gradual reduction in the estimated uncollectible amounts. Despite some fluctuations, such as a slight increase to 470 million USD in 2023, the overall trend is downward.
- Trade Accounts Receivable, Gross
- The gross trade accounts receivable exhibited a marked increase from 8,438 million USD in 2020 to 11,901 million USD in 2024. The most notable jump occurred between 2020 and 2021, and after a minor dip in 2022, the figures have resumed their upward trajectory. This pattern suggests growth in credit sales or extended credit terms.
- Allowance as a Percentage of Trade Accounts Receivable
- This ratio declined significantly from 6.02% in 2020 to 3.68% in 2024. The steady decrease indicates an improving quality of accounts receivable or a more optimistic assessment of collectability. The percentage remained relatively stable from 2022 onward but at a markedly lower level than in earlier years.
Overall, the trends suggest improved credit management or stronger collections despite increased sales on credit. The reduced allowance ratio in conjunction with rising receivables points to enhanced efficiency in managing credit risk. However, the slight uptick in the allowance in 2023 warrants attention to ensure continued sound credit quality.