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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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 receivables, gross = 100 × Allowance for doubtful accounts ÷ Receivables, gross
= 100 × ÷ =
The financial data reveals several notable trends related to the company's receivables and the associated allowance for doubtful accounts over the analyzed five-year period.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts increased gradually from 301 million US dollars in 2020 to a peak of 340 million US dollars in 2022. Subsequently, it showed a slight decrease, reaching 325 million US dollars by the end of 2024. This pattern suggests a cautious approach in earlier years, followed by a moderate reduction in estimated credit risk in the most recent years.
- Receivables, Gross
- Gross receivables exhibited a consistent upward trend throughout the period, rising from 5,548 million US dollars in 2020 to 8,336 million US dollars in 2024. The most significant increase appears between 2021 and 2022, indicating a substantial expansion in receivables during that timeframe.
- Allowance as a Percentage of Gross Receivables
- Despite the increase in the monetary value of the allowance initially, its relative proportion to gross receivables declined steadily from 5.43% in 2020 to 3.9% in 2024. This decreasing ratio suggests improved credit quality or more conservative write-off policies, meaning that although the company’s accounts receivable balance grew significantly, the expected uncollectible portion as a share of receivables declined.
In summary, the company’s receivables have grown substantially in recent years, while the allowance for doubtful accounts, both in absolute terms and more notably as a percentage of receivables, has decreased. This indicates a positive credit environment or enhanced receivables management, potentially reflecting improved customer creditworthiness or more effective risk mitigation strategies.