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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- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Operating Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Return on Assets (ROA) since 2005
- Current Ratio since 2005
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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 accounts receivable, gross = 100 × Allowances ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowances Trend
- The allowances, measured in US$ millions, exhibited a general upward trend from 135 million in 2020 to 193 million in 2023, followed by a decline to 173 million in 2024. This indicates an overall increase in provisions for potential losses or adjustments over the five-year period, with a slight reduction in the most recent year.
- Accounts Receivable, Gross Trend
- The gross accounts receivable values increased substantially from 5,876 million in 2020 to 8,414 million in 2023, reflecting growth in sales or credit extended to customers. The figure slightly decreased to 8,364 million in 2024, suggesting relative stabilization or a small contraction in receivables during the last year.
- Allowance as a Percentage of Accounts Receivable, Gross
- The allowance as a percentage of gross accounts receivable fluctuated within a narrow range, beginning at 2.3% in 2020, decreasing to 1.85% in 2021, then rising again to 2.28% in 2022 and remaining stable at 2.29% in 2023 before slightly decreasing to 2.07% in 2024. These percentages indicate a relatively consistent level of allowances relative to receivables, with minor variations potentially reflecting changes in credit risk assessment or collection effectiveness.
- Summary of Patterns and Insights
- The data collectively suggest that while the company expanded its accounts receivable base notably over the period, the allowances for doubtful accounts generally kept pace with this growth, maintaining a relatively stable percentage ratio. The peak in allowances in 2023 followed by a reduction in 2024 might suggest improved collection performance or changes in credit risk during the latter period. The slight decline in both gross accounts receivable and allowances in 2024 may point to strategic adjustments in credit policies or market conditions affecting receivables management.