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: 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 credit losses ÷ Accounts receivable, gross
= 100 × 134 ÷ 2,138 = 6.27%
The analysis of credit loss reserves from 2018 to 2022 reveals a general upward trajectory in both the absolute value of the allowance and the gross accounts receivable, punctuated by specific fluctuations during the 2020 fiscal year.
- Allowance for Credit Losses
- A consistent annual increase is observed in the allowance for credit losses, rising from 93 million US dollars in 2018 to 134 million US dollars in 2022. The most significant year-over-year growth occurred between 2021 and 2022, where the allowance increased by 22 million US dollars.
- Gross Accounts Receivable
- Gross receivables exhibited a period of contraction and subsequent expansion. After declining from 1,638 million US dollars in 2018 to a low of 1,423 million US dollars in 2020, the balance grew rapidly to reach 2,138 million US dollars by December 31, 2022. This represents a significant expansion of the credit portfolio in the final two years of the period.
- Allowance as a Percentage of Gross Accounts Receivable
- The credit loss ratio peaked in 2020 at 7.59%, coinciding with the lowest level of gross receivables. This spike indicates either a more conservative reserve posture or a heightened perception of credit risk during that year. Following this peak, the ratio normalized and remained stable at approximately 6.26% to 6.27% through 2021 and 2022, suggesting that the growth in the gross receivables balance was matched proportionally by the increase in allowances.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?