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 receivables, gross = 100 × Allowance for doubtful accounts ÷ Receivables, gross
= 100 × 38 ÷ 1,523 = 2.50%
The financial data indicates a period of volatility in gross receivables and a corresponding adjustment in the allowance for doubtful accounts between 2018 and 2022. The management of bad debt estimates demonstrates a correlation with the overall volume of outstanding receivables, though the proportional risk assessment fluctuated independently of absolute totals.
- Gross Receivables Trends
- Gross receivables experienced a notable decline from 2018 to 2020, decreasing from 1,464 million USD to 948 million USD. A significant surge followed in 2021, with receivables peaking at 2,012 million USD, before moderating to 1,523 million USD by the end of 2022.
- Allowance for Doubtful Accounts
- The absolute value of the allowance for doubtful accounts remained relatively stable between 2018 and 2020, ranging from 28 million to 34 million USD. An increase to 44 million USD was observed in 2021, coinciding with the peak in gross receivables, followed by a reduction to 38 million USD in 2022.
- Credit Risk Proportion
- The allowance as a percentage of gross receivables exhibited a steady upward trend from 1.98% in 2018 to a peak of 3.59% in 2020, suggesting a more conservative estimation of credit risk relative to the total receivable balance during that period. In 2021, this ratio decreased to 2.19%, driven primarily by the rapid expansion of the gross receivable base, before rising slightly to 2.50% in 2022.
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