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: 2023-12-31), 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).
1 2023 Calculation
Allowance as a percentage of receivables before allowance for credit losses = 100 × Allowance for credit losses ÷ Receivables before allowance for credit losses
= 100 × ÷ =
- Allowance for Credit Losses
- The allowance for credit losses exhibited variability over the five-year period. It increased from 36 million USD in 2019 to a peak of 47 million USD in 2020, followed by a significant decrease to 28 million USD in 2021. The allowance then showed relative stability around 28 to 30 million USD during 2022 and 2023.
- Receivables Before Allowance for Credit Losses
- The receivables before allowance for credit losses demonstrated notable fluctuations. There was a sharp decline from 8,094 million USD in 2019 to 4,854 million USD in 2020. Subsequently, receivables increased substantially, reaching 9,996 million USD in 2021, and continued to grow moderately to 10,791 million USD in 2022 and 11,066 million USD in 2023.
- Allowance as a Percentage of Receivables
- This ratio showed significant changes, peaking at 0.97% in 2020, which coincided with the lowest receivables value and the highest allowance amount. Following this peak, the ratio decreased sharply to 0.28% in 2021 and remained relatively stable thereafter, slightly declining to 0.25% in 2023. The decreasing trend in this percentage after 2020 suggests improved credit risk management or better collectability of receivables relative to the previous years.