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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- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Analysis of Revenues
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2024-09-28), 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-10-01), 10-K (reporting date: 2021-10-02), 10-K (reporting date: 2020-10-03), 10-K (reporting date: 2019-09-28).
1 2024 Calculation
Allowance as a percentage of current receivables, gross = 100 × Allowance for credit losses ÷ Current receivables, gross
= 100 × ÷ =
- Allowance for Credit Losses
- The allowance for credit losses initially increased significantly from 295 million USD in 2019 to a peak of 426 million USD in 2020. Following this peak, the allowance consistently decreased each year, reaching 83 million USD by 2024. This pattern suggests that the company increased its provisions during 2020, likely in response to heightened credit risk, but subsequently reduced these provisions as credit loss expectations improved over the following years.
- Current Receivables, Gross
- Gross current receivables showed a downward trend from 15,776 million USD in 2019 to 12,810 million USD in 2022. After 2022, there was a slight decline to 12,445 million USD in 2023, followed by a modest increase to 12,812 million USD in 2024. Overall, the gross receivables decreased over the period, indicating either more stringent credit policies, improved collections, or reduced sales on credit.
- Allowance as a Percentage of Current Receivables, Gross
- This ratio rose sharply from 1.87% in 2019 to 3.24% in 2020, reflecting the increase in the allowance relative to receivables, possibly due to heightened anticipated credit losses during that period. From 2021 onwards, the ratio declined consistently, falling to 0.65% by 2024. This downward trend indicates improved credit quality or reduced risk associated with receivables in recent years.
- Summary of Trends
- Overall, the data reveals a pattern of heightened credit risk concerns in 2020, followed by a steady improvement. The allowance for credit losses was increased sharply during 2020 but then reduced significantly as conditions normalized. Gross receivables declined overall, possibly pointing to more conservative credit management or reduced sales on credit terms. The allowance as a percentage of receivables peaked in 2020 but has since decreased to a lower level than in 2019, indicating stronger credit quality or better risk mitigation.