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: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts exhibited an overall upward movement from 2017 to 2020, rising from 21 million US dollars to 33 million US dollars, before declining to 25 million US dollars in 2021. This suggests that the company increased its provisions for potential credit losses throughout the initial years, possibly in response to rising receivables or concerns over collectibility, and then reduced these provisions in the latest year.
- Accounts Receivable, Gross
- Gross accounts receivable steadily increased each year, from 1,826 million US dollars in 2017 to 2,303 million US dollars in 2021. This continuous growth implies expansion in sales volume on credit or lengthening of payment terms, reflecting an increasingly significant level of outstanding customer balances over the period.
- Allowance as a Percentage of Accounts Receivable, Gross
- The ratio of allowance for doubtful accounts to gross accounts receivable generally fluctuated, increasing from 1.15% in 2017 to a peak of 1.55% in 2020 and then dropping to 1.09% in 2021. The initial increase indicates a proportionally higher provision relative to receivables, suggesting rising credit risk or conservative accounting adjustments. The subsequent decline in 2021 might indicate improved credit quality, changes in estimation methods, or other adjustments leading to a lower coverage ratio.