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: 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 × 25 ÷ 2,303 = 1.09%
Analysis of credit risk provisions indicates a trend of fluctuating reserves despite a consistent increase in the total volume of receivables. Gross accounts receivable demonstrated a continuous upward trajectory from 2017 through 2021, growing from 1,826 million USD to 2,303 million USD.
- Allowance for Doubtful Accounts Trends
- The nominal value of the allowance for doubtful accounts showed volatility throughout the period, rising from 21 million USD in 2017 to a peak of 33 million USD in 2020, before contracting to 25 million USD by the end of 2021.
- Provisioning Efficiency and Risk Assessment
- The allowance as a percentage of gross accounts receivable experienced a general upward trend between 2017 and 2020, increasing from 1.15% to 1.55%. This movement indicates a period of heightened caution regarding the recoverability of outstanding balances.
- Fiscal Year 2021 Variance
- A significant reversal is observed in 2021, where the allowance as a percentage of gross receivables fell to 1.09%, the lowest level recorded in the five-year analysis. This decrease is particularly notable as it occurred while gross accounts receivable reached their highest point of 2,303 million USD, suggesting an improvement in the overall credit quality of the receivables portfolio or enhanced collection effectiveness.
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