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: 2024-11-29), 10-K (reporting date: 2023-12-01), 10-K (reporting date: 2022-12-02), 10-K (reporting date: 2021-12-03), 10-K (reporting date: 2020-11-27), 10-K (reporting date: 2019-11-29).
1 2024 Calculation
Allowance as a percentage of trade receivables, gross = 100 × Allowances for doubtful accounts ÷ Trade receivables, gross
= 100 × ÷ =
- Allowances for Doubtful Accounts
- The allowance for doubtful accounts showed an overall increasing trend from 2019 to 2020, rising from 10 million USD to 21 million USD. This was followed by a decrease in 2021 to 16 million USD, but then an increase again in 2022 to 23 million USD. The allowance then declined in subsequent years, reaching 14 million USD by 2024. This pattern suggests fluctuating expectations of credit losses, with a peak in 2022 followed by a reduction in anticipated bad debts.
- Trade Receivables, Gross
- Gross trade receivables exhibited an upward trajectory from 2019 through 2023, increasing from 1,544 million USD to 2,240 million USD. This increase indicates growth in sales or credit extended to customers. However, in 2024, there was a noticeable decrease to 2,086 million USD, signaling potential moderation in sales credits or improved collection efforts.
- Allowance as a Percentage of Trade Receivables, Gross
- The allowance as a percentage of gross trade receivables began at a relatively low level of 0.62% in 2019, then rose sharply to 1.48% in 2020. This implies heightened credit risk or more conservative provisioning in that year. Subsequently, the ratio fell to 0.84% in 2021 and increased slightly to 1.1% in 2022, reflecting some variability in the perceived credit risk. In the last two years, 2023 and 2024, the allowance ratio declined to 0.71% and 0.67% respectively, suggesting improved credit quality or more effective receivables management.
- Summary of Trends
- Overall, the data reveal fluctuating credit risk assessments with provisions peaking in certain years despite a generally increasing trend in gross trade receivables over the period. The decline in both the allowance amount and ratio in the latter years may reflect improvements in collection practices or customer creditworthiness. The decrease in trade receivables in the final year could indicate tighter sales credit policies or changing sales dynamics. Monitoring these metrics further will be essential to evaluate ongoing credit risk and receivable management effectiveness.