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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- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Analysis of Geographic Areas
- Enterprise Value to EBITDA (EV/EBITDA)
- Enterprise Value to FCFF (EV/FCFF)
- Dividend Discount Model (DDM)
- Return on Assets (ROA) since 2005
- Price to Sales (P/S) since 2005
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2024-12-31), 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).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Accounts receivable allowances ÷ Accounts receivable, gross
= 100 × ÷ =
- Accounts receivable allowances
- The accounts receivable allowances display an upward trend over the five-year period. Starting at $11 million in 2020, the allowance decreased to $8 million in 2021 but then increased consistently each subsequent year, reaching $21 million by 2024. This indicates a growing recognition of potential uncollectible receivables.
- Accounts receivable, gross
- The gross accounts receivable values increased steadily from $1425 million in 2020 to a peak of $1908 million in 2022. After 2022, the gross receivables declined to $1803 million in 2023 and further to $1740 million in 2024. This pattern suggests a growth in sales on credit up to 2022, followed by a reduction in outstanding receivables in the last two years.
- Allowance as a percentage of accounts receivable, gross
- The allowance as a percentage of gross accounts receivable shows a fluctuating but overall rising trend. It started at 0.77% in 2020, dropped to a low of 0.47% in 2021, then gradually increased year by year to reach 1.21% in 2024. This increase indicates a more conservative stance towards potential bad debts relative to the size of receivables.
- Summary
- Over the period analyzed, the company has experienced growth in gross accounts receivable peaking in 2022 followed by a contraction. Simultaneously, there has been a notable increase in the allowance for doubtful accounts, both in absolute terms and relative to gross receivables. This trend reflects a cautious approach to credit risk, with increasing provisions for potential credit losses especially in the last two years, possibly indicating rising credit risk or stricter accounting policies.