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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- Statement of Comprehensive Income
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Net Profit Margin since 2020
- Price to Book Value (P/BV) since 2020
- Analysis of Revenues
- Aggregate Accruals
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 2022 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for expected credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Expected Credit Losses
- The allowance for expected credit losses showed a slight decline from 89 million USD in 2020 to 88 million USD in 2021, followed by a notable increase to 117 million USD in 2022. This pattern indicates an initial stabilization, then a significant upward adjustment in the provision for credit losses in the most recent year.
- Accounts Receivable, Gross
- Gross accounts receivable decreased from 2870 million USD in 2020 to 2491 million USD in 2021, reflecting a reduction in outstanding receivables. However, in 2022, there was a considerable rebound to 2950 million USD, surpassing the 2020 level. This suggests variability in the company's sales or collection practices over the period.
- Allowance as a Percentage of Accounts Receivable, Gross
- The allowance as a percentage of gross accounts receivable rose progressively from 3.1% in 2020, to 3.53% in 2021, and further to 3.97% in 2022. This increasing ratio points to a growing conservative stance in estimating credit risk relative to the size of receivables, possibly reflecting changes in credit policy or a response to heightened credit risk exposure.