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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- Income Statement
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Geographic Areas
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Net Profit Margin since 2005
- Aggregate Accruals
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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 and notes receivable, gross = 100 × Allowance ÷ Accounts and notes receivable, gross
= 100 × ÷ =
- Allowance (US$ in millions)
- The allowance amount experienced a decline from 4 million in 2020 to 2 million in 2021 and 2022, followed by a gradual increase to 3 million in 2023 and a significant rise to 7 million in 2024. This indicates a conservative stance in provisioning against potential receivables losses in the earlier years, with a marked increase in 2024.
- Accounts and Notes Receivable, Gross (US$ in millions)
- The gross accounts and notes receivable showed considerable volatility over the five-year period. It rose sharply from 2,638 million in 2020 to 6,545 million in 2021 and further to 7,077 million in 2022. Thereafter, it decreased to 5,464 million in 2023, before increasing again to 6,628 million in 2024. This pattern suggests fluctuations in the company's receivables, possibly reflecting variations in sales, credit policies, or collection efficiency.
- Allowance as a Percentage of Accounts and Notes Receivable, Gross (%)
- The allowance as a percentage of gross receivables decreased markedly from 0.15% in 2020 to 0.03% in 2021 and 2022, implying a lower relative provision against increased receivables. This ratio increased slightly to 0.05% in 2023 and more substantially to 0.11% in 2024, indicating a cautious approach in relation to the risk associated with the receivables balance.
- Overall Analysis
- Across the five-year span, the data reveal a pattern of substantial fluctuations in gross accounts receivable accompanied by varying levels of allowance provisions. The initial reduction in allowance despite rising receivables suggests increased confidence in receivables collectibility or changes in credit risk assessment. The subsequent increases in allowance and its percentage in 2023 and 2024 may reflect a reassessment of credit risks or deteriorating economic conditions impacting debtor reliability. The sharp rise in allowance in 2024, both in absolute and relative terms, is particularly noteworthy and could signal heightened caution or anticipated credit losses.