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: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Allowance as a percentage of trade accounts receivable, gross = 100 × Doubtful accounts ÷ Trade accounts receivable, gross
= 100 × ÷ =
- Doubtful Accounts
- The value of doubtful accounts initially increased from 41 million US dollars in 2019 to 46 million in 2020. Subsequently, there was a decline to 42 million in 2021, followed by a further decrease to 40 million in 2022, and a more pronounced reduction to 30 million in 2023. Overall, the trend after 2020 shows a consistent decrease in doubtful accounts, indicating improved credit risk management or reduced exposure to uncollectible receivables.
- Trade Accounts Receivable, Gross
- The gross trade accounts receivable rose significantly from 1,877 million US dollars in 2019 to a peak of 2,179 million in 2020. Afterward, it declined each year, falling to 2,046 million in 2021, 1,761 million in 2022, and reaching 1,602 million in 2023. This pattern indicates a reduction in outstanding receivables after 2020, which may reflect better collection processes, lower sales on credit terms, or a strategic shift in working capital management.
- Allowance as a Percentage of Trade Accounts Receivable, Gross
- The allowance percentage started at 2.18% in 2019 and slightly decreased to 2.11% in 2020 and 2.05% in 2021. In 2022, the allowance ratio increased to 2.27%, before dropping significantly to 1.87% in 2023. The fluctuation suggests changes in estimated credit losses relative to receivables, with a notable lowering in 2023 possibly reflecting improved credit quality or more optimistic recovery expectations.
- Overall Insights
- Between 2019 and 2023, there is a clear trend of tightening credit risk as evidenced by declining doubtful accounts and a decreasing allowance percentage in the most recent year. The reduction in gross trade receivables further complements this observation, suggesting stronger collection efforts or sales adjustments. Despite some variability in the allowance ratio, the overall direction points to enhanced financial quality and potentially more conservative risk assessment practices over the period analyzed.